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[Federal Register Volume 80, Number 69 (Friday, April 10, 2015)]
[Proposed Rules]
[Pages 19417-19452]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-08135]

[[Page 19417]]

Vol. 80

Friday,

No. 69

April 10, 2015

Part II

Department of Health and Human Services

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Centers for Medicare & Medicaid Services

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42 CFR Parts 438, 440, 456, et al.

 Medicaid and Children's Health Insurance Programs; Mental Health 
Parity and Addiction Equity Act of 2008; the Application of Mental 
Health Parity Requirements to Coverage Offered by Medicaid Managed Care 
Organizations, the Children's Health Insurance Program (CHIP), and 
Alternative Benefit Plans; Proposed Rule

Federal Register / Vol. 80 , No. 69 / Friday, April 10, 2015 / 
Proposed Rules

[[Page 19418]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 438, 440, 456, and 457

[CMS-2333-P]
RIN 0938-AS24

Medicaid and Children's Health Insurance Programs; Mental Health 
Parity and Addiction Equity Act of 2008; the Application of Mental 
Health Parity Requirements to Coverage Offered by Medicaid Managed Care 
Organizations, the Children's Health Insurance Program (CHIP), and 
Alternative Benefit Plans

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule would address application of certain 
requirements set forth in the Public Health Service Act, as amended by 
the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction 
Equity Act of 2008, to coverage offered by Medicaid managed care 
organizations, Medicaid Alternative Benefit Plans, and Children's 
Health Insurance Programs.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on June 9, 2015.

ADDRESSES: In commenting, please refer to file code CMS-2333-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-2333-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-2333-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) 786-7195 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: John O'Brien or Jean Close at (410) 
786-5529 (Alternative Benefit Plan), Debra Dombrowski at (312) 353-1403 
(Managed Care) or Amy Lutzky (410) 786-0721.

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.

Acronyms, Abbreviations, and Short Forms

    Because of the many terms to which we refer by acronym, 
abbreviation, or short form in this proposed rule, we are listing the 
acronyms, abbreviation, and short forms used and their corresponding 
terms in alphabetical order below.

2008 Extenders Act Tax Extenders and Alternative Minimum Tax Relief 
Act of 2008 (Division C)
The Act Social Security Act
The Affordable Care Act Patient Protection and Affordable Care Act 
(Pub. L. 111-148, enacted on March 23, 2010), as amended by the 
Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-
152)
The Departments Departments of the Treasury, Labor, and Health and 
Human Services
ABP Alternative Benefit Plan
BBA Balanced Budget Act of 1997
CHIP Children's Health Insurance Program
CHIPRA Children's Health Insurance Program Reauthorization Act of 
2009
CMS Centers for Medicare and Medicaid Services
The Code Internal Revenue Code of 1986
DOL Department of Labor
DSM Diagnostic and Statistical Manual of Mental Disorders (current 
edition)
EHB Essential Health Benefit
EPSDT Early and Periodic Screening, Diagnostic and Treatment
ERISA Employee Retirement Income Security Act of 1974
FFS Fee for Service
HHS Department of Health and Human Services
ICD International Classification of Diseases
MCE Managed Care Entity
MCO Managed Care Organization
MH Mental Health
MH/SUD Mental Health or Substance Use Disorder
MHPA Mental Health Parity Act of 1996
MHPAEA Paul Wellstone and Pete Domenici Mental Health Parity and 
Addiction Equity Act of 2008
NQTL Nonquantitative Treatment Limitation
PAHP Prepaid Ambulatory Health Plan
PHS Act Public Health Service Act
PIHP Prepaid Inpatient Health Plan
SHO State Health Official
SUD Substance Use Disorder
Treasury Department of the Treasury

Table of Contents

I. Executive Summary
II. Background
    A. Introduction
    B. Legislative Overview
III. Provisions of the Proposed Rule
    A. Meaning of Terms
    B. Parity Requirements for Aggregate, Lifetime and Annual Limits

[[Page 19419]]

    C. Parity Requirements for Financial Requirements and Treatment 
Limitations
    D. Cumulative Financial Requirements
    E. Compliance With Other Cost-sharing Rules
    F. Nonquantitative Treatment Limitations (NQTLs)
    G. Application to CHIP and EPSDT Deemed Compliance
    H. Availability of Information
    I. Application to EHBs and other ABP Benefits
    J. Application of Parity Requirements to the Medicaid State Plan
    K. Scope and Applicability of the Proposed Rule
    L. Scope of Services
    M. ABP State Plan Requirements
    N. Increased Cost Exemption
    O. Enforcement, Managed Care Rate Setting and Contract Review 
and Approval
    P. Applicability and Compliance
    Q. Utilization Management
IV. Collection of Information Requirements
V. Response to Comments
VI. Regulatory Impact Statement

I. Executive Summary

    This proposed rule addresses the application of certain provisions 
added to the Public Health Service Act (PHS Act) (mental health parity 
requirements) by the provisions of the Paul Wellstone and Pete Domenici 
Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) (Pub. L. 
110-343, enacted on October 3, 2008) to: (1) Medicaid managed care 
organizations (MCOs) as described in section 1903(m) of the Social 
Security Act (the Act); (2) Medicaid benchmark and benchmark-equivalent 
plans (referred to in this proposed rule as Medicaid Alternative 
Benefit Plans) as described in section 1937 of the Act; and (3) 
Children's Health Insurance Program (CHIP) under title XXI of the Act.
    Under section 1932(b)(8) of the Act, Medicaid MCOs are required to 
comply with the requirements of subpart 2 of part A of title XXVII of 
the PHS Act, to the same extent that those requirements apply to a 
health insurance issuer that offers group health insurance. Subpart 2 
includes mental health parity requirements added by MHPAEA at section 
2726 of the PHS Act (as renumbered; formerly section 2705 of the PHS 
Act). Under section 1937(b)(6) of the Act, Medicaid Alternative Benefit 
Plans (ABPs) that are not offered by an MCO and that provide both 
medical and surgical benefits and mental health or substance use 
disorder benefits are required to ensure that financial requirements 
and treatment limitations for such benefits comply with the mental 
health parity requirements of the PHS Act (referencing section 2705(a) 
of the PHS Act, which is now renumbered 2726(a) of the PHS Act), in the 
same manner as such requirements apply to a group health plan. The 
section 1937 provision applies only to ABPs that are not offered by 
MCOs; ABPs offered by MCOs are already required to comply with these 
requirements under section 1932(b)(8) of the Act. Section 2103(c)(6) of 
the Act requires that state CHIP plans that provide both medical and 
surgical benefits and mental health or substance use disorder benefits 
shall ensure that financial requirements and treatment limitations for 
such benefits comply with mental health parity requirements of the PHS 
Act (referencing section 2705(a) of the PHS Act, now renumbered as 
section 2726(a) of the PHS Act) to the same extent as such requirements 
apply to a group health plan. In addition, section 2103(f)(2) of the 
Act requires that CHIP benchmark or benchmark equivalent plans comply 
with all of the requirements of subpart 2 of part A of the title XXVII 
of the PHS Act, which includes the mental health parity requirements of 
the PHS Act, insofar as such requirements apply to health insurance 
issuers that offer group health insurance coverage.
    This proposed rule would incorporate these requirements into our 
regulations.

II. Background

A. Introduction

    On September 26, 1996, the Congress enacted the Mental Health 
Parity Act of 1996 (Pub. L. 104-204) (MHPA), which required parity in 
aggregate lifetime and annual dollar limits for mental health benefits 
and medical/surgical benefits. Those mental health parity provisions 
were codified in section 712 of ERISA, section 2726 of the PHS Act 
(renumbered under section 1001 of the Affordable Care Act), and section 
9812 of the Code, and applied to employment-related group health plans 
and health insurance coverage offered in connection with a group health 
plan. The Balanced Budget Act of 1997 (Pub. L. 105-33, enacted on 
August 5, 1997) (BBA) added sections 1932(b)(8) and 2103(f)(2) of the 
Act to generally apply certain aspects of MHPA, including the 
provisions of section 2726 of the PHS Act, to Medicaid MCOs and CHIP 
benefits.
    MHPAEA was enacted as sections 511 and 512 of the Tax Extenders and 
Alternative Minimum Tax Relief Act of 2008 (Division C of Pub. L. 110-
343) (the 2008 Extenders Act). MHPAEA amends the Employee Retirement 
Income Security Act of 1974 (ERISA), the PHS Act, and the Internal 
Revenue Code of 1986 (the Code). The changes made by MHPAEA consist of 
new standards, including parity for substance use disorder benefits, as 
well as amendments to the existing mental health parity provisions 
enacted in MHPA.
    In 2009, section 502 of the Children's Health Insurance Program 
Reauthorization Act of 2009 (Pub. L. 111-3) (CHIPRA) amended section 
2103(c) of the Act by adding paragraph (6), which requires that CHIP 
plans that provide both medical and surgical benefits and mental health 
or substance use disorder benefits comply with the provisions of 
section 2705(a) of the PHS Act, as amended by MHPAEA, in the same 
manner as a group health plan.
    The Patient Protection and Affordable Care Act (Pub. L. 111-148) 
was enacted on March 23, 2010 and the Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152) was enacted on March 30, 
2010 (collectively referred to as the ``Affordable Care Act''). Section 
1001 of the Affordable Care Act reorganized and renumbered certain 
provisions of the PHS Act, including renumbering section 2705 of the 
PHS Act as section 2726 of the PHS Act. The Affordable Care Act did not 
make conforming changes to cross-references to the renumbered 
provisions, and contained new cross-references to the former section 
numbers. But there was no indication that Congress intended to alter 
the meaning of the existing cross-references. As a result, we read the 
cross-references to continue to refer to the same section originally 
referenced, as renumbered. We believe it is clear that the new cross-
references were also intended to refer to the renumbered provisions.
    The Affordable Care Act expanded the application of section 2705(a) 
of the PHS Act, as amended by MHPAEA, and renumbered as section 2726(a) 
of the PHS Act, to benefits in Medicaid ABPs delivered outside of a 
MCO. ABPs delivered through a MCO would already have to comply with 
these requirements under section 1932(b)(8) of the Act.
    Also, effective on March 23, 2010, section 2001(c) of the 
Affordable Care Act modified the benefit provisions of section 1937 of 
the Act. Specifically, section 2001(c) of the Affordable Care Act added 
mental health benefits and prescription drug coverage to the list of 
benefits that must be included in benchmark-equivalent coverage; 
required the inclusion of essential health benefits (EHBs) beginning in 
2014; and directed that plans described in section 1937 of the Act (now 
known as ABPs) that include medical/surgical benefits and mental health 
or substance use disorder benefits ensure that the financial 
requirements and treatment limitations applicable to such mental

[[Page 19420]]

health or substance use disorder (MH/SUD) benefits comply with the 
mental health parity provisions of the PHS Act.
    In 2013, we released a State Health Official (SHO) letter that 
provided guidance to states regarding the implementation of 
requirements under MHPAEA to Medicaid benchmark and benchmark-
equivalent plans (referred to in the letter as ABPs) as described in 
section 1937 of the Act, CHIP under title XXI of the Act, and MCOs as 
described in section 1903(m) of the Act.\1\ We previously issued a SHO 
letter on November 4, 2009, concerning the application of section 502 
of CHIPRA.\2\
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    \1\ http://www.medicaid.gov/federal-policy-guidance/downloads/sho-13-001.pdf.
    \2\ http://downloads.cms.gov/cmsgov/archived-downloads/SMDL/downloads/SHO110409.pdf.
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    The Departments of Health and Human Services (HHS), Labor, and the 
Treasury (collectively the Departments) published interim final 
regulations implementing MHPAEA on February 2, 2010 (75 FR 5410), and 
final regulations applicable to group health plans and health insurance 
issuers on November 13, 2013 (78 FR 68240) (MHPAEA final 
regulations).\3\ The MHPAEA final regulations do not apply to Medicaid 
MCOs, ABPs, or CHIP state plans. In this proposed rule, we are 
proposing regulations to address how the MHPAEA requirements in section 
2726 of the PHS Act, as implemented in the MHPAEA final regulations, 
will apply to MCOs, ABPs and CHIP.
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    \3\ The MHPAEA final regulations generally apply to group health 
plans and health insurance issuers on the first day of the first 
plan year beginning on or after July 1, 2014. The preamble to the 
MHPAEA final regulations stated that each plan or issuer subject to 
the interim final regulations, issued on February 2, 2010 (75 FR 
5410), must continue to comply with the applicable provisions of the 
interim final regulations until the corresponding provisions of 
these final regulations become applicable to that plan or issuer (78 
FR 68252 and 253). Note: For ease of reference, the citations to 
provisions of the MHPAEA final rules throughout this document will 
only refer to the provisions adopted by HHS in 45 CFR part 146.
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III. Provisions of the Proposed Rule

    This proposed rule generally mirrors the policies set forth in the 
MHPAEA final regulations to implement the statutory provisions that 
require MCOs, ABPs and CHIP to comply with certain requirements of 
section 2726 of the PHS Act (mental health parity requirements).
    State Medicaid programs vary in their coverage of MH/SUD services. 
For example, most MH/SUD services are optional services under the 
traditional Medicaid benefits package, so states can choose to cover 
some services and not others, or can choose to cover these services but 
impose treatment limitations (for example, day or visit limits). 
Additionally, states have the flexibility to provide services through a 
managed care delivery mechanism using entities other than MCOs, such as 
prepaid inpatient health plans (PIHPs) or prepaid ambulatory health 
plans (PAHPs). PIHPs and PAHPs are defined in Sec.  438.2 as entities 
that provide medical services on the basis of prepaid capitation 
payments but provide a more limited benefit package than a 
comprehensive MCO defined in section 1903(m) of the Act and are subject 
to the requirements for managed care entities as specified in 42 CFR 
part 438. These entities are not described in section 1932 of the Act, 
which refers only to the application of mental health parity 
requirements to Medicaid MCOs. In many instances, states will provide 
the medical/surgical services through an MCO, but will not include in 
the MCO benefit package some or all of their MH/SUD state plan 
services. Instead, these services will be delivered through a PIHP or a 
PAHP or a non-managed care delivery system, typically fee-for-service 
(FFS). In many states, MCOs provide some MH/SUD services (for example, 
emergency department services regardless of presenting condition, or 
MH/SUD medications), and PIHPs, PAHPs, or FFS provide a more robust set 
of services for those individuals with serious mental health conditions 
or substance use disorders. These unique state MH/SUD delivery systems 
are an important distinction between Medicaid coverage and coverage 
available through the commercial market. Because the statutory 
provisions making mental health parity requirements applicable to MCOs 
do not explicitly address the situation in which medical/surgical 
benefits and MH/SUD benefits included in coverage are furnished through 
separate but interrelated and interdependent service delivery systems, 
additional guidance is needed.
    As a general matter, this proposed rule would require that each MCO 
enrollee in a state must be provided access to a set of benefits that 
meets the requirements of this rule regardless of whether the MH/SUD 
services are provided by the MCO or through another service delivery 
system. We propose to apply MHPAEA in this way as we interpret section 
1932(b)(8) of the Act to require that, if a state uses private health 
plans, or MCOs, to provide any of its state plan benefits under an MCO 
contract, enrollees in those MCOs (whether under a voluntary or 
mandatory managed care program) must receive the protections of MHPAEA 
parity requirements for MH/SUD services. We are concerned that the 
exclusion of MH/SUD services from MCO contracts could result in the 
elimination of the application of section 1932(b)(8) of the Act. To 
ensure that the goal of parity is met, we are proposing to require, by 
relying on our authority in section 1902(a)(4) of the Act to specify 
methods ``necessary for the proper and efficient operation of the state 
plan,'' that if MH/SUD state plan services are provided to MCO 
enrollees through a PIHP, PAHP, or under Medicaid FFS (because such 
services are carved out of the MCO contract scope), MCO enrollees will 
still receive the MHPAEA parity protections for MH/SUD state plan 
services. Specifically, states that do not provide all services through 
the MCO will be required to provide evidence of compliance with this 
rule when they submit MCO contracts to the CMS Regional Office for 
review and approval. Contracts with PIHPs and PAHPs would also be 
required to provide that the PIHPs and PAHPs take steps necessary to 
ensure such compliance with this proposed rule. For states that offer 
MH/SUD services to MCO enrollees through FFS (other than when the 
services are part of an ABP, as discussed below), states would 
similarly be obligated to ensure that MH/SUD services provided on a FFS 
basis, when combined with services furnished by the MCO, comply with 
MHPAEA. In such an instance, the state would have the option of either 
(1) making changes to the non-ABP state plan to provide MH/SUD services 
through the FFS system in a manner that is on parity with the MCO-
provided medical/surgical services consistent with this proposed rule 
or (2) including relevant MH/SUD services in the MCO contract (or PIHP 
or PAHP contract as applicable), in which case the managed care entity 
would have to comply with this proposed rule. Failure to adopt these 
additional requirements using our authority under section 1902(a)(4) of 
the Act, as well as section 1932(b)(8) of the Act would result in de 
facto nullification of the MHPAEA protections that are provided in 
section 1932(b)(8) of the Act if states carved out MH/SUD benefits from 
the MCO contract.
    We considered alternatives such as requiring, based as well on our 
authority at section 1902(a)(4) of the Act, that all state plan MH/SUD 
services be included under MCO contracts as the way to ensure that MCO 
enrollees receive the full protections of MHPAEA as we believe the 
Congress intended in section 1932(b)(8) of the Act, again relying on 
our authority under section 1902(a)(4) of the Act. But, we believe that 
the

[[Page 19421]]

approach we are proposing would allow states the most flexibility when 
applying mental health parity requirements to their Medicaid services 
across delivery systems. Given that there are many different delivery 
system configurations that carve out MH/SUD services, this would allow 
states to comport with parity requirements for MCO enrollees without 
completely carving out MH/SUD services from their MCO or dropping MH/
SUD coverage altogether. We solicit comments on whether to require that 
all state plan MH/SUD services be included under MCO contracts.
    We recognize that this proposed regulation would require an 
analysis by the state to determine if the overall delivery system 
complies with the provisions of this proposed rule when all services 
are not included in the benefit package of a single MCO. In states 
where the MCO has sole responsibility for offering MH/SUD services, the 
MCO would be responsible for undertaking the parity analysis and 
informing the state what changes will be needed to the MCO contract to 
comply with the provisions of this proposed rule. As proposed in Sec.  
438.920, states would be required to make available to the public their 
methods of complying with these proposed rules within 18 months after 
the rule is finalized.
    In states where some or all MH/SUD services are provided through 
some combination of MCOs, PIHPs, PAHPs or FFS, the state would have the 
responsibility for undertaking the parity analysis across these 
delivery systems and determining if the benefits and any financial 
requirements or treatment limitations are consistent with proposed 
Sec.  438.920(b). The state, based on this analysis, would take the 
necessary steps to ensure mental health parity compliance for its 
Medicaid MCO enrollees. As previously discussed, we believe that the 
provisions of section 1902(a)(4) of the Act authorize CMS to adopt 
rules that require the state to perform the parity analysis when MH/SUD 
services are offered across delivery systems because we believe that 
this administrative responsibility is necessary and essential for full 
implementation of section 1932(b)(8) of the Act. In addition, we are 
proposing at Sec.  438.920(b) that the state make available 
documentation of compliance with these proposed regulations to the 
general public within 18 months of the effective date of this rule and 
post it on the state Medicaid Web site.
    For beneficiaries who are not enrolled in a MCO (FFS only), and 
thus not covered by section 1932(b)(8) of the Act, our proposed rule 
would not affect coverage (other than when the services are part of an 
alternative benefit plan, as discussed below). However, we encourage 
states to provide state plan benefits in a way that comports with the 
mental health parity requirements of section 2726 of the PHS Act.
    We note that payment to MCOs must be actuarially sound under 
section 1903(m) of the Act; regulations implementing that requirement 
are currently codified at Sec.  438.6 and are applicable to other 
managed care entities based on separate statutory authority. In 
particular, Sec.  438.6(e) provides that actuarially sound rates may 
only be based on the cost to provide services covered under the state 
plan. As part of our proposal to implement the mental health parity 
requirements, we propose to revise Sec.  438.6(e) to specify 
development of actuarially sound rates for MCOs, PIHPs and PAHPs that 
provide MH/SUD services may take into account the cost of providing 
services beyond those specified in the state plan which are necessary 
for the MCO, PIHP or PAHP to comply with the mental health parity 
requirements. Proposed Sec.  438.6(e) \4\ would require that states 
base the capitation rates set for MCOs, PIHPs, and PAHPs, where MH/SUD 
benefits are provided under contract with these entities, on their 
provision of a benefit package that is compliant with these proposed 
parity requirements even if services go beyond what is in the state 
plan; the additional non-state plan services that are used to develop 
the capitation rates would have to be necessary to comply with the 
requirements of new subpart K of part 438. This would ensure that 
states maintain an actuarially sound rate-setting structure that 
provides for payment of capitation rates to managed care plans rate 
that reflect the full scope of benefits the managed care plans are 
obligated to provide. To the extent this new subpart K would obligate 
an MCO, PIHP or PAHP to provide services that are not otherwise 
included in the state plan, costs associated with services that would 
not be included but for the parity requirements should be part of the 
actuarially sound capitation rates. We believe that proposed Sec.  
438.6(e) is sufficiently specific to only permit states to include 
those services needed for compliance with these proposed rules. Section 
438.6(e) allows a state's rate-setting structure to account for 
services covered by an MCO, PIHP, or PAHP in excess of services and/or 
treatment limits that are listed in the state plan only to the extent 
that such services are necessary for the MCO, PIHP or PAHP to comply 
with Sec.  438.910 of this rule. However, we are concerned about the 
potential for inappropriately broad readings of the regulation text and 
consequent use of this proposed section to include non-State plan 
services in rate setting for to the MCO, PIHP or PAHP benefit package 
that are not strictly necessary for compliance with these proposed 
parity requirements. We request comments on this risk and how we might 
mitigate it, such as a need for more prescriptive language or specific 
oversight activities to ensure that managed care plans and states 
develop rates that include only state plan services and the additional 
services necessary for compliance with subpart K. For states that offer 
MH/SUD services to MCO enrollees through FFS (other than when the 
services are part of an alternative benefit plan, as discussed below), 
states would similarly be obligated to ensure that MH/SUD services 
provided on a FFS basis, when combined with services furnished by an 
MCO, comply with the proposed parity provisions in part 438, subpart K. 
To ensure this full implementation of section 1932(b)(8) of the Act, we 
rely on our authority under section 1902(a)(4) of the Act to require 
methods of administration necessary for the proper and efficient 
administration of the state plan. If a state provides MH/SUD benefits 
to MCO enrollees through FFS, the state would have the option of either 
(1) making changes to the non-ABP state plan to provide MH/SUD services 
through the FFS system in a manner that is on parity with the MCO-
provided medical/surgical services consistent with this rule, or (2) 
including relevant MH/SUD services in a MCO contract (or PIHP or PAHP 
contract when relevant), in which case the managed care entity would 
have to comply with this rule.
---------------------------------------------------------------------------

    \4\ Our proposal is for this provision to be codified as part of 
the regulations controlling rate setting for MCOs, PIHPs and PAHPs 
and the paragraph designation may vary.
---------------------------------------------------------------------------

    To ensure the appropriate application of mental health parity 
requirements to Medicaid services, we propose to amend current 
regulations to apply mental health parity requirements under section 
2726 of the PHS Act to services provided to enrollees of Medicaid MCOs 
regardless of delivery system or limitations in the state plan. 
Specifically, we propose amending part 438 by adding a new subpart K to 
extend these mental health parity requirements to MCOs, and to PIHPs 
and PAHPs as applicable, to ensure that all enrollees of the MCO are 
provided access to a MHPAEA-compliant set of services when the state 
plan includes

[[Page 19422]]

some MH/SUD services. Second, we are proposing to add a new provision 
in Sec.  438.6 to require that all MCO contracts, and any PIHP and PAHP 
contracts providing services to MCO enrollees, ensure that enrollees 
receive services that are in compliance with the requirements of new 
subpart K insofar as those requirements are applicable. We would not 
apply mental health parity requirements to state plan services provided 
to beneficiaries covered only through a FFS delivery system, even if 
care for other beneficiaries is delivered through a managed care 
delivery system. However, as indicated in our 2013 SHO letter, we 
strongly encourage states to consider changes to the state plan benefit 
package to comport with the mental health parity requirements of 
section 2726 of the PHS Act. Several states have already implemented 
the necessary changes in their state plan (for example, adding SUD 
outpatient services and removing or aligning treatment limitations) to 
make their MH/SUD benefits consistent for all Medicaid beneficiaries. 
For clarity, we are not applying mental health parity requirements 
under section 2726 of the PHS Act to Medicare Parts A, B, or D services 
covered by Medicaid MCOs, such as those covered by integrated plans for 
people who are dually eligible for Medicare and Medicaid; Medicare 
benefits are controlled by the Medicare statute and regulations, which 
are not within the scope of this proposed rule.
    The proposed rules pertaining to ABPs and CHIP cross-reference the 
proposed rules governing MCOs, PIHPs or PAHPs when states are using 
these organizations as their delivery system for ABP or CHIP benefits. 
Regardless of whether services are delivered in managed care or non-
managed care arrangements, all Medicaid ABPs (including benchmark 
equivalent and Secretary-approved benchmark plans) and CHIP plans are 
required to meet the financial requirements and treatment limitations 
component of the mental health parity provisions set forth at section 
2726(a) of the PHS Act.
    Section 2726 of the PHS Act contains an increased cost exemption 
that is available for group health plans and health insurance issuers 
that make changes to comply with the law and incur an increased cost of 
at least 2 percent in the first year that mental health parity 
requirements apply to the plan or coverage, or an increased cost of at 
least 1 percent in any subsequent plan or policy year. Plans or issuer-
offered coverage that comply with the parity requirements for one -full 
plan year and that satisfy the conditions for the increased cost 
exemption are exempt from the parity requirements for the following 
plan or policy year, and the exemption lasts for one plan or policy 
year.
    This proposed rule does not include an increased cost exemption for 
MCOs, PIHPs, or PAHPs, and we do not believe that these Medicaid 
managed care entities will incur any net increase in costs because we 
are also proposing here that the actuarially sound payment methodology 
will take costs of compliance with parity requirements into account. As 
noted, we are proposing to allow states to include the cost of 
providing services beyond what is specified in the state plan which may 
include adding services or removing or aligning treatment limitations 
in managed care benefits into the actuarially sound rate methodology so 
long as those services beyond what is specified in the state plan are 
necessary to comply with mental health parity requirements. These 
changes to the managed care rate setting process would authorize 
states, in instances where they choose not to change their state plan, 
to include the cost of services beyond what is specified in the state 
plan into the capitation rate development to the extent the services 
are required to be provided by the MCO, PIHP or PAHP and outlined under 
contract to comply with this proposed rule. Therefore, the Medicaid 
program rather than the plan will bear the costs of these changes. This 
is different from the circumstances of the commercial market and 
removes the rationale for an increased cost exemption for Medicaid 
MCOs, PIHPs and PAHPs. In addition, we understand that few if any 
issuers and group health plans have sought an increased cost exemption 
in the commercial market. Therefore, in this proposed rule, we are not 
extending the cost exemption provision to the Medicaid and CHIP 
programs.
    We recognize that state budgeting and contracting processes may 
necessitate additional time for compliance with these new contracting 
and rate setting parameters. We propose to afford states up to 18 
months after the date of the publication of the final rule to comply 
with the finalized provisions of this proposed rule. This proposal 
would allow states to come into compliance with these regulations and 
take the actions to make the necessary budget requests to add new 
services or additional service units. Some states have a biannual 
budget cycle and may need this length of time to develop and obtain 
approval of these budget requests. In addition, states would need to 
make the necessary contract changes to their MCOs, PIHPs, or PAHPs once 
the budget has been approved. Some states may choose to request 
approval from CMS to make changes to their non-ABP state plan for 
services delivered through FFS. We believe that 18 months should 
provide states with sufficient time to implement the necessary policy, 
contract and budget changes to comply with the final regulations and 
are proposing a delayed compliance deadline accordingly. We invite 
comments on this proposal regarding the delay of required compliance 
and the treatment of a cost-based exemption.
    The statutory requirements applying mental health parity 
requirements to CHIP are structured differently than the statutory 
direction to apply those requirements to Medicaid MCOs. For CHIP 
programs, sections 2103(c)(6) and 2103(f)(2) of the Act generally 
provide that MH/SUD parity requirements apply to all delivery systems, 
including FFS and managed care. Except where the CHIP state plan 
provides full coverage of EPSDT and the MHPAEA requirements are deemed 
as met, the MHPAEA parity requirements apply to the CHIP state plan in 
the same manner as the law applies to health insurance issuers and 
group health plans. Our proposal reflects this in the proposed 
regulations for part 457.
    For CHIP enrollees in an MCO, we propose to apply all mental health 
parity provisions of section 2726 of the PHS Act. In addition to the 
language at sections 2103(c)(6) and section 2103(f)(2) of the Act 
previously discussed, section 2103(f)(3) of the Act makes applicable to 
CHIP MCOs certain requirements under section 1932 of the Act, including 
section 1932(b)(8) of the Act which requires that MCOs comply with 
MHPAEA parity requirements. Furthermore, we propose to require parity 
in connection with coverage provided by PIHPs and PAHPs to CHIP MCO 
enrollees.
    For ABP benefits offered only through FFS delivery systems, 
financial requirements and treatment limitations under section 2726(a) 
of the PHS Act are the only mental health parity provisions that apply 
(based on section 1937(b)(6) of the Act). Section 2726(a)(3)(B) of the 
PHS Act excludes from the definition of the term ``financial 
requirement'' aggregate lifetime or annual dollar limits on benefits, 
and thus these are not included in the ``financial requirements and 
treatment limitations'' parity requirements applicable to Medicaid ABPs 
furnished through FFS service delivery systems. (Annual and lifetime 
limits are addressed separately under MHPAEA from financial 
requirements, at sections 2726(a)(1) and (2) of the PHS

[[Page 19423]]

Act.). In addition, the following mental health parity provisions are 
not applicable to FFS delivery systems for Medicaid ABP benefits 
because they are not ``financial or treatment limitations:'' those 
regarding access to out-of-network providers and the increased cost 
exemption. For ABP benefits provided through an MCO, PIHP or PAHP, our 
proposal is to require compliance with the part 438 provisions 
addressing MHPAEA parity requirements for Medicaid managed care.

A. Meaning of Terms (Sec.  438.900, Sec.  440.395, Sec.  457.496)

    The definitions of terms in this proposed rule include most terms 
included in the MHPAEA final regulation at 45 CFR 146.136(a). This 
proposed rule proposes to modify or add several terms to reflect the 
terminology used in the Medicaid program and CHIP statutes, regulations 
or policies. Some terms that are not relevant to the Medicaid program 
or CHIP are not included in this proposed rule. For each term described 
in this proposed rule, when appropriate, we have identified where we 
have modified, added or deleted language that deviates from those 
definitions in the MHPAEA final regulations. The proposed terms are as 
follows:
    For the definition of ``Aggregate lifetime dollar limit,'' we are 
proposing to replace the words ``group health plan (or health insurance 
coverage offered in connection with such a plan) for any coverage 
unit'' with ``MCO, PIHP or PAHP'' or ``ABP'' to reflect the common 
terms for health plans in the Medicaid program. For CHIP, we are 
proposing to replace these words with ``CHIP state plan or a Managed 
Care Entity (MCE).''
    In Sec.  440.395, we are proposing to add the term ``Alternative 
Benefit Plans''.
    For the definition of ``Annual dollar limit,'' we are proposing to 
replace the words ``group health plan (or health insurance coverage 
offered in connection with such a plan) for any coverage unit'' with 
``MCO, PIHP or PAHP'' to reflect the common terms for health plans in 
the Medicaid program and ``a CHIP state plan or a MCE'' for CHIP.
    We are proposing to add the definition of ``Early and Periodic 
Screening, Diagnostic and Treatment (EPSDT) benefits''. Under section 
1905(r) of the Act, EPSDT is a required benefit under the Medicaid 
program for categorically needy individuals under age 21. The EPSDT 
benefit is optional for the medically needy population and if elected 
for that population, the EPSDT benefit must be made available to all 
Medicaid eligible individuals under age 21. Under the EPSDT benefit, 
states must provide for screening, vision, hearing and dental services 
at intervals which meet reasonable standards of medical and dental 
practice established after consultation with recognized medical and 
dental organizations involved in child health care. States must also 
provide for medically necessary screening, vision, hearing and dental 
services regardless of whether such services coincide with established 
periodicity schedules for these services. Additionally, the Act 
requires that other necessary health care, diagnostic services, 
treatment, and other measures described in section 1905(a) of the Act 
to correct or ameliorate defects and physical and mental illnesses, and 
conditions identified by the screening services, must be provided to 
EPSDT beneficiaries whether or not such services are otherwise covered 
under the Medicaid state plan.
    In the proposed ABP parity rules, we are also proposing to add the 
definition of ``essential health benefits (EHB).'' Since 2014, all non-
grandfathered health insurance coverage in the individual and small 
group markets, Medicaid benchmark and benchmark-equivalent plans (now 
also known as ABPs), and Basic Health Programs (if applicable) must 
cover EHBs, which include items and services in 10 statutory benefit 
categories, that are substantially equal in scope to a typical employer 
health plan. Consistent with the requirements set forth in 45 CFR part 
156, EHBs are comprised of (1) Ambulatory patient services; (2) 
Emergency services; (3) Hospitalization; (4) Maternity and newborn 
care; (5) Mental health and substance use disorder services, including 
behavioral health treatment; (6) Prescription drugs; (7) Rehabilitative 
and habilitative services and devices; (8) Laboratory services; (9) 
Preventive and wellness services and chronic disease management; and 
(10) Pediatric services, including oral and vision care.
    We are proposing a different definition for the term ``medical/
surgical benefits,'' to reflect that the state defines these benefits 
in the Medicaid and CHIP contexts. Under existing Medicaid law, the 
state has the responsibility of identifying what is a covered benefit 
for MCOs, PIHPs, PAHPs, ABPs, and CHIP; MCOs, PIHPs or PAHPs are 
responsible for providing the covered benefits identified by the state. 
This is different from the MHPAEA final regulations, where medical/
surgical benefits are defined under the terms of the group health plan 
or health insurance coverage and in accordance with applicable federal 
or state law. We are also proposing that the definition of ``medical/
surgical services'' clearly exclude long term care services in the 
Medicaid and CHIP context. We believe this clarification is consistent 
with the intent of the MHPAEA final regulations, as the kinds of long 
term care services included in benefit packages for Medicaid and CHIP 
beneficiaries are not commonly provided in the commercial market as 
part of health benefits coverage. We are seeking comments on our 
proposal to exclude long term care services from the definition of 
medical/surgical services. This proposed rule further provides that 
states define which benefits are medical/surgical consistent with 
generally recognized independent standards of current medical practice 
(for example, the most current version of the International 
Classification of Diseases (ICD) or state guidelines).
    We propose to define ``mental health benefits'' and ``substance use 
disorder benefits'', under these regulations, as benefits for items and 
services for mental health conditions and substance use disorders, 
respectively, as defined by the state and in accordance with applicable 
federal and state law. Thus, our proposal here for the terms ``mental 
health benefits'' and ``substance use disorder benefits'' in this 
Medicaid and CHIP context also varies from the MHPAEA final 
regulations, similar to our proposed definition for medical/surgical 
benefits, to reflect that the state (not the MCO, PIHP or PAHP) is 
responsible for defining these benefits. This proposed rule also 
proposes that when states define what benefits are MH/SUD benefits, the 
definitions must be consistent with generally recognized independent 
standards of current medical practice. Consistent with the MHPAEA final 
regulations, this requirement is included to ensure that a benefit is 
not misclassified to avoid complying with the parity requirements. The 
word ``generally'' in the requirement ``to be consistent with generally 
recognized independent standards of current medical practice'' is not 
meant to imply that the standard must be a national standard, but 
instead that a standard is largely accepted in the relevant medical 
community. There are many different sources that would meet this 
requirement. For example, a state may follow the most current version 
of the Diagnostic and Statistical Manual of Mental Disorders (current 
edition) (DSM), ICD, or a state guideline. All of these would be 
considered acceptable resources to determine whether benefits for a 
particular condition are classified

[[Page 19424]]

as medical/surgical or MH/SUD benefits for purposes of these rules.
    This proposed rule duplicates the definition of the term 
``treatment limitations'' in the MHPAEA final regulations, including 
distinguishing between a quantitative and a nonquantitative treatment 
limitation (NQTL). This proposed rule proposes that the parity 
requirements in the statute apply to both quantitative treatment 
limitations and NQTLs. A quantitative treatment limitation is a 
restriction that is expressed numerically, such as a limit of 50 
outpatient visits per year. A NQTL is a restriction that is not 
expressed numerically, but otherwise limits the scope or duration of 
benefits for treatment, such as requirements for prior authorization 
for services. A non-exhaustive list of NQTLs is included in proposed 
Sec.  438.910(d)(2), Sec.  440.395(b) and Sec.  457.496. This list, as 
well as the application of these regulations to NQTLs, is further 
discussed later in this proposed rule. However, these regulations 
propose that a permanent exclusion of all benefits for a specific 
condition or disorder is not a treatment limitation.

B. Parity Requirements for Aggregate Lifetime and Annual Dollar Limits

    Proposed Sec. Sec.  438.905 and 457.496(c) address the parity 
requirements for aggregate lifetime and annual dollar limits. The 
application of these requirements is generally the same as under the 
MHPAEA final regulations (45 CFR 146.136(b)). We note that for managed 
care arrangements, we are using our authority in section 1902(a)(4) of 
the Act to require PIHPs and PAHPs to comply with mental health parity 
requirements for MCO enrollees.

C. Parity Requirements for Financial Requirements and Treatment 
Limitations

    Sections 438.910, 440.395(b), and 457.496(d) of this proposed rule 
set forth parity requirements for financial requirements and treatment 
limitations.
1. Clarification of Terms
    In addition to proposing the meaning of terms in Sec.  438.900, 
Sec.  440.395, and Sec.  457.496, this proposed rule clarifies certain 
terms that have been given specific meanings for purposes of MHPAEA.
a. Classification of Benefits
    For the purposes of this proposed rule, ``classification of 
benefits'' means a classification as described in Sec.  438.910, Sec.  
440.395(b), and Sec.  457.496(d). This proposed rule would modify the 
classification of benefits set forth in the regulations that were 
adopted by the Departments, as discussed in section III.C.2.a of this 
proposed rule, and would provide that the parity requirements for 
financial requirements and treatment limitations are applied on a 
classification-by-classification basis.
b. Type
    This proposed rule uses the term ``type'' to refer to financial 
requirements and treatment limitations of the same nature. Different 
types of financial requirements and treatment limitations include 
copayments, coinsurance, annual visit limits, and episode visit limits. 
States sometimes apply more than one financial requirement or treatment 
limitation to benefits. Also, this proposed rule specifies that a 
financial requirement or treatment limitation must be compared only to 
financial requirements or treatment limitations of the same type within 
a classification. For example, copayments are compared only to other 
copayments, and annual visit limits are compared only to other annual 
visit limits; copayments are not compared to coinsurance, and annual 
visit limits are not compared to episode visit limits.
c. Level
    In this proposed rule, a ``level'' of a type of financial 
requirement or treatment limitation refers to the magnitude (such as, 
the dollar, percentage, day, or visit amount) of the financial 
requirement or treatment limitation. For example, a plan might impose a 
20 unit annual limit on outpatient visits or a $3 copayment depending 
on the medical/surgical or MH/SUD benefit.
2. General Parity Requirement for Financial Requirements and Treatment 
Limitations
    The general parity requirement proposed in Sec.  438.910(b), Sec.  
440.395(b), and Sec.  457.496(d) of this proposed rule prohibits a MCO, 
PIHP, or PAHP (when providing benefits to an MCO enrollee), or ABP 
(when used in a non-managed care arrangement), or CHIP state plan from 
applying any financial requirement or treatment limitation to MH/SUD 
benefits in any classification that is more restrictive than the 
predominant financial requirement or treatment limitation of that type 
applied to substantially all medical/surgical benefits in the same 
classification. For this purpose, the general parity requirement of 
MHPAEA applies separately for each type of financial requirement or 
treatment limitation (for example, unit limits are compared to unit 
limits). This general parity requirement also applies to NQTLs, which 
is discussed later in this proposed rule.
a. Classifications of Benefits
    The MHPAEA final regulations at 45 CFR 146.136(c)(2)(ii) set forth 
the following classifications of benefits: Inpatient in-network; 
inpatient out-of-network; outpatient in-network; outpatient out-of-
network; emergency care; and prescription drugs. Under those MHPAEA 
regulations, if a group health plan or health insurance coverage 
provides MH/SUD benefits in any classification of benefits, MH/SUD 
benefits must be provided in every classification in which medical/
surgical benefits are provided. The parity requirements are applied to 
financial requirements and treatment limitations within each 
classification separately.
    The benefit structure of traditional Medicaid (non-ABP state plan 
services), ABPs and CHIP may vary significantly from commercial health 
insurance coverage. For example, nursing facility long-term care 
services are a mandatory service in traditional Medicaid, but are not 
commonly provided in the commercial market as part of health benefits 
coverage. Additional long term care services and supports, such as 
personal care, home and community based services, or long term psycho-
social rehabilitation programs, are also commonly included in benefit 
packages for all or targeted populations of Medicaid and CHIP 
beneficiaries, but these benefits are not typically provided in a 
commercial environment. Additionally, the cost-sharing structure and 
out-of-network coverage of Medicaid and CHIP services is often 
different than benefits provided in the commercial market. Therefore, 
issues arise over how similar or different the classifications should 
be for the Medicaid and CHIP programs. Our proposal follows the general 
structure of the classifications used in the MHPAEA final regulations 
with a significant distinction. For this proposed rule, we eliminated 
the in-network and out-of-network distinctions for the inpatient and 
outpatient classifications and propose four classifications: Inpatient; 
Outpatient; Emergency care; and Prescription drugs. We propose these 
classifications for the following reasons:
     Medicaid and CHIP are held to certain cost-sharing 
requirements for either managed care or non-managed care delivery 
systems. The dollar amount the beneficiary pays varies by income, and 
whether services are received through a network model does

[[Page 19425]]

not impact the amount for which the beneficiary is responsible.
     When CHIP or ABPs use a FFS delivery system or other non-
managed care arrangement, payment is made for services to beneficiaries 
furnished by any qualified providers that have signed a Medicaid or 
CHIP provider agreement. Absent a waiver of section 1902(a)(23)(A) of 
the Act, beneficiaries have a choice from among qualified providers and 
are not limited to a network.
     In a Medicaid managed care environment, Sec.  
438.206(b)(4) states that if a managed care plan's provider network is 
unable to provide necessary services covered under the contract to a 
particular enrollee, the MCO, PIHP or PAHP must adequately (and on a 
timely basis) cover these services out-of-network for the enrollee for 
as long as the MCO, PIHP or PAHP is unable to provide them in network. 
This provision is not specific to medical/surgical services or MH/SUD 
services. We understand there may be continued concerns that access to 
out-of-network providers is provided by MCOs, PIHPs and PAHPs in 
compliance with MHPAEA. To address this concern, we are proposing to 
add access to out-of-network providers to the illustrative list of 
NQTLs.
    For purposes of applying parity requirements to Medicaid, the 
classifications of benefits should relate to how states construct and 
manage their Medicaid benefits. All Medicaid benefits provided, with 
the exception of long term care services, should fall into one of the 
classifications of benefits.
    We are proposing that parity requirements for financial 
requirements and treatment limitations are generally applied on a 
classification-by-classification basis. The four classifications 
proposed in this rule are the only classifications to be used for 
purposes of applying the parity requirements of MHPAEA to Medicaid and 
CHIP. Moreover, these classifications must be used for all financial 
requirements and treatment limitations to the extent that a MCO, PIHP, 
PAHP, ABP or CHIP provides benefits in a classification and imposes any 
separate financial requirement or treatment limitation (or separate 
level of a financial requirement or treatment limitation) for benefits 
in the classification.
    The MHPAEA final regulations discussed the application of parity 
requirements to intermediate services (such as residential treatment, 
partial hospitalization, and intensive outpatient treatment) provided 
under the health plan. Specifically, the MHPAEA final regulations 
required group health plans and issuers to assign covered intermediate 
MH/SUD benefits to a benefit classification in the same manner they 
assign comparable intermediate medical/surgical benefits to a 
classification. The MHPAEA final regulations do not specifically define 
intermediate services; nor do the Medicaid and CHIP programs define 
intermediate services within state plan benefits. Therefore, we are not 
proposing to specify an intermediate classification to be used in the 
parity analysis for Medicaid or CHIP programs. As in the MHPAEA final 
rule, we propose to allow the applicable regulated entity (the MCO, 
PIHP or PAHP, or state in connection with the ABP and CHIP) to assign 
intermediate level services to any of the classifications listed, but 
assignment to those classifications must be done in a consistent manner 
for medical/surgical services and MH/SUD services. We request comment 
on this approach, as well as alternatives.
    Similar to the MHPAEA final rule, this proposed rule would not 
define what services are included in the inpatient, outpatient, or 
emergency care classifications. These terms are subject to the design 
of a state's managed care program and their meanings may differ 
depending on the benefit packages. State health insurance laws may 
define these terms and in the event that these are not defined we would 
expect each regulated entity within a state to define these 
classifications in a similar manner. Further, each regulated managed 
care plan (MCOs, PIHPs and PAHPs) or the state in connection with ABP 
or CHIP must apply these terms uniformly for both medical/surgical 
benefits and MH/SUD benefits.
3. Applying the General Parity Requirement to Financial Requirements 
and Quantitative Treatment Limitations
    Sections 438.910(c), 440.395(b) and, 457.496(d) of this proposed 
rule address the application of the general parity requirement of 
MHPAEA to financial requirements and quantitative treatment limitations 
in MCOs, PIHPs, PAHPs, ABP or CHIP state plans.
a. Determining the Portion of Medical/Surgical Benefits Subject to a 
Financial Requirement or Quantitative Treatment Limitation
    As noted above, the general parity requirement proposed in Sec.  
438.910(b), Sec.  440.395(b), and Sec.  457.496(d) of this proposed 
rule prohibits a MCO, PIHP, or PAHP, or ABP state plan (when used in a 
non-managed care arrangement), or CHIP state plan or MCE contracting 
with a CHIP state plan from applying any financial requirement or 
treatment limitation to MH/SUD benefits in any classification that is 
more restrictive than the ``predominant'' financial requirement or 
treatment limitation of that type applied to ``substantially all'' 
medical/surgical benefits in the same classification. In these 
paragraphs of the proposed regulations, we propose standards similar to 
those in the MHPAEA final regulations for determining the portion of 
medical/surgical benefits subject to a financial requirement or 
quantitative treatment limitation for purposes of the parity analysis. 
Under this proposed rule, the portion of medical/surgical benefits in a 
classification subject to a financial requirement or quantitative 
treatment limitation would be based on the dollar amount of all 
payments for medical/surgical benefits in the classification expected 
to be paid during a specific year. For MCOs, PIHPS and PAHPs, this 
would be dollar amounts for payment during a contract year. For ABPs 
and CHIP state plans, it would be for the year starting the effective 
date of the approved ABP or CHIP state plan; effective dates for these 
plans will vary based on the date the ABP or CHIP state plan was 
approved by CMS. For purposes of this calculation, the MCOs, PIHPs and 
PAHPs (when such organizations are responsible for MH/SUD benefit) 
would collectively (with the assistance of the state) determine the 
total amount projected to be expended (including FFS) to determine the 
two-thirds threshold as discussed below. We are requesting comment on 
the approach to determine the threshold when there are multiple managed 
care delivery systems (for example, MCOs, PIHPs and PAHPs).
b. ``Substantially all''
    Similar to the MHPAEA final regulations, the first step in applying 
the general parity requirement of MHPAEA to a given financial 
requirement or quantitative treatment limitation is to determine 
whether a type of financial requirement or quantitative treatment 
limitation applies to substantially all medical/surgical benefits in a 
classification. This proposed rule would define ``substantially all'' 
as meaning at least two-thirds of the medical/surgical benefits in that 
classification as measured by the total dollar amount of payments for 
medical/surgical benefits in the classification expected to be paid 
within a measurement year. In this proposed rule, we would apply 
``substantially all'' consistent with the MHPAEA final regulations.

[[Page 19426]]

c. ``Predominant''
    If a type of financial requirement or quantitative treatment 
limitation applies to substantially all medical/surgical benefits in a 
classification, the second step is to determine the predominant level 
of that type of financial requirement or quantitative treatment 
limitation that may be applied to MH/SUD benefits in the 
classification. Under this proposed rule, the level of a type of 
financial requirement or quantitative treatment limitation would be the 
predominant level if it applies to more than one-half of medical/
surgical benefits subject to the financial requirement or quantitative 
treatment limitation in that classification. If a single level of a 
type of financial requirement or quantitative treatment limitation 
applies to more than one-half of medical/surgical benefits subject to 
the financial requirement or quantitative treatment limitation in a 
classification (based on expected payments, as discussed earlier in 
this proposed rule), the applicable regulated entity (under proposed 
Sec. Sec.  438.910(b), 440.395(b), or 457.496(d)) may not apply that 
particular financial requirement or quantitative treatment limitation 
to MH/SUD benefits at a level that is higher (for example, more 
expensive beneficiary cost-sharing) or more restrictive than the level 
that has been determined to be predominant for medical/surgical 
benefits. As proposed in Sec.  438.920(b), states that choose to use 
PIHPs, PAHPs or the FFS delivery system to provide some of the MH/SUD 
benefits to MCO enrollees would be required to complete an analysis to 
determine if the benefits comply with these rules. For example, all 
projected payments for services provided to the MCO enrollees 
(regardless of whether the payments are made by the MCO, PIHP, PAHP or 
FFS) would need to be considered in determining if the level of 
financial requirement or treatment limitation is the predominant level. 
If no single level applies to more than one-half of medical/surgical 
benefits subject to the financial requirement or quantitative treatment 
limitation in a classification, multiple levels of the same type of 
financial requirement or quantitative treatment limitation can be 
combined by the state, in cases where some MH/SUD services are provided 
outside the MCO, or the MCO, in cases where all services are carved-in, 
until the portion of medical/surgical benefits subject to the financial 
requirement or quantitative treatment limitation exceeds one-half. For 
any combination of levels that applies to more than one-half of 
medical/surgical benefits subject to the financial requirement or 
quantitative treatment limitation in a classification, the state or the 
MCO may not apply that particular financial requirement or quantitative 
treatment limitation to MH/SUD benefits at a level that is more 
restrictive than the least restrictive level within the combination. 
The state or the MCO may combine projected payments for benefits 
subject to the most restrictive levels first, with each less 
restrictive level added to the combination until the combination 
applies to more than one-half of the benefits subject to the financial 
requirement or treatment limitation. The following example illustrates 
the application of quantitative treatment limitations to medical/
surgical and MH/SUD benefits.
    Example. Facts. A state is providing a comprehensive service 
package through an MCO. The MCO is currently providing coverage of 
services with limits that are consistent with the approved state plan. 
The MCO benefit package includes:
     Inpatient Hospital services for medical/surgical--30 days 
per year limit
     Inpatient Hospital services for MH/SUD--30 days per year 
limit
     Primary Care Physician Services for medical/surgical--
unlimited
     Specialist Physician Services for medical/surgical--50 
visits per year
     Outpatient MH services--20 visits per year limit
     Physical Therapy--20 visits per year limit
     Occupational Therapy--20 visits per year limit
     Emergency Services--Unlimited for medical/surgical or MH/
SUD
    The MCO projects its payments as follows for medical/surgical 
benefits:

                                Table 1--Example of Quantitative Treatment Limit
----------------------------------------------------------------------------------------------------------------
                                                                                                   Percent of
                                                                             Percent of total    classification
        Benefit/classification--medical/surgical         Projected payment        costs           subject to a
                                                                                                     limit
----------------------------------------------------------------------------------------------------------------
Inpatient Hospital.....................................              $400x                100                100
    Inpatient total....................................               400x                100                100
Physician Services.....................................               150x                 27                  0
Specialist Services....................................               250x                 46                 46
Physical Therapy.......................................                75x               13.5               13.5
Occupational Therapy...................................                75x               13.5               13.5
    Outpatient total...................................               550x                100                 73
Emergency Services.....................................               100x                100                  0
    Emergency total....................................               100x                100                  0
----------------------------------------------------------------------------------------------------------------

    Example. Conclusion. In this example, the MCO would be able to 
maintain some level of day and visit limits on benefits in both the 
inpatient and outpatient MH/SUD classifications because both 
classifications meet the ``substantially all'' standard--in other 
words, more than two-thirds of the medical/surgical benefits in each 
classification are subject to those types of limits (100 percent of all 
medical/surgical inpatient benefits are subject to a day limit, and 73 
percent of all medical/surgical outpatient benefits are subject to a 
visit limit).
    With regards to the level of the quantitative treatment limitation 
on inpatient MH/SUD services, the MCO may maintain its 30 day limit 
because 100 percent of all inpatient medical/surgical benefits are also 
subject to a 30 day limit, making it the predominant level.
    However, with regards to the level of the quantitative treatment 
limitation on outpatient MH/SUD services, the MCO may not maintain its 
current limit of 20 visits per year. Of the total amount of outpatient 
medical/surgical benefits subject to a visit limit ($400x), 62.5 
percent ($250x) are subject to a 50 visit limit (specialist services), 
and only 37.5 percent ($150x) are subject to a 20 visit limit (physical 
therapy and occupational therapy). Because the 20 visit limitation is 
not the predominant level (that is, it does not apply to at least 50 
percent of the medical/surgical benefits in the classification subject 
to

[[Page 19427]]

the visit limit), the MCO would need to either remove the visit limits 
altogether on outpatient MH/SUD services or increase the visit 
limitation to at least 50 visits per year to align with the least 
restrictive level of visit limits on outpatient medical/surgical 
benefits.
    Lastly, because there are currently unlimited emergency visits 
under the medical/surgical benefits, the MCO would need to maintain 
unlimited visits for emergency services for MH/SUD, and would not be 
able to impose any limits on MH/SUD unless limits were also imposed on 
medical/surgical services and such limits were consistent with parity 
requirements.
4. Special Rules for Multi-Tiered Prescription Drug Benefits and Other 
Benefits (Sec. Sec.  438.910(c)(2), 440.395(b)(3)(ii), 
457.496(d)(3)(ii))
    In addition, the MHPAEA final regulations at 45 CFR 
146.136(c)(3)(iii)(A) permit plans under certain circumstances to apply 
different levels of financial requirements to different tiers of 
prescription drugs and still satisfy the parity requirements. This 
proposed rule would allow a MCO, PIHP, PAHP, ABP or CHIP state plan to 
subdivide the prescription drug classification into tiers based on 
reasonable factors as described in the proposed regulations and without 
regard to whether a drug is generally prescribed for medical/surgical 
benefits or for MH/SUD benefits.
    The MHPAEA final regulations at 45 CFR 146.136(c)(3)(iii)(C) permit 
a sub-classification for office visits, separate from other outpatient 
items and services. Other sub-classifications not specifically 
permitted, such as separate sub-classifications for generalists and 
specialists, cannot be used for purposes of determining parity. We 
propose to retain this approach to sub-classifications in the 
application of these parity requirements established in parts 438, 440 
and 457 (that is, to services provided to enrollees in Medicaid MCOs, 
and to ABPs and CHIP). After the sub-classifications are established, a 
MCO, PIHP, PAHP, ABP or CHIP state plan may not impose any financial 
requirement or quantitative treatment limitation on MH/SUD benefits in 
any sub-classification (for example, office visits or non-office 
visits) that is more restrictive than the predominant financial 
requirement or quantitative treatment limitation that applies to 
substantially all medical/surgical benefits in the sub-classification, 
using the parity analysis for financial requirements and quantitative 
treatment limitations.
    In the MHPAEA final regulations, the Departments recognized that 
tiered networks have become an important tool for health plan efforts 
to manage care and control costs. Therefore, for purposes of applying 
the financial requirement and treatment limitation rules under MHPAEA, 
the MHPAEA final regulations provide that if a plan (or health 
insurance coverage) provides benefits through multiple tiers of in-
network providers (such as an in-network tier of preferred providers 
with more generous cost-sharing to participants than a separate in-
network tier of participating providers in any classification), the 
plan may divide its benefits furnished on an in-network basis into sub-
classifications that reflect those network tiers, if the tiering is 
done without regard to whether a provider is a MH/SUD provider or a 
medical/surgical provider. While network tiers may also be used in 
Medicaid managed care, we do not believe that the use of network tiers 
for the purposes of the parity analysis is needed. As discussed later 
in section F. of this proposed rule, Medicaid cost-sharing rules apply 
regardless of network status. Additionally, any quantitative treatment 
limitation outlined in the contract must be applied to the service 
broadly and therefore cannot have separate limitations based on network 
tiers. We recognize there may be network tiers used to commonly refer 
enrollees or for purposes of building the network and have varying 
payment rates to providers, but the use of multiple network tiers for 
NQTLs is discussed in section E. of this proposed rule.

D. Cumulative Financial Requirements (Sec.  438.910(c)(3), Sec.  
440.395(b)(3)(iii), Sec.  457.496(d)(3)(iii))

    While financial requirements such as copayments and coinsurance 
generally apply separately to each covered expense, other financial 
requirements (in particular, deductibles) accumulate across covered 
expenses. In the case of deductibles, generally an amount of otherwise 
covered expenses must be accumulated before the plan pays benefits. 
Financial requirements that determine whether and to what extent 
benefits are provided based on accumulated amounts are defined in these 
proposed rules as cumulative financial requirements. The MHPAEA final 
regulations provide that a group health plan or issuer may not apply 
cumulative financial requirements or cumulative quantitative treatment 
limitations to MH/SUD benefits in a classification that accumulate 
separately from any such cumulative financial requirements or 
cumulative quantitative treatment limitations established for medical/
surgical benefits in the same classification. As in the MHPAEA final 
rule at 45 CFR 146.136(c)(2)(v), we propose that any separate 
cumulative financial requirement (separate for mental health, substance 
use or medical/surgical) will not be permitted for entities subject to 
our proposed requirements (namely, MCOs, PIHPs and PAHPs in connection 
with coverage provided to MCO enrollees, and in ABP and CHIP). However, 
we propose to permit quantitative treatment limitations to accumulate 
separately for medical/surgical and MH/SUD services as long as they 
comply with the general parity requirement. We are proposing to allow 
this separate accumulation of treatment limits in Medicaid and CHIP for 
several reasons. First, benefits for MCO beneficiaries must be provided 
in at least the same amount, duration and scope as set forth in the 
state plan. Requiring plans to have cumulative limits across medical/
surgical benefits and MH/SUD benefits within a classification may 
incentivize MCOs to retain the quantitative treatment limitation level 
applied on the medical/surgical benefits in the state plan as the total 
cumulative limit for both medical/surgical and MH/SUD benefits. This 
would comply with the requirements of parity, but would not meet the 
requirements of providing at least what is in the state plan. In 
addition, we believe that requiring quantitative treatment limitations 
within a classification of benefits to accumulate jointly toward a 
unified limit level may be operationally challenging for states with 
multiple delivery systems. Specifically, in Medicaid the state 
determines which entities will provide the specific medical/surgical 
and MH/SUD benefits covered under their respective contracts, including 
if some services will be provided under FFS. These potentially complex 
service delivery arrangements in Medicaid in turn determine whether the 
MCO or the state have the responsibility for complying with parity 
requirements. In commercial coverage, the parity obligations remain 
with the same entity--the group health plan or issuer--that determines 
which entities will provide each individual medical/surgical or MH/SUD 
benefits. Due to the difficulty that the MCO will face in administering 
unified treatment limits that accumulate across entities that the MCO 
has no contractual relationship with, we propose to permit the MCO, 
PIHP or PAHP to maintain separate treatment limitations, provided such 
limit for MH/SUD benefits is no more

[[Page 19428]]

restrictive than the predominant limit applied to substantially all 
medical/surgical benefits in a given classification.

E. Compliance With Other Cost-Sharing Rules (Sec.  438.910(c)(4))

    States and the MCOs, PIHPs and PAHPs that contract with states are 
bound by the existing Medicaid and CHIP cost-sharing rules (Sec.  
438.108 and part 457, subpart E). As previously indicated, the Medicaid 
program and CHIP are held to strict cost-sharing requirements for both 
managed care and non-managed care delivery systems. We emphasize here 
that all financial requirements included in a MHPAEA analysis must also 
be in compliance with both existing cost-sharing rules and the 
requirements of this proposed rule. Compliance with the parity 
requirements does not mean that a state, or MCO, PIHP or PAHP can 
violate existing cost-sharing requirements. Therefore, some cost-
sharing structures in a state's Medicaid program or CHIP may need to 
change to be compliant with MHPAEA. To clarify this, we propose at 
Sec.  438.910(c)(4) to reiterate that requirement with a cross-
reference to the cost-sharing rules applicable to MCOs, PIHPs and 
PAHPs.

F. Nonquantitative Treatment Limitations (NQTLs) (Sec.  438.910(d), 
Sec.  440.395(b)(4), and Sec.  457.496(d)(4))

    MCOs, PIHPs, PAHPs, ABP and CHIP state plans may impose a variety 
of limits affecting the scope or duration of benefits that are not 
expressed numerically (nonquantitative treatment limitations or NTQLs). 
Nonetheless, such nonquantitative provisions are also treatment 
limitations affecting the scope or duration of benefits. Sections 
438.910(d), 440.395(b)(4), and 457.496(d)(4) of this proposed rule 
would prohibit the imposition of any NQTL to MH/SUD benefits unless 
certain requirements are met. In addition, this proposed rule provides 
an illustrative list of NQTLs, including medical management standards; 
prescription drug formulary design; standards for provider admission to 
participate in a network; and conditioning benefits on completion of a 
course of treatment.
    Under the MHPAEA final regulations at 45 CFR 146.136(c)(4), an NQTL 
may not be imposed for MH/SUD benefits in any classification unless, 
under the terms of the plan (or health insurance coverage) as written 
and in operation, any factors used in applying the NQTL to MH/SUD 
benefits in a classification are comparable to and applied no more 
stringently than factors used in applying the limitation for medical 
surgical/benefits in the classification. For these purposes, factors 
mean the processes, strategies, evidentiary standards, or other 
considerations used in determining limitations on coverage of services. 
The phrase ``applied no more stringently'' requires that any processes, 
strategies, evidentiary standards, or other factors that are comparable 
on their face be applied in the same manner to medical/surgical 
benefits and MH/SUD benefits.
    We propose to duplicate this approach to NQTLs in the application 
of parity requirements to Medicaid MCOs, PIHPs and PAHPs providing 
services to MCO enrollees, ABPs, and CHIP state plans. For states that 
are using a non-managed care delivery system for their ABPs and CHIP, 
the state (through its ABP and CHIP state plan) may only impose an NQTL 
on a MH/SUD benefit in any classification if it has written and 
operable processes, strategies, evidentiary standards or other factors 
used in applying--to MH/SUD benefits in that classification--the NQTL 
that are comparable to or less restrictive and applied no more 
stringently than any processes, strategies, evidentiary standards, or 
other factors used in applying the limitation for medical/surgical 
services in that classification.
    In addition, we propose to add another example of an NQTL regarding 
standards for accessing out-of-network providers. As discussed earlier 
in this proposed rule, in the context of CHIP or ABPs that use a FFS 
delivery system or other non-managed care arrangement, beneficiaries 
may choose from any qualified provider that has signed a Medicaid or 
CHIP provider agreement and are not limited to a network. In a Medicaid 
managed care environment, if a provider network is unable to provide 
necessary services covered under the contract to a particular enrollee, 
the MCO, PIHP or PAHP must adequately (and on a timely basis) cover 
these services out-of-network for the enrollee as long as the MCO, PIHP 
or PAHP is unable to provide them in-network.\5\ To address continued 
concerns about access to these services out-of-network when they cannot 
be provided in-network, these proposed rules would add this example of 
an NQTL, so that providing access to out-of-network providers for MH/
SUD benefits in any classification would have to use the same 
processes, strategies, evidentiary standards, or other factors as are 
used in providing access to out-of-network providers for medical/
surgical benefits within the same classification. If MCOs, PIHPs or 
PAHPs, and ABPs provided through managed care, are found to be in 
compliance with Sec.  438.206(b)(4), that would be evidence that they 
are in compliance with proposed Sec.  438.910(d)(3), although the state 
will want to review how the plan is doing this in practice. This 
additional example of an NQTL is not relevant for states that are using 
a non-managed care delivery system for ABPs and CHIP state plan, since 
providers must be enrolled in Medicaid or CHIP and would not be 
considered out-of-network.
---------------------------------------------------------------------------

    \5\ See Sec.  438.206(b)(4).
---------------------------------------------------------------------------

    We note that we propose to use in Sec.  438.910(d)(2)(iii), the 
example of an NQTL pertaining to network design for MCOs, PIHPs and 
PAHPs with multiple network tiers because although network tiers may 
not be used to impose financial requirements or quantitative treatment 
limitations in Medicaid and CHIP, we believe MCOs, PIHPs and PAHPs may 
still use them in developing NQTLs. For example, the MCO, PIHP or PAHP 
may use network tiers when recommending providers to enrollees, or how 
they structure their provider directories. MCOs, PIHPs and PAHPs with 
multiple network tiers should be constructing them and providing 
beneficiary access to them in a way that is consistent with the parity 
standard for NQTLs.
    The examples below illustrate the operation of the requirements for 
NQTLs.
    Example 1. Facts. A MCO requires prior authorization that a 
treatment is medically necessary for all inpatient medical/surgical 
benefits and for all inpatient MH/SUD benefits. In practice, inpatient 
benefits for medical/surgical conditions are routinely approved for 7 
days, after which a treatment plan must be submitted by the patient's 
attending provider and approved by the MCO. Conversely, for inpatient 
MH/SUD benefits, routine approval is given only for 1 day, after which 
a treatment plan must be submitted by the beneficiary's attending 
provider and approved by the MCO.
    Example 1. Conclusion. In this example, the MCO violates the NQTL 
provision of this proposed rule (Sec.  438.910(d)) because it is 
applying a stricter NQTL in practice to MH/SUD benefits than is applied 
to medical/surgical benefits.
    Example 2. Facts. A MCO applies concurrent review to inpatient care 
where there are high levels of variation in length of stay (as measured 
by a coefficient of variation exceeding 0.8). In practice, the 
application of this standard affects 60 percent of MH/SUDs, but only 30 
percent of medical/surgical conditions.

[[Page 19429]]

    Example 2. Conclusion. In this example, the MCO complies with the 
NQTL provisions of this proposed rule because the evidentiary standard 
used by the MCO is applied no more stringently for MH/SUD benefits than 
for medical/surgical benefits, even though it results in an overall 
difference in the application of concurrent review for MH/SUDs than for 
medical/surgical conditions.
    Example 3. Facts. A MCO requires prior approval that a course of 
treatment is medically necessary for outpatient medical/surgical and 
MH/SUD benefits and uses comparable criteria in determining whether a 
course of treatment is medically necessary. For MH/SUD treatments that 
do not have prior approval, no benefits will be paid; for medical/
surgical treatments that do not have prior approval, providers will 
only receive a 25 percent reduction in payments for these treatments 
from the MCO.
    Example 3. Conclusion. In this example, the MCO violates the NQTL 
provision of this proposed rule. Although the same NQTL--medical 
necessity--is applied both to MH/SUD benefits and to medical/surgical 
benefits for outpatient services, it is not applied in a comparable 
way. The penalty for failure to obtain prior approval for MH/SUD 
benefits is not comparable to the penalty for failure to obtain prior 
approval for medical/surgical benefits.
    Example 4. Facts. A MCO generally covers medically appropriate 
treatments. For both medical/surgical benefits and MH/SUD benefits, 
evidentiary standards used in determining whether a treatment is 
medically appropriate are based on recommendations made by panels of 
experts with appropriate training and experience in the fields of 
medicine involved. The evidentiary standards are applied in a manner 
that is based on clinically appropriate standards of care for a 
condition.
    Example 4. Conclusion. In this example, the MCO complies with the 
NQTL provision of the proposed rule because the processes for 
developing the evidentiary standards used to determine medical 
appropriateness and the application of these standards to MH/SUD 
benefits are comparable to and are applied no more stringently than for 
medical/surgical benefits. This is the result even if the application 
of the evidentiary standards does not result in similar numbers of 
visits, days of coverage, or other benefits utilized for MH/SUDs as it 
does for any particular medical/surgical condition.
    Example 5. Facts. Training and state licensing requirements often 
vary among types of providers. A MCO applies a general standard that 
any provider must meet the highest licensing requirement related to 
supervised clinical experience under applicable state law in order to 
participate in the MCO's provider network. Therefore, the MCO requires 
master's-level mental health therapists to have post-degree, supervised 
clinical experience but does not impose this requirement on master's-
level general medical providers because the scope of their licensure 
under applicable state law already requires supervised clinical 
experience. In addition, the MCO does not require post-degree, 
supervised clinical experience for psychiatrists or Ph.D. level 
psychologists since their licensing already requires supervised 
training.
    Example 5. Conclusion. In this example, the MCO complies with the 
provision of this proposed rule pertaining to NQTLs. The requirement 
that master's-level mental health therapists must have supervised 
clinical experience to join the network is permissible, as long as the 
MCO consistently applies the same standard to all providers, even 
though it may have a disparate impact on certain mental health 
providers.
    Example 6. Facts. A state contracts with an external utilization 
review entity to review inpatient admissions for all beneficiaries 
participating in its ABP. All inpatient services in the ABP are 
delivered on a FFS basis. The state's utilization review contractor 
considers a wide array of factors in designing medical management 
techniques for both MH/SUD and medical/surgical inpatient benefits, 
such as cost of treatment; high cost growth; variability in cost and 
quality; elasticity of demand; provider discretion in determining 
diagnosis, or type or length of treatment; clinical efficacy of any 
proposed treatment or service; licensing and accreditation of 
providers; and claim types with a high percentage of fraud. Based on 
application of these factors in a comparable fashion, prior 
authorization is required for some (but not all) inpatient MH/SUD 
benefits, as well as for some (but not all) medical/surgical benefits. 
The evidence considered in developing its medical management techniques 
includes consideration of a wide array of recognized medical literature 
and professional standards and protocols (including comparative 
effectiveness studies and clinical trials). This evidence and how it 
was used to develop these medical management techniques is also well 
documented by the state's utilization review organization.
    Example 6. Conclusion. In this example, the state and its 
utilization review contractor comply with the NQTL rules. Under the 
terms of the ABP as written and in operation, the processes, 
strategies, evidentiary standards, and other factors considered by the 
contractor in implementing the prior authorization requirement for MH/
SUD inpatient benefits are comparable to, and applied no more 
stringently than, those applied to medical/surgical benefits.
    Example 7. Facts. A MCO provides coverage for medically appropriate 
medical/surgical benefits, as well as MH/SUD benefits. The MCO excludes 
coverage for inpatient SUD services when obtained outside of the state. 
There is no similar exclusion for medical/surgical benefits within the 
same classification.
    Example 7. Conclusion. In this example, the MCO violates the NQTL 
provisions of this proposed rule. The MCO is imposing a NQTL that 
restricts benefits based on geographic location. Because there is no 
comparable exclusion that applies to medical/surgical benefits, this 
exclusion may not be applied to MH/SUD benefits.
    Example 8. Facts. A state's CHIP program requires prior 
authorization for all outpatient MH/SUD services after the ninth visit 
and will only approve up to 5 additional visits per authorization. For 
outpatient medical/surgical benefits, the state's CHIP program allows 
an initial visit without prior authorization. After the initial visit, 
benefits must be pre-approved based on the individual treatment plan 
recommended by the attending provider based on that individual's 
specific medical condition. There is no explicit, predetermined cap on 
the amount of additional visits approved per authorization.
    Example 8. Conclusion. In this example, the state's CHIP program 
violates the NQTL provisions of the proposed rule. Although the same 
NQTL--prior authorization to determine medical appropriateness--is 
applied to both MH/SUD benefits and medical/surgical benefits for 
outpatient services, it is not applied in a comparable way. While the 
state CHIP plan is more generous in the number of visits initially 
provided without pre-authorization for MH/SUD benefits, treating all 
MH/SUDs in the same manner, while providing for individualized 
treatment of medical conditions, is not a comparable application of 
this NQTL.
    Example 9. Facts. A state provides an ABP that is compliant with 
EHB

[[Page 19430]]

requirements, including the provision of MH/SUD services. The state 
aligns its ABP's outpatient benefits with those described in the state 
plan and applies the same prior authorization requirements. For 
outpatient MH/SUD services, prior authorization is required for each 
individual treatment session. In contrast, for outpatient medical/
surgical services, a series of treatments is provided under a single 
authorization.
    Example 9. Conclusion. In this example, the state's ABP design does 
not comply with the NQTL provisions of this proposed rule. Although the 
same NQTL--prior authorization to determine medical appropriateness--is 
applied to both MH/SUD benefits and medical/surgical benefits for 
outpatient services, it is not applied in a comparable way.
    Example 10. Facts. A state's ABP requires preauthorization for all 
outpatient substance use disorder services. The state APB does not 
require preauthorization for any medical/surgical services.
    Example 10. Conclusion. The state ABP does not comply with the NQTL 
requirements in this proposed rule. If a state plan requires 
preauthorization for each outpatient SUD service it cannot remain in 
compliance if there is no comparable limitation on medical/surgical 
services.
    Example 11. Facts. In cases where an MCO is unable to provide 
necessary outpatient services to a particular enrollee, the MCO 
requires that the enrollee must get prior approval in order to see any 
outpatient out-of-network provider. The MCO approves the use of an out-
of-network provider for medical/surgical outpatient services if there 
is not an in-network provider within 10 miles of the person's 
residence. Approval of an out-of-network provider for outpatient MH/SUD 
services is only authorized if there is not an in-network provider 
within 30 miles of a person's residence.
    Example 11. Conclusion. In this example, the MCO violates the NQTL 
provisions of this proposed rule. The MCO is imposing a restriction 
that limits access to out-of-network providers. Although the same 
nonquantitative treatment limitation is applied to both the MH/SUD 
benefits and to medical/surgical benefits for outpatient services, it 
is not applied in a comparable way.

G. Application to CHIP and EPSDT Deemed Compliance (Sec.  457.496(b))

    The CHIPRA applies MH/SUD parity requirements to the entire ``state 
child health plan'' including, but not limited to, any MCOs that 
contract with the state CHIP. Specifically, section 502 of the CHIPRA 
requires that state child health plans ensure financial requirements 
and treatment limitations applicable to MH/SUD benefits comply with the 
requirements of section 2726(a) of the PHS Act (as renumbered) ``in the 
same manner'' as such requirements apply to a group health plan. 
Therefore, if a CHIP state plan provides both medical/surgical benefits 
and MH/SUD benefits, any treatment limitations, lifetime or annual 
dollar limits or financial requirements (such as out-of-pocket costs) 
on MH/SUD benefits must comply with the provisions of section 2726 of 
the PHS Act made applicable to CHIP by section 502 of the CHIPRA adding 
section 2103(c)(6) to the Act and by section 2103(f)(2) of the Act. 
Section 2103(c)(6)(B) of the Act also specifies that state CHIP plans 
are deemed to satisfy the requirement under section 2103(c)(6)(A) of 
the Act to ensure that financial requirements and treatment limitations 
comply with the provisions of section 2726 of the PHS Act if they 
provide coverage of EPSDT benefits (as defined under title XIX of the 
Act). For individuals receiving EPSDT services through the CHIP state 
plan, proposed Sec.  457.496(b) provides that the state will be deemed 
to meet parity requirements for financial requirements and treatment 
limitations. However, states that do apply NQTLs to EPSDT services must 
ensure that these limitations are applied consistent with the intent of 
MHPAEA.

H. Availability of Information (Sec.  438.915, Sec.  440.395(c), Sec.  
457.496(e))

    Under the MHPAEA final regulations, the criteria for medical 
necessity determinations made under a group health plan or health 
insurance coverage for MH/SUD benefits must be made available by the 
plan administrator or the health insurance issuer offering such 
coverage in accordance with regulations to any current or potential 
participant, beneficiary, or contracting provider upon request. The 
MHPAEA final regulations also state that the reason for any denial 
under a group health plan or health insurance coverage of reimbursement 
or payment for services for MH/SUD benefits in the case of any 
participant or beneficiary must be made available, upon request or as 
otherwise required, by the plan administrator or the health insurance 
issuer to the participant or beneficiary in accordance with the 
regulations. Through this proposed rule, we are proposing to apply the 
requirements imposed on the health insurance issuer through the MHPAEA 
final regulations regarding availability of information in a similar 
manner to MCOs and to PIHPs and PAHPs that provide coverage to MCO 
enrollees. We propose to add Sec.  438.915(a) to provide that MCOs, 
PIHPs and PAHPs subject to MHPAEA requirements must make their medical 
necessity criteria for MH/SUD benefits available to any enrollee, 
potential enrollee or contracting provider upon request. MCOs, PIHPs 
and PAHPs found to be in compliance with Sec.  438.236(c)--which 
requires dissemination by MCOs, PIHPs and PAHPs of practice guidelines 
to all affected providers and, upon request, to enrollees and potential 
enrollees--will be deemed to meet this proposed requirement. As 
proposed, Sec.  438.915(b) would also require the MCO, PIHP or PAHP to 
make available the reason for any denial of reimbursement or payment 
for services for MH/SUD benefits to the enrollee. We also note that 
Sec.  438.210(c) requires each contract with an MCO, PIHP, or PAHP to 
provide for the MCO, PIHP, or PAHP to notify the requesting provider 
and give the enrollee written notice of any decision by the MCO, PIHP, 
or PAHP to deny a service authorization request or to authorize a 
service in an amount, duration, or scope that is less than requested.
    The MHPAEA final regulations, at 45 CFR 146.136(d)(2), state that 
non-federal governmental group health plans (or health insurance 
coverage offered in connection with such plans) providing the reason 
for claim denial in a form and manner consistent with the requirements 
of 29 CFR 2560.503-1 for group health plans will be found in compliance 
with the reason for denial disclosure requirements.\6\ The provisions 
under 29 CFR 2560.503-1 which discuss requirements related to notices 
for group health plans subject to ERISA, do not apply to Medicaid, and 
we are not proposing to make them applicable as a condition for deemed 
compliance because similar requirements are already applicable. MCOs, 
PIHPs, PAHPs and states are required to give a ``reason'' for any 
adverse benefit determinations under requirements for notices in, 
respectively, Sec.  438.404 and Sec.  431.210. The information provided 
in this disclosure of the reason for the adverse benefit determination 
must be made in compliance with these and all other provisions of 
applicable federal or state law, as noted in proposed Sec.  438.915(c).
---------------------------------------------------------------------------

    \6\ The requirements of 29 CFR 2560.503-1 are applicable to 
ERISA plans, as well as all non-grandfathered group health plans and 
health insurance issuers in the group and individual markets, 
through the claims and appeals regulations adopted under the 
Affordable Care Act. See 78 FR 68247 for a full discussion.

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[[Page 19431]]

    For similar reasons, we are not proposing to make the claim denial 
requirements of 29 CFR 2560.503-1 a condition of deemed compliance for 
CHIP programs. CHIP enrollees have an opportunity for an external 
review of denials, reduction or suspension of health services under 
Sec.  457.1130.
    Although the statute that applies MHPAEA to ABPs does not include 
specific provisions regarding the availability of plan information, we 
propose to use our authority under section 1902(a)(4) of the Act to 
extend this provision to all ABPs, as well as those ABPs with services 
delivered through MCOs, PIHPs and all PAHP. At Sec.  440.395(c)(1), we 
propose that all states delivering ABP services through a non-MCO must 
make available to beneficiaries and contracting providers on request 
the criteria for medical necessity determinations for MH/SUD benefits. 
Similarly, Sec.  440.395(c)(2) would require the state to make 
available to the enrollee the reason for any denial of reimbursement or 
payment for services for MH/SUD benefits.
    Current rules related to notices of adverse benefit determinations 
are consistent with the intent of 29 CFR 2560.503-1. This proposed rule 
proposes to apply provisions regarding the availability of plan 
information for ABP services. We request comment on any additional 
provisions concerning the availability of plan information or notice of 
adverse determinations that may be necessary to facilitate compliance 
with MHPAEA for MCOs, PIHPs, PAHPs, ABPs and CHIP.

I. Application to EHBs and Other ABP Benefits (Sec.  440.395 and Sec.  
440.347)

    Section 1937(b)(6) of the Act, as added by section 2001(c) of the 
Affordable Care Act, and implemented through regulations at Sec.  
440.345(c) directs that ABPs that provide both medical/surgical 
benefits and MH or SUD benefits must comply with certain parity 
requirements. Further, ABPs must provide the 10 EHBs, including MH/SUD 
services. As states determine their ABP service package, states must 
use all of the EHB services from the base-benchmark plan selected by 
the state to define EHBs, consistent with the applicable requirements 
in 45 CFR part 156.
    Section 1937 of the Act offers flexibility for states to provide 
medical assistance by designing different benefit packages, including 
other services beyond the EHBs for different groups of eligible 
individuals, as long as each benefit package contains all of the EHBs 
and meets certain other requirements, including parity provisions under 
section 2726 of the PHS Act.

J. Application of Parity Requirements to the Medicaid State Plan

    The provisions of section 2726 of the PHS Act that are incorporated 
through section 1932 of the Act do not apply directly to the benefit 
design for Medicaid non-ABP state plan services. Under this proposed 
rule, the requirements would apply to the benefits offered by the MCO 
(or, as discussed above, if benefits are carved out, to all benefits 
provided to MCO enrollees regardless of service delivery system) but do 
not apply to all Medicaid state plan benefit designs. As stated earlier 
in this proposed rule, states that have individuals enrolled in MCOs 
and have MH/SUD services offered through FFS will have the option of 
amending their non-ABP state plan to be consistent with these proposed 
regulations or offering MH/SUD services through a managed care delivery 
system (MCOs, PIHPs, and/or PAHPs) to be compliant with these proposed 
rules.

K. Scope and Applicability of the Proposed Rule (Sec.  438.920(a) and 
(b), Sec.  440.395(d), and Sec.  457.496(f)(1))

    Sections 438.920, 440.395(d), and 457.496(f) propose to address the 
applicability and scope of this proposed rule. Specifically under our 
proposal:
     Section 438.920(a) would provide that the requirements of 
the subpart apply to delivery of Medicaid services when an MCO is used 
to deliver some or all of the Medicaid services; section 438.920(b) 
(also discussed below) addresses state responsibilities when the MCO 
delivers only some of the Medicaid services.
     Section 440.395 would apply to ABPs that are not delivered 
through managed care.
     Section 457.496 would apply to CHIP state plans, including 
when benefits are furnished under a contract with MCEs.
    The MHPAEA final regulations state that if a group health plan or 
health insurance coverage provides MH/SUD benefits in any 
classification of benefits, MH/SUD benefits must be provided in every 
classification in which medical/surgical benefits are provided. Under 
our proposed amendments to part 438, for these parity standards to 
apply, a beneficiary must be enrolled in an MCO under a Medicaid 
contract. Whether the MCO provides medical/surgical or MH/SUD benefits 
under that contract is irrelevant.
    While many Medicaid MCOs are contracted to offer benefits in each 
of the classifications of benefits described in this proposed rule, 
there are other state-initiated ``carve out'' arrangements (for 
example, PIHPs, PAHPs or FFS) in which the MCOs are only contracted to 
provide benefits in one MH/SUD classification, while PIHPs, PAHPs, FFS, 
or a combination of all 3 provide coverage of benefits in other 
classifications. For example, MCOs in these carve out arrangements are 
likely to have contracts that include MH/SUD benefits in the 
prescription drug and emergency care classifications of benefits, but 
some or all of the MH/SUD outpatient or inpatient benefits may be 
offered instead through a PIHP, PAHP or FFS delivery system.
    In instances where the MH/SUD services are delivered through 
multiple managed care delivery vehicles, we are proposing in Sec.  
438.920 that parity provisions apply across the managed care delivery 
systems in the Medicaid program and CHIP. MHPAEA requirements apply to 
the entire package of services MCO enrollees receive, whether from the 
MCO, PIHP, PAHP, or FFS. If states carve out some MH/SUD services from 
the MCO contract and furnish those services by PIHPs, PAHPs, or FFS, we 
are proposing to apply the foregoing MHPAEA requirement to the entire 
package of services MCO enrollees receive. Requiring the standards for 
parity to be applied to the overall package of benefits received by MCO 
enrollees will allow MCOs to comply with MHPAEA requirements without 
requiring inclusion of additional MH/SUD benefits in the MCO benefit 
package, as long as these MH/SUD benefits are provided elsewhere within 
the delivery system. In states where MH/SUD benefits are provided 
across multiple delivery systems (including FFS), we propose in Sec.  
438.920(b) that states would be required to review the full scope of 
benefits provided to MCO enrollees to ensure compliance with the 
proposed parity requirements. As part of complying with this 
regulation, we would expect states to work with their MCOs (or PIHPs 
and PAHPs) to determine the best method of achieving compliance with 
these proposed parity requirements for benefits provided to the MCO 
enrollees. For MH/SUD benefits offered through FFS, states would not 
necessarily be required to amend their non-ABP state plan to meet 
parity requirements, but could use their existing state plan or waiver 
services to achieve parity when individuals are receiving some MH/SUD 
benefits from a MCO (including PIHPs or PAHPs) and also some benefits 
through FFS. However, if a state did not have MH/

[[Page 19432]]

SUD benefits in every classification in which medical/surgical benefits 
are provided across all authorities, the state would have to choose 
either to offer these services through a MCO, PIHP or PAHP or amend its 
state plan (or a waiver of its state plan) to include these benefits to 
achieve compliance with proposed Sec.  438.920(a) and (b). Applying 
various parity provisions across the different delivery system would 
allow states the most flexibility in designing delivery systems while 
ensuring that parity in medical/surgical and MH/SUD services is 
provided to MCO enrollees. Given that there are many different delivery 
system configurations that carve out MH/SUD services, this would allow 
compliance with parity requirements while reducing incentives for 
states to completely carve in all MH/SUD benefits to a MCO or carve out 
or terminate coverage of MH/SUD services.
    In states where the MCO has responsibility for offering all 
medical/surgical and MH/SUD benefits, the MCO would be responsible for 
undertaking the parity analysis and informing the state what additional 
changes will be needed to the MCO contract to be compliant with parity 
requirements. In states where some or all MH/SUD benefits are provided 
through MCOs, PIHPs, PAHPs, or FFS, the state would have the 
responsibility for undertaking the parity analysis across these 
delivery systems and determining if the existing benefits and any 
financial or treatment limitations are consistent with MHPAEA. The 
state, based on this analysis, would have to make the necessary changes 
to ensure compliance with parity requirements for its Medicaid MCO 
enrollees. We also propose at Sec.  438.920(b)(1) that the state 
provide documentation of its compliance with this analysis to the 
general public within 18 months of the effective date of this rule.
    If states offer benefits through an ABP or CHIP state plan with 
various delivery systems (managed care and non-managed care), the state 
would need to apply the provisions of the proposed rule across the 
delivery systems utilized for its ABP and CHIP state plan.
    For ABPs and CHIP state plans, we would also require states to 
apply the provisions of this proposed rule across all delivery systems 
to ensure that beneficiaries have access to MH/SUD benefits in every 
classification in which medical/surgical benefits are provided. These 
provisions would apply when states offer services through an ABP or 
CHIP state plan using only a non-managed care arrangement (FFS). If 
states offer services through an ABP or CHIP state plan with various 
delivery systems (managed care and non-managed care), the state would 
need to apply the provisions of the proposed rule across the delivery 
systems utilized for their ABP and CHIP state plan. Provided below is 
an example of how this proposed rule would be applied across the 
delivery system in Medicaid.
    Example 1. Facts. A Medicaid MCO enrollee can access Medicaid 
benefits in the following way at any given time during their MCO 
enrollment:
     The MCO comprehensive benefits include inpatient medical/
surgical benefits; outpatient medical/surgical benefits; emergency for 
medical/surgical, MH, and SUD benefits; and prescription drugs for 
medical/surgical and MH/SUD benefits.
     The PIHP carve out benefits include inpatient MH benefit 
and the outpatient MH benefit.
     The PAHP carve out benefits include outpatient SUD 
benefits.
     The FFS system provides access to inpatient SUD benefits.
    For purposes of this example, we assume there are no financial 
requirements or treatment limitations imposed on any of the benefits in 
any of the delivery systems noted above.
    Example 1. Conclusion. In this example, the MCO, PIHP or PAHP would 
not need to add any additional services to its benefit package because 
the MCO enrollee has access to MH/SUD services through PIHPs, PAHPs and 
FFS and the state is responsible for undertaking the parity analysis 
across delivery systems and making sure the coverage complies with 
parity requirements under our proposed Sec.  438.920(a) and (b). The 
example would apply in the same way to a CHIP enrollee.

L. Scope of Services (Sec.  438.920(c), Sec.  457.496(f)(2))

    We propose provisions relating to the scope of the parity 
requirements for Medicaid MCOs and CHIP state plans that are similar to 
the provisions set forth in the MHPAEA final regulations (45 CFR 
146.136(e)(3)). Specifically, the proposed regulations would not 
require a MCO, PIHP, or PAHP to provide any MH/SUD benefits for 
conditions or disorders beyond the conditions or disorders that are 
covered as required by their contract with the state. For MCOs, PIHPs 
or PAHPs that provide benefits for one or more specific MH conditions 
or SUDs under their contracts, the proposed regulations would not 
require the MCO, PIHP or PAHP to provide benefits for additional MH 
conditions or SUDs. The proposed regulations would not affect the terms 
and conditions relating to the amount, duration, or scope of MH/SUD 
benefits under the MCO, PIHP or PAHP contract except as specifically 
provided in Sec.  438.905 and Sec.  438.910 of the part.

M. ABP State Plan Requirements (Sec.  440.395(d))

    We are proposing to add a section in part 440, subpart C that 
requires states using ABPs to provide sufficient information in ABP 
state plan amendment requests to assure compliance with MHPAEA. We will 
review ABP state plan amendments to ensure their compliance with 
applicable federal statutes and regulations, including MHPAEA, and EHB 
anti-discrimination provisions.

N. Increased Cost Exemption

    As discussed above in this proposed rule, we are not proposing an 
increased cost exemption for MCOs, PIHPs or PAHPs. As indicated 
previously, we are proposing to change payment provisions in part 438 
to allow states to include the cost of providing additional services or 
removing or aligning treatment limitations in their actuarially sound 
rate methodology where such costs are necessary to comply with the 
MHPAEA parity provisions. These proposed changes to the managed care 
rate setting process give states and MCOs the ability to fully comply 
with these mental health parity requirements by giving them flexibility 
to provide services compliant with this proposed regulation or remove 
or align service limits. We believe that the Medicaid program rather 
than the plan should bear the costs of these changes. We propose to 
provide states sufficient time to comply with this regulation: States 
would have up to 18 months after the date of the publication of the 
final rule to comply with the provisions of this regulation. This will 
allow states to take the actions to make the policy and budgetary 
changes needed for compliance.
    We are not proposing to permit states delivering services through 
an ABP or CHIP state plan to apply for a cost exemption due to the 
mandatory delivery of EHB and the requirement that ABPs be compliant 
with MHPAEA.

O. Enforcement, Managed Care Rate Setting (Sec.  438.6(e)) and Contract 
Review and Approval (Sec.  438.6(n))

    Medicaid and CHIP programs are administered by states in 
partnership with the federal government. States have the responsibility 
of administering the state plan in compliance with federal law, so 
states will be required to provide an assurance of compliance with 
parity requirements when submitting ABP or CHIP state plans. In

[[Page 19433]]

addition, we propose to require the state Medicaid agency to include 
contract provisions requiring compliance with parity requirements in 
all applicable MCO, PIHP, and PAHP contracts. As noted earlier in this 
proposed rule, we believe that the intent of the parity requirements 
implemented through section 1932(b)(8) of the Act is to provide access 
to services meeting parity requirements to any enrollee of a MCO in a 
state that provides some MH/SUD benefits through its state plan, 
regardless of the scope of benefits covered through the MCO itself. 
Therefore, states would have the responsibility of ensuring that 
appropriate contract language is included in all MCO contracts and any 
applicable PIHP or PAHP contracts under proposed Sec.  438.6(n). We 
expect that states will include in the MCO, PIHP and PAHP contracts a 
methodology for the MCO, PIHP or PAHP that will establish and 
demonstrate compliance with parity requirements (including, in some 
instances, developing a crosswalk with other entities that are part of 
the service delivery system for enrollees). This methodology would have 
to ensure that all MCOs, PIHPs, or PAHPs included in the delivery 
system work together to ensure any MCO enrollee in a state is provided 
access to a set of benefits that meets the requirements of this rule 
regardless of the MH/SUD benefits provided by the MCO.
    In accordance with section 1903(m) of the Act, all MCO contracts 
must comply with applicable requirements in section 1932 of the Act, 
which includes section 1932(b)(8) of the Act referencing MHPAEA 
provisions in the PHS Act. As we have discussed previously, if the 
state provides some MH/SUD benefits within its state plan, all MCO 
contracts must include provisions requiring compliance with parity 
requirements because all MCO enrollees must be provided access to 
MHPAEA compliant services even if the MCO itself does not provide the 
MH/SUD services. Therefore, if it is not shown through the MCO contract 
itself that an enrollee has access to MH/SUD services in each 
classification in which medical and surgical services are provided that 
are fully compliant with these parity requirements, the state will be 
asked to provide supplemental materials to the MCO contract or an 
amendment to the contract to demonstrate that the standards proposed 
here are met.
    Further, we may defer federal financial participation (FFP) on 
expenditures for the MCO contract to the extent that the state has not 
documented that the contract would comply with the requirements of 
section 1903(m) of the Act, including the requirement that the MCO 
contract and the MCO itself comply with applicable provisions of 
section 1932 of the Act. We understand that with the flexibility 
afforded to states to provide MH/SUD services across the delivery 
system there may be services outside of the MCO contract that may be 
needed to demonstrate compliance. If this is the case, the state would 
be required to show how the MCO enrollees are provided all the services 
needed to comply with the requirements in this proposed rule, and if 
the state cannot provide evidence of this compliance outside of the MCO 
contract, CMS would have the ability to defer FFP on the MCO contract 
amount until evidence of compliance is provided. Again, a state would 
have the option to make changes to the MCO, PIHP or PAHP contracts or 
make changes to its Medicaid state plan to provide evidence of 
compliance.

P. Applicability and Compliance (Sec.  438.930, Sec.  440.395(d), Sec.  
457.496(f))

    This proposed rule would be effective based on the date of the 
publication of the final rule. However, MCOs, PIHPs, PAHPs and states 
would have 18 months to comply with the provisions of this final 
regulation. Specifically:
     Managed care considerations: Although the requirements of 
MHPAEA have applied to Medicaid MCOs through section 1932(b)(8) of the 
Act since MHPAEA was passed in 2008, Medicaid MCOs, PIHPs or PAHPs 
would have to comply with the specific provisions in the proposed rule 
in contract years starting 18 months after the publication of the final 
rule. New managed care contracts, or amendments, would be required to 
be compliant in most cases.
     ABPs: Although the requirements of MHPAEA have applied 
since January 1, 2014, states would have 18 months after the 
publication of the final rule to have the ABPs compliant with 
provisions in this proposed rule.
     CHIP: The requirements of MHPAEA have applied for CHIP 
since October 1, 2009, however, states would have 18 months after the 
publication date of the final rule for CHIP plans to be compliant with 
provisions in this proposed rule.

Q. Utilization Management

    Current Medicaid regulations prescribe requirements for the control 
of utilization management of inpatient services in mental hospitals 
(Sec.  456.171). These regulations specifically require medical and 
other professionals within the Medicaid agency (or its designee) to 
evaluate each beneficiary's need for admission into inpatient services 
in a mental hospital. There is not a similar requirement for the 
Medicaid agency to review medical/surgical admissions to other 
hospitals. States have indicated that this regulation presents 
challenges to achieving parity for inpatient services rendered in a 
mental hospital. In addition, these states have interpreted the term 
``mental hospitals'' to include distinct part units of a general 
hospital, as well as freestanding institutions of mental diseases for 
children under the age of 21 and adults 65 years and older. This 
proposed rule would eliminate current language from existing 
regulations that require Medicaid agencies to evaluate the need for 
these admissions. A state could continue these evaluations, but would 
need to ensure that the standards and processes were consistent with 
the provisions in this regulation regarding nonquantitative treatment 
limits.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), 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. To 
fairly evaluate whether an information collection should be approved by 
OMB, section 3506(c)(2)(A) of the PRA 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.
    We are soliciting public comment on each of the section 
3506(c)(2)(A)-required issues for the following information collection 
requirements.

A. Wage Estimates

    To derive average costs, we used data from the U.S. Bureau of Labor 
Statistics' May 2013 National Occupational Employment and Wage 
Estimates for all salary estimates (www.bls.gov/oes/current/oes_nat.htm). In this regard, Table 2 presents the mean hourly wage, 
the cost of fringe benefits (calculated at 100 percent of salary), and 
the adjusted hourly wage.

[[Page 19434]]

                                     Table 2--Proposed Hourly Wage Estimates
----------------------------------------------------------------------------------------------------------------
                                                                               Fringe benefit
               Occupation title                 Occupation  Mean hourly wage   (at 100%) (per    Adjusted hourly
                                                   code         (per hr)             hr)          wage (per hr)
----------------------------------------------------------------------------------------------------------------
Business Operations Specialists..............      13-1000            $33.19            $33.19            $66.38
Medical Secretaries..........................      43-6013             15.93             15.93             31.86
----------------------------------------------------------------------------------------------------------------

    We propose to adjust all our employee hourly wage estimates by a 
factor of 100 percent. This is necessarily a rough adjustment, both 
because fringe benefits and overhead costs vary significantly from 
employer to employer, and because methods of estimating these costs 
vary widely from study to study. Nonetheless, there is no practical 
alternative and we believe that doubling the hourly wage to estimate 
total cost is a reasonably accurate estimation method.

B. Proposed Information Collection Requirements (ICRs)

1. ICRs Regarding the Availability of Information and the Criteria for 
Medical Necessity Determinations (Sec. Sec.  438.915(a), 440.395(c)(1), 
and 457.496(e)(1))
    Proposed Sec. Sec.  438.915(a), 440.395(c)(1), and 457.496(e)(1) 
would require that the medical necessity determination criteria used by 
regulated entities for MH/SUD benefits be made available to potential 
participants, beneficiaries, or contracting providers upon request.
    In the November 13, 2013, MHPAEA final rule, the regulatory impact 
analysis (78 FR 68253 through 68266) quantified the costs to disclose 
medical necessity criteria. For consistency and comparability, we are 
using the same method for determining this rule's disclosure costs, 
with adjustments to account for Medicaid MCOs, ABP and CHIP and the 
population covered.
    Labor Costs for Medical Necessity Disclosures. We are unable to 
estimate with certainty the number of requests for medical necessity 
criteria disclosures that will be received by regulated entities. 
However, the MHPAEA final rule's impact analysis did set forth 
assumptions that we believe are relevant for calculating costs for the 
Medicaid and CHIP program. In that impact analysis, it was assumed that 
each plan would receive three medical necessity criteria disclosure 
requests for every 1,000 beneficiaries. This assumption equated to 
0.003 requests per enrollee. This assumption was applied to the number 
of enrollees enrolled in Medicaid (33.1 million), ABP (8.7 million) and 
CHIP (5.7 million) to project the number of expected requests: 99,328 
for MCOs; 26,100 for ABPs; and 16,975 for CHIP.
    To estimate the time it will take a medical staff to respond to 
each request, we used the same assumption as the MHPAEA final rule. 
Specifically, we assumed that it took a staff member (in this case, a 
Medical Secretary) 5 minutes to respond to the request. In this 
proposed rule, this results in a total annual burden of 11,867 hours 
for Medicaid and CHIP programs.
    The adjusted hourly rate for Medical Secretaries responding to 
these requests is estimated to be $31.86/hour. Multiplying the total 
annual burden of 11,867 hours by the hourly wage, yields an associated 
equivalent cost of about $378,083 for all requests to Medicaid and CHIP 
programs.
    Mailing and Supply Costs. The MHPAEA final rule's impact analysis 
estimated that 38 percent of the requests would be delivered 
electronically with de minimis cost. The remaining requests would 
require materials, printing, and postage amounting to approximately 66 
cents per request. We believe that the same mailing and supply costs 
per request will apply to the disclosure requirements of this proposed 
rule.
    Table 3 displays the added burden estimates, nationally and per 
program, for Medicaid MCOs and CHIP to comply with the proposed medical 
necessity determination criteria's disclosure procedures. The number of 
enrollees for MCOs/HIOs is based on the CMS national breakout as of 
July 2012 while the number for ABPs is based on the estimated 
enrollment growth due to Medicaid expansion (``National Health 
Expenditure Projections 2012-2022,'' CMS). CHIP enrollment is based on 
Medicaid and Children's Health Insurance Program (CHIP) Payment and 
Access Commission's 2014 estimates. The proposed requirements and 
burden will be submitted to OMB for approval under control number 0938-
New (CMS-10556).

              Table 3--National and per Program Burden for the Proposed Medical Necessity Determination Criteria's Disclosure Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            Number of                                         Mailed
                                            Number of   expected requests  Time (@5 min/  Labor cost ($)  responses (62%     Mailing and      Total cost
                Plan type                   enrollees     (.003 requests      response      @$31.86/hr     of  expected    supply cost ($)       ($)
                                                          per enrollee)        (hr)                         enrollees)      @$.66/mailing
--------------------------------------------------------------------------------------------------------------------------------------------------------
MCO/HIO..................................   33,109,462             99,328         8,277          263,705          61,584             40,645      304,350
ABP......................................    8,700,000             26,100         2,175           69,296          16,182             10,680       79,976
CHIP.....................................    5,658,460             16,975         1,415           45,082          10,525              6,947       52,029
                                          --------------------------------------------------------------------------------------------------------------
    Total................................   47,467,922            142,403        11,867          378,083          88,291             58,272      436,355
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. ICRs Regarding the Availability of Information and Reason for Any 
Denial (Sec. Sec.  438.915(b), 440.395(c)(2), and 457.496(e)(2))
    MHPAEA requires that the reason for any denial--under a group 
health plan or health insurance coverage--of reimbursement or payment 
for MH/SUD benefits must be made available (upon request or as 
otherwise required) by the plan administrator (or the health insurance 
issuer) to the beneficiary in accordance with MHPAEA regulations (45 
CFR 146.136(d)(2)).
    For the proposed provisions, this proposed rule would not impose 
any new or revised third-party disclosure requirements, and therefore, 
does not

[[Page 19435]]

require additional OMB review under the authority of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501 et seq.). The proposed text only 
clarifies the expectations for disclosing information concerning the 
denial of reimbursement or payment for MH/SUD benefits. We believe that 
the proposed requirements are already met by complying with existing 
disclosure requirements in part 438, and therefore, do not create any 
requirements or burden beyond what is currently approved by OMB under 
control number 0938-1080 (CMS-10307). We also believe that the proposed 
requirements are already met for CHIP by complying with existing 
notification and disclosure requirements in Sec. Sec.  457.110 and 
457.1130, and therefore, do not create any requirements or burden 
beyond what is currently approved by OMB under control number 0938-1148 
(CMS-10398 #34) (formerly, CMS-R-211, control number 0938-0707). 
Furthermore, the proposed provisions do not create any new or revised 
third-party disclosure requirements for ABPs beyond what is currently 
approved by OMB under control number 0938-1188 (CMS-10434).
3. ICRs Regarding Parity in Mental Health and Substance Use Disorder 
Benefits Under Sec.  440.395 (Alternative Benefit Plan) and Sec.  
457.496 (CHIP State Plan)
    The ABP State Plan Application is employed by states to identify 
benefits offered to Medicaid beneficiaries receiving services under 
section 1937 of the Act. The application requires that states identify 
the MH/SUD services that will be offered under the plan. The plan also 
collects information on any limitations (quantitative and 
nonquantitative treatment limitations) and financial requirements 
across all benefit categories (including all medical/surgical 
services). For states needing to come into compliance with MHPAEA, the 
state is required to submit an ABP SPA amendment.
    The parity requirements proposed in Sec.  440.395 would not impose 
any new or revised reporting, recordkeeping, or third-party disclosure 
requirements, and therefore, do not require additional OMB review under 
the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.). The proposed provisions only clarify parity requirements and the 
meaning of terms for ABPs and do not create any information collection 
requirements or burden beyond what is currently approved by OMB under 
control number 0938-1188 (CMS-10434).
    The single streamlined application is employed by states to 
determine Medicaid or CHIP eligibility. It is not used to determine 
benefits of any kind. However, states are required to review their 
respective CHIP state plans to determine if they are in compliance with 
MHPAEA. For states needing to come into compliance, the state must 
submit a CHIP SPA amendment.
    The parity requirements proposed in Sec.  457.496 would not impose 
any new or revised reporting, recordkeeping, or third-party disclosure 
requirements, and therefore, do not require additional OMB review under 
the authority of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et 
seq.). The information collection requirements and burden are approved 
by OMB under control number 0938-1148 (CMS-10398 #34) (formerly CMS-R-
211, control number 0938-0707).
4. ICRs Regarding State Plan Amendments
    While this proposed rule discusses a number of optional and 
mandatory SPA amendments, this proposed rule would not impose any new 
or revised SPA-specific reporting, recordkeeping, or third-party 
disclosure requirements and therefore, does not require additional OMB 
review under the authority of the Paperwork Reduction Act of 1995 (44 
U.S.C. 3501 et seq.). The currently approved ABP SPA application was 
designed to capture the MHPAEA final rule classifications and identify 
if there are specific treatment limitations or financial requirements. 
The information collection requirements and burden are approved by OMB 
under control number 0938-1188 (CMS-10434).
5. ICRs Regarding State Health Official (SHO) Letters SHO #09-014 
(November 4, 2009) and SHO #13-001 (January 16, 2013)
    The January 2013 SHO letter addressed the application of the MHPAEA 
requirements in Medicaid and expanded upon the CMS' CHIP guidance 
provided in the November 2009 letter regarding section 502 of CHIPRA. 
The letters are discussed in section II.A. of this proposed rule as 
background. This proposed rule does not propose any new or revised 
reporting, recordkeeping, or third-party disclosure requirements 
pertaining to either of the letters. Consequently, the PRA does not 
apply.
6. ICRs Regarding Contract Requirements (Sec.  438.6(n))
    In Sec.  438.6(n), states would be required to include contract 
provisions in all applicable MCO, PIHP, and PAHP contracts to comply 
with part 438, subpart K. We estimate a one-time state burden of 30 
minutes for a Business Operations Specialist at $66.38/hour to amend 
each contract with the applicable requirements. In aggregate, we 
estimate 301 hours (602 contracts x 0.5 hours) and $16,049 (301 hours x 
$53.32/hr). The proposed requirements and burden will be submitted to 
OMB for approval under control number 0938-New (CMS-10556).

C. Summary of Proposed Burden Estimates

                                            Table 4--Proposed Annual Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                          Total     Hourly labor  Total labor      Total
 Regulation Section(s) under  OMB Control No.                   Total      Burden per     annual       cost of      cost of      capital/     Total cost
     Title 42 of the CFR        (CMS ID No.)    Respondents   responses     response      burden    reporting ($/  reporting    maintenance      ($)
                                                                             (min)       (hours)         hr)          ($)        costs ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
438.915(a), 440.395(c)(1),    0938-New (CMS-            602      142,403            5       11,867         31.86      378,082        40,645      436,355
 and 457.496(e)(1).            10556).
438.6(n)....................  ...............            36          602           30          301         66.38       19,980             0       19,980
                             ---------------------------------------------------------------------------------------------------------------------------
    Total...................  ...............           638      143,005           35       12,168  ............      398,062        40,645      456,335
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Submission of PRA-Related Comments

    We have submitted a copy of this proposed rule to OMB for its 
review of the rule's information collection requirements. These 
requirements are not effective until they have been approved by OMB.
    To obtain copies of the supporting statement and any related forms 
for the proposed paperwork collections referenced above, access CMS' 
Web site

[[Page 19436]]

at http://www.cms.hhs.gov/PaperworkReductionActof1995; email your 
request, including your address, phone number, OMB control number, and 
CMS document identifier, to Paperwork@cms.hhs.gov; or call the Reports 
Clearance Office at 410-786-1326.
    We invite public comments on these potential information collection 
requirements. If you comment on these information collection and 
recordkeeping requirements, please submit your comments electronically 
as specified in the ADDRESSES section of this proposed rule. Please 
include ``CMS-2333-P,'' the ICR's OMB control number, and the CMS 
document ID number in your comment.
    PRA-specific comments must be received by June 9, 2015.

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

    This proposed rule addresses the applicability of the requirements 
under the MHPAEA to Medicaid non-managed care benchmark and benchmark-
equivalent plans (referred to in this proposed rule as Medicaid ABPs) 
as described in section 1937 of the Act, CHIP under title XXI of the 
Act, and Medicaid MCOs as described in section 1932 of the Act.
    In 2013, we released a SHO letter that provided guidance to states 
regarding the implementation of requirements under MHPAEA to Medicaid 
benchmark and benchmark-equivalent plans (referred to in this letter as 
ABPs), CHIP, and Medicaid MCOs.
    Final regulations implementing MHPAEA were published by HHS, the 
Department of Labor, and the Department of Treasury in the November 13, 
2013 Federal Register. The MHPAEA final regulations do not apply to 
Medicaid MCOs, ABPs, or CHIP state plans.
    We believe that in absence of a regulation specific to the 
application of the parity requirements under MHPAEA to Medicaid and 
CHIP, states would not be compelled to implement the necessary changes 
to these programs, resulting in an inequity between beneficiaries who 
have MH/SUD conditions in the commercial market (including the state 
and federal marketplace) and Medicaid and CHIP. Even for states that 
are attempting to comply with parity requirements under MHPAEA, the 
absence of regulation could lead to inconsistent state-specific 
policies based on a state's interpretation of how policies set forth in 
the MHPAEA final regulations might apply in the Medicaid and CHIP 
contexts.
    This proposed rule provides the specificity and clarity needed to 
effectively implement the policies set forth by MHPAEA and prevent the 
use of prohibited limits on coverage, including nonquantitative 
treatment limitations that disproportionately limit coverage of 
treatment for MH/SUD conditions. The Department's assessment of the 
expected economic effects of this proposed rule is discussed in detail 
below.

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 
RIA, which to the best of our ability presents the costs and benefits 
of the rulemaking.
    Because the application of parity requirements to ABPs; MCOs and 
PIHPs and PAHPs providing services to MCO enrollees; and the CHIP is 
likely to have an effect on the economy of $100 million or more in any 
given year, this proposed rule is economically significant within the 
meaning of section 3(f)(1) of the Executive Order As elaborated below, 
we believe the benefits of the rule justify the costs.

C. Anticipated Effects

    This proposed rule would benefit approximately 21.6 million 
Medicaid beneficiaries and 850,000 CHIP beneficiaries in 2015, based on 
service utilization estimates from 2012 Medicaid and CHIP enrollment. 
We expect that a significant benefit associated with the application of 
the parity requirements under MHPAEA and these proposed regulations 
will be derived from applying parity requirements to the quantitative 
treatment limits such as annual or lifetime day or visit limits. 
Applying parity requirements to visit or stay limits will help ensure 
that vulnerable populations--those accessing substantial amounts of MH/
SUD services--have better access to appropriate care. Among adults aged 
18 through 64 with Medicaid coverage, approximately 9.6 percent have a 
serious mental illness, 30.5 percent have any mental illness, and 11.9 
percent have a substance use disorder.\7\ Among CHIP beneficiaries, 
approximately 8 percent of children experience serious behavioral or 
emotional difficulties.\8\
---------------------------------------------------------------------------

    \7\ Calculations were based on the Substance Abuse and Mental 
Health Services Administration (SAMHSA) National Survey of Drug Use 
and Health.
    \8\ Pastor PN, Reuben CA, Duran CR. Identifying Emotional And 
Behavioral Problems in Children Aged 4-17 Years: United States, 
2001-2007. National Health Statistics Report No. 48. Hyattsville, 
MD: National Center for Health Statistics; 2012.

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[[Page 19437]]

    Evidence-based treatment for severe and persistent mental illness, 
and for substance use disorders, often requires prolonged (possibly 
lifetime) treatment that consists of pharmacotherapy, supportive 
counseling, and often rehabilitative services. Individuals with severe 
MH/SUD conditions often quickly exhaust their benefits under Medicaid 
managed care. In addition, CHIP programs may restrict coverage, such as 
covering only 40 hours of psychotherapy or 5 days of detoxification per 
year. These coverage restrictions often result in people forgoing 
outpatient treatment and a higher likelihood of non-adherence to 
treatment regimes, which produce poor health and welfare outcomes and 
create the potential for increased hospitalization 
costs.9 10 For those with substance use disorders, treatment 
retention is of key importance when assessing outcomes, where those who 
stayed in treatment longer had more success in decreasing their 
substance use.11 12 In 2011, approximately 8 percent of 
adults with Medicaid coverage reported at least one occurrence in the 
past 12 months of feeling the need for mental health or substance use 
treatment or counseling but not receiving it.\13\ Between 2007 and 
2009, approximately 72 percent of children in Medicaid with a potential 
mental health need did not receive mental health services.\14\ The most 
frequently cited reasons for not seeking MH/SUD treatment are cost and/
or a lack of health insurance coverage, low perceived need, stigma, or 
structural barriers (for example, no transportation, did not know where 
to go).15 16 Removing quantitative limits on treatment may 
be particularly beneficial for individuals with severe mental illness 
and substance use disorders who may need to receive more services than 
the average individual.17 18 Improved coverage may also 
reduce the financial burden on individuals and families, particularly 
those families of children mental health service needs.\19\ Finally, 
improving coverage of MH/SUD treatment may also improve employment, 
productivity, and earnings among those with these conditions.\20\ Wang, 
et al, found that implementing a care program for those identified with 
depression yielded not only enhanced clinical outcomes relative to 
depression, but also produced positive outcomes relative to decreased 
sick leave and increased productivity.\21\ Similarly, the State of 
Washington implemented a substance abuse treatment program for those 
receiving Aid to Families with Dependent Children (AFDC), and found 
that access to treatment increased both earnings for those with jobs, 
and increased rates of employment.\22\
---------------------------------------------------------------------------

    \9\ Medication-Assisted Treatment for Opioid Addiction in Opioid 
Treatment Programs. Rockville (MD): Substance Abuse and Mental 
Health Services Administration (US); 2005. Treatment Improvement 
Protocol (TIP) Series, No. 43.
    \10\ Trivedi AN, Swaminathan S, Mor V. Insurance parity and the 
use of outpatient mental health care following a psychiatric 
hospitalization. JAMA. 2008 Dec 24;300(24):2879-85.
    \11\ Simpson D D, Joe G W, Rowan-Szal G. Drug abuse treatment 
retention and process effects on follow-up outcomes. Drug and 
Alcohol Dependence. 1997b;47(3):227-235.
    \12\ Hartel D M, Schoenbaum E E. Methadone treatment protects 
against HIV infection: Two decades of experience in the Bronx, New 
York City. Public Health Reports. 1998;113(Suppl. 1):107-115.
    \13\ Substance Abuse and Mental Health Services Administration 
(SAMHSA). Behavioral Health United States 2012. HHS Publication No. 
(SMA)13-4797. Rockville, MD: SAMHSA; 2013.
    \14\ GAO. Children's Mental Health: Concerns Remain about 
Appropriate Services for Children in Medicaid and Foster Care. 
December 2012. http://www.gao.gov/assets/660/650716.pdf. Accessed 
June 27, 2014.
    \15\ Affordability Most Frequent Reason for Not Receiving Mental 
Health Services. Rockville (MD): Substance Abuse and Mental Health 
Services Administration (US); 2013. The NSDUH Report Data Spotlight.
    \16\ Results from the 2012 National Survey on Drug Use and 
Health: Summary of National Findings and Detailed Tables. Rockville 
(MD): Substance Abuse and Mental Health Services Administration 
(US); 2013.
    \17\ Zuvekas SH, Banthin JS, Selden TM. How would mental health 
parity affect the marginal price of care? Health Serv Res. 2001 
Feb;35(6):1207-27. Review.
    \18\ McConnell KJ. The effect of parity on expenditures for 
individuals with severe mental illness. Health Serv Res. 2013 
Oct;48(5):1634-52. doi: 10.1111/1475-6773.12058. Epub 2013 Apr 5.
    \19\ Barry CL, Busch SH. Do state parity laws reduce the 
financial burden on families of children with mental health care 
needs? Health Serv Res. 2007 Jun;42(3 Pt 1):1061-84.
    \20\ Dunigan R, Acevedo A, Campbell K, Garnick DW, Horgan CM, 
Huber A, Lee MT, Panas L, Ritter GA. Engagement in outpatient 
substance abuse treatment and employment outcomes. J Behav Health 
Serv Res. 2014 Jan;41(1):20-36. doi: 10.1007/s11414-013-9334-2
    \21\ Wang P, Simon GE, Avorn J, Azocar F, Ludman EJ, McCulloch 
J, Petukhova MZ, Kessler RC. Telephone screening, outreach and care 
management for depressed workers and impact on clinical and work 
productivity outcomes. JAMA 2007;298(12):1401-11.
    \22\ Wickizer TM, Campbell K, Krupski A, Stark K. Employment 
outcomes among AFDC recipients treated for substance abuse in 
Washington State. Milbank Q. 2000;78(4):585-608, iv. PubMed PMID: 
11191450.
---------------------------------------------------------------------------

    Application of parity requirements may also result in changes to 
payers' utilization management approaches, specifically when requiring 
preauthorization of mental health services. It was found that even when 
approval for continued access to mental health services was in essence 
guaranteed, patients sought out less treatment, perhaps believing they 
``should not'' access further needed treatment.\23\ Hodgkin, et al, 
found that removal of utilization management approaches (including 
preauthorization for the first set of mental health visits) increased 
use of mental health services.\24\ Cuffel, et al, note that there are 
various reasons for why an approach like preauthorization can impact 
provider behavior relative to mental health service. Providers may 
believe that the preauthorization process is too laborious and not 
worth their time; they may fear that those reviewing the request will 
penalize them for submitting a preauthorization request; they may 
assume that the set limits on services preclude additional requests for 
services; providers may believe that the initial limits are in place as 
an implied recommendation towards shorter treatment cycles; and some 
may believe requests for preauthorization simply will not be approved 
at all.\25\ Liu, et al, found a significant correlation between 
preauthorization processes and the probability of ending mental health 
treatment prematurely.\26\
---------------------------------------------------------------------------

    \23\ Liu, X., R. Sturm, and B. J. Cuffel. 2000. ``The Impact of 
Prior Authorization on Outpatient Utilization in Managed Behavioral 
Health Plans.'' Medical Care Research Review 57: 182-95.
    \24\ Hodgkin D, Merrick EL, Horgan CM, Garnick DW, McLaughlin 
TJ. ``Does Type of Gatekeeping Model Affect Access to Outpatient 
Specialty Mental Health Services?.'' Health Services Research 42. 1 
(2007): 104-123.
    \25\ Cuffel, B., McCulloch, J., Wade, R., Tam, L., Brown-
Mitchell, R., & Goldman, W. (2000). Patients' and providers' 
perceptions of outpatient treatment termination in a managed 
behavioral health organization. Psychiatric Services, 51(4), 469-
473.
    \26\ Liu, X., Sturm, R., Cuffel, B. (2000) The impact of prior 
authorization on outpatient utilization in managed behavioral health 
plans. Med Care Res Rev. Jun;57(2):182-95.
---------------------------------------------------------------------------

    Application of parity requirements under MHPAEA may also have 
benefits in terms of reduced medical costs. Mental health and physical 
health are interrelated, and individuals with poor mental health are 
likely to have physical health problems as well.27 28 29 
Increased access to and utilization of MH/SUD benefits may result in a 
reduction of medical and surgical costs for individuals with mental 
health conditions and substance use disorders (so called ``medical cost 
offsets''). For example, after receiving treatment, individuals with 
substance use

[[Page 19438]]

disorders may experience fewer hospitalizations and emergency room 
visits stemming from unintended injuries such as accidents and drug 
overdose. The evidence that treatment results in medical care offsets 
is stronger for substance abuse treatment than for mental health 
treatment. For example, an evaluation on the expansion of substance 
abuse treatment in Washington State's Medicaid program found per member 
per month savings of $160 to $385 depending on the welfare cohort.\30\ 
Another study done on welfare clients in Washington State found that 
those accessing substance use disorder treatment had $2500 less in 
medical costs than those who did not access treatment. This estimated 
savings equaled the cost of SUD treatment for individuals accessing SUD 
treatment.\31\ While a similar reduction in medical costs may be 
expected from mental health treatment, most empirical studies have not 
found a significant medical cost offset from mental health 
treatment.32 33
---------------------------------------------------------------------------

    \27\ Druss BG, Walker ER. Mental disorders and medical 
comorbidity. Synth Proj Res Synth Rep. 2011 Feb;(21):1-26. Review.
    \28\ National Institute on Drug Abuse. (December 2012). Medical 
Consequences of Drug Abuse. Retrieved from http://www.drugabuse.gov/related-topics/medical-consequences-drug-abuse.
    \29\ Bouchery, E. E., Harwood, H. J., Sacks, J. J., Simon, C. 
J., & Brewer, R. D. (2011). Economic costs of excessive alcohol 
consumption in the US, 2006. American Journal of Preventive 
Medicine, 41(5), 516-524.
    \30\ Wickizer, T. M., Mancuso, D., & Huber, A. (2012). 
Evaluation of an innovative Medicaid health policy initiative to 
expand substance abuse treatment in Washington State. Medical Care 
Research and Review, 69(5), 540-559.
    \31\ Wickizer, T. M., Krupski, A., Stark, K. D., Mancuso, D., & 
Campbell, K. (2006). The effect of substance abuse treatment on 
Medicaid expenditures among general assistance welfare clients in 
Washington State. Milbank Quarterly,84(3), 555-576.
    \32\ Simon GE, Katzelnick DJ. Depression, use of medical 
services and cost-offset effects. J Psychosom Res. 1997 
Apr;42(4):333-44. Review.
    \33\ Sturm R. Economic grand rounds: The myth of medical cost 
offset. PsychiatryServ. 2001 Jun;52(6):738-40.
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1. Costs
a. Cost Associated With Increased Utilization of MH/SUD Benefits
    A primary objective of Congress in enacting MHPAEA was to eliminate 
barriers that impeded access to and utilization of MH/SUD benefits. 
Cost increases and increases in capitated rates may occur as a result 
of increased access and utilization from the application of parity 
requirements and these proposed regulations, but the evidence suggests 
that any increases will not be large. The impact of parity requirements 
will depend on the extent to which MCOs, ABPs, and CHIP plans lack 
benefits in some classifications or manage these benefits inconsistent 
with such parity requirements.
    In the April 30, 2010 final rule on State Flexibility for Medicaid 
Benefit Packages (75 FR 23068), the assumptions utilized in modeling 
the estimated economic impact of the associated provisions took into 
account the costs of the benefit package for the new adult group served 
through ABPs. Coverage of these benefits was already accounted for in 
the April 30, 2010 final rule, and therefore, does not need to be 
repeated here. Because we approved ABPs only after ensuring compliance 
with MHPAEA, we project that this proposed regulation will result in no 
additional costs to ABPs.
(1) Effect of Removing Non-Compliant Quantitative Treatment Limitations
    A review of Medicaid managed care benefits in all 50 states and the 
District of Columbia revealed that a subset of states (18 states) had 
Medicaid managed care plans that imposed quantitative treatment limits 
on outpatient visits, inpatient stays, and intermediate services (for 
example, intensive outpatient treatment). As indicated in the preamble, 
some of these quantitative treatment limits are a result of what is 
currently in a state's Medicaid plan.
    A review of CHIP plans indicated that most are already compliant 
with MHPAEA. CHIP plans that include Medicaid EPSDT are already 
required to cover mental health and substance abuse services as needed 
and they are deemed compliant with MHPAEA parity requirements for 
financial requirements and treatment limitations. It is not permissible 
to apply annual or lifetime limits to the EPSDT benefit. CHIP stand-
alone programs are also already compliant with MHPAEA because of 
changes to treatment limitations for both mental health or substance 
use disorder benefits and medical and surgical benefits required under 
the Affordable Care Act.\34\ Among CHIP plans that are Medicaid 
expansion plans, we found only one to have an explicit quantitative 
limit.\35\
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    \34\ Sarata AK. Mental health parity and the Patient Protection 
and Affordable Care Act of 2010. Washington, DC: Congressional 
Research Service; 2011.
    \35\ McConnell KJ, Gast SH, Ridgely MS, Wallace N, Jacuzzi N, 
Rieckmann T, McFarland BH, McCarty D. Behavioral health insurance 
parity: Does Oregon's experience presage the national experience 
with the Mental Health Parity and Addiction Equity Act? Am J 
Psychiatry 2012 Jan;169(1):31-8.
---------------------------------------------------------------------------

    We conducted an analysis to determine how the use of services might 
increase if quantitative limits on Medicaid MCO and CHIP programs were 
eliminated. Where quantitative limits exist that are non-compliant with 
parity requirements, states also have the option to align these limits 
for MH/SUD and medical/surgical benefits consistent with the provisions 
of this proposed rule. However, to estimate the highest possible cost 
impact that could be expected, we simulated the effect of removing 
visit and day limits in states with limits for treatment users by 
anticipating that utilization would increase for beneficiaries who were 
near or exceeded current limits to equal utilization patterns observed 
in states without limits for Medicaid managed care beneficiaries. This 
simulation indicated the maximum impact of removing quantitative day 
and visit limits on MH/SUD services by Medicaid MCOs to be $103 million 
nationwide (including federal and state costs) in undiscounted dollars 
in 2015. Using a similar approach, we estimated the maximum impact of 
removing quantitative limits on CHIP expenditures to be $39.1 million 
in undiscounted dollars in 2015.
    However, these estimates are the largest possible cost impacts and 
the actual impact is likely to be lower. One reason is that some states 
with quantitative limits may have mechanisms in place for beneficiaries 
to obtain hospital days or outpatient visits beyond the state's limit 
if such care is determined to be medically necessary. In practice, we 
anticipate a potentially lower impact than estimated currently, given 
that quantitative limits may already be routinely exceeded. We found 
that in most of the 18 states with visit limits, a number of recipients 
(for example, 5 to 20 percent) used services beyond the treatment 
limit, suggesting that exceptions to the quantitative limits may occur 
in these states. This does not appear to be the case in all states, 
because in a few states with visit limits ranging from approximately 24 
to 40 visits, only 1 or 2 percent of recipients exceeded the limit.
    There are no studies to date on how the application of federal 
parity requirements affects Medicaid spending. However information from 
states that have passed state-specific parity legislation (which 
includes application to Medicaid) provides additional support for the 
projected impact of these proposed regulations on service utilization 
and spending. For instance, an evaluation of the Oregon parity law 
found no significant increases in aggregate behavioral health spending 
or in the percent of individuals using behavioral health services 
associated with its implementation.\36\ The evaluators surmised that 
the flexibility in quantitative limits prior to the parity law may be 
one reason that the

[[Page 19439]]

implementation of parity did not lead to large increases in spending. 
Specifically, they found that prior to the implementation of the state 
parity law, approximately 5 percent of beneficiaries with any 
behavioral health visits exceeded the specified limits of that plan.
---------------------------------------------------------------------------

    \36\ McConnell KJ, Gast SH, Ridgely MS, Wallace N, Jacuzzi N, 
Rieckmann T, McFarland BH, McCarty D. Behavioral health insurance 
parity: Does Oregon's experience presage the national experience 
with the Mental Health Parity and Addiction Equity Act? Am J 
Psychiatry 2012 Jan;169(1):31-8.
---------------------------------------------------------------------------

    Vermont's parity law is also very similar to MHPAEA. A study of 
Vermont's parity law found that the share of spending on mental and 
substance use disorders increased only slightly, from 2.30 percent to 
2.47 percent of total spending for one health plan.\37\
---------------------------------------------------------------------------

    \37\ Rosenbach M, Lake T, Young C, et al. Effects of the Vermont 
Mental Health and Substance Abuse Parity Law. DHHS Pub. No. SMA 03-
3822, Rockville, MD: Substance Abuse and Mental Health Services 
Administration; 2003.
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    Finally, a recent evaluation of the effect of MHPAEA on the 
commercial market revealed a modest increase in spending on substance 
use disorder treatment per enrollee ($9.99, 95 percent CI: 2.54, 
18.21), but no significant change in the percent of individuals using 
substance use disorder services.\38\
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    \38\ Busch SH, Epstein AJ, Harhay MO, Fiellin DA, Un H, Leader D 
Jr, Barry CL. The effects of federal parity on substance use 
disorder treatment. Am J Manag Care. 2014 Jan;20(1):76-82.
---------------------------------------------------------------------------

(2) Effect of Classification of Services Requirements
    This proposed rule requires that if the state provides for MH/SUD 
services under the state plan, MH/SUD services must be provided to MCO 
enrollees in every classification in which medical/surgical benefits 
are provided. After reviewing the MH/SUD services provided under 
Medicaid managed care plans, we identified only two states providing 
for MH/SUD services under the state plan in which MH/SUD services were 
excluded from a classification in which medical/surgical benefits are 
provided. In both states, the excluded services were substance abuse 
inpatient services. For the purposes of this analysis, we assumed that 
substance abuse inpatient services would need to be included to the 
extent that they were provided in a distinct part or unit of a general 
hospital or facility with 16 or fewer beds. Using data on current use 
of Medicaid substance use disorder inpatient services and the cost of 
those services from Medicaid claims data, we estimated that the 
additional coverage for these services would have led to an increase of 
$11.7 million nationwide in undiscounted dollars in 2012.
    Table 5 displays the total costs of removing non-compliant QTLs by 
service and meeting classification of services requirements in 2012.

     Table 5--Details of Estimated Costs of Meeting QTL and Classification of Services Requirements in 2012
----------------------------------------------------------------------------------------------------------------
                Inpatient                    Outpatient       Intermediate     Administrative         Total
----------------------------------------------------------------------------------------------------------------
                                     Mental Health--Medicaid ($million/year)
----------------------------------------------------------------------------------------------------------------
$19.8...................................             $62.3                $0              $0.3             $82.4
----------------------------------------------------------------------------------------------------------------
                                       Mental Health--CHIP ($million/year)
----------------------------------------------------------------------------------------------------------------
0.......................................              30.8               0.4              0.04              31.2
----------------------------------------------------------------------------------------------------------------
                                Substance Use Disorder--Medicaid ($million/year)
----------------------------------------------------------------------------------------------------------------
11.7....................................                 0                 0                 0              11.7
----------------------------------------------------------------------------------------------------------------
                                  Substance Use Disorder--CHIP ($million/year)
----------------------------------------------------------------------------------------------------------------
0.......................................                 0                 0                 0                 0
----------------------------------------------------------------------------------------------------------------
                       Total Costs of Removing Quantitative Limits in 2012 ($million/year)
----------------------------------------------------------------------------------------------------------------
                                          ................  ................  ................             125.3
----------------------------------------------------------------------------------------------------------------
Note: Administrative costs are listed once for Medicaid and CHIP because the expense is all-inclusive for each
  program; costs are not broken down by service.

    Costs for complying with parity rules for each service category 
were estimated based on a simulation of additional utilization states 
may incur as a result of removing quantitative treatment limits. For 
the analysis of intermediate services, we examined limits on partial 
hospitalization and intensive outpatient care.
    These figures are calculated based on 2012 Medicaid and CHIP 
expenditures, which equate to approximately $125.3 million in 
additional costs as a result of parity compliance. To determine the 
percent impact to Medicaid expenditures in 2012, we divided $125.3 
million (the additional costs of increased utilization) by $408.8 
billion (total Medicaid expenditures). Based on this calculation, 
Medicaid expenditures would increase by 0.03 percent each year. As 
total Medicaid expenditures increase over time, the cost impact of 
mental health parity is expected to rise proportionally. Therefore, 
given that Medicaid expenditures overall are projected to equal 
approximately $513.4 billion in 2015,\39\ the predicted impact of 
mental health parity is expected to equal $157.4 million in 2015, and 
to rise in proportion to the growth in overall Medicaid spending in 
future years. Costs for 2015-2019 are displayed in Table 6.
---------------------------------------------------------------------------

    \39\ President's Budget for Fiscal Year 2015, available at 
http://www.whitehouse.gov/omb/budget/.

[[Page 19440]]

                                Table 6--Estimated Costs of CMS-2333 FY 2015-2019
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                      FY 2015         FY 2016         FY 2017         FY 2018         FY 2019
----------------------------------------------------------------------------------------------------------------
Federal.........................            94.6           102.0           108.4           114.0           120.3
State...........................            62.8            66.8            71.2            75.0            79.4
                                 -------------------------------------------------------------------------------
    Total.......................           157.4           168.8           179.6           188.9           199.8
----------------------------------------------------------------------------------------------------------------

(3) Effect of Medical Cost Offsets
    As described above, the cost of improving access to MH/SUD 
treatment may be offset by a decline in the expenditures on treatments 
for medical conditions resulting from substance use disorders. There is 
strong evidence from Medicaid programs to assume a cost offset 
resulting from improved access to substance use disorder benefits. In 
contrast, the evidence for cost offset resulting from improved access 
to mental health benefits is weaker. We anticipate that, on balance, 
costs stemming from increased utilization of substance use disorder 
services resulting from application of parity requirements will be 
largely offset by the savings from reduced medical costs, yielding very 
little increase in overall costs from increased utilization of 
substance use disorder services. However, given the difficulty of 
quantifying the precise cost impact of this reduced use of medical 
services that is expected to result from enhanced access to substance 
use disorder services, we have not included any cost offset in our 
estimates.
b. Effect of Aligning NQTLs
    Under the MHPAEA final rules, medical management can be applied to 
MH/SUD benefits if the processes, strategies, evidentiary standards, or 
other factors used in applying medical management are comparable to, 
and are applied no more stringently than, the processes, strategies, 
evidentiary standards, or other factors used in applying medical 
management to medical and surgical benefits. It is difficult to 
determine whether, at baseline, Medicaid MCOs, ABPs and CHIP programs 
are applying medical management more stringently to MH/SUD benefits 
than to medical and surgical benefits. A state-by-state search of 
available Medicaid documents indicated that most states that use 
inpatient utilization management techniques for MH/SUD services, such 
as prior approval or continuing utilization review for inpatient stays, 
have similar restrictions for medical and surgical conditions. Surveys 
of commercial plans have also found that inpatient managed care 
restrictions, such as pre-admission prior approval, are common for 
medical and surgical admissions.40 41 There may be important 
distinctions in the processes, strategies, evidentiary standards, or 
other factors between MH/SUD services and medical and surgical 
services, but current data do not indicate that this is the case in a 
way that would lead to a clear cost impact.
---------------------------------------------------------------------------

    \40\ Baker CA, Diaz IS. Managed care plans and managed care 
features: Data from the EBS to the NCS. Compensation and Working 
Conditions Spring 2011:30-6.
    \41\ Claxton, G., DiJulio, B., Whitmore, H., Pickreign, J., 
McHugh, M., Finder, B., & Osei-Anto, A. (2009). Job-based health 
insurance: Costs climb at a moderate pace. Health Aff 2009; 
28(6):w1002-12.
---------------------------------------------------------------------------

    Moreover, if some Medicaid plans have stricter management controls 
for MH/SUD services than for medical services, there is scant evidence 
at this time as to how utilization management will evolve with the 
application of parity requirements and whether stricter controls would 
result in higher costs.\42\ For example, stricter controls may lead to 
underutilization of sub-acute levels of care for MH/SUD conditions, 
leading to the worsening of both MH/SUD conditions and medical or 
surgical conditions that ultimately require more costly acute levels of 
care. Studies of the effect of utilization review and prior approval on 
MH/SUD inpatient services have revealed mixed results, with some 
studies showing that these managed care techniques result in lower 
costs, quantities of treatment, or both, and other studies finding only 
weak or no effects, or effects that are short 
term.43 44 45 46 As noted above, the studies of Oregon and 
Vermont, whose parity laws include similar restrictions on medical 
management, have not shown increases in costs resulting from 
application of these laws. There is uncertainty regarding the level of 
increased costs that will result from application of the parity 
requirement for NQTLs, but there is evidence that any increases may be 
small. We invite comments related to any additional evidence on the 
impact of aligning NQTLs for Medicaid services.
---------------------------------------------------------------------------

    \42\ Hodgkin D. The impact of private utilization management and 
psychiatric care: A review of the literature. Journal of Mental 
Health Administration 1992; 19(2):143-57.
    \43\ Dickey B, Azeni H. Impact of managed care on mental health 
services. Health Aff 1992 Fall; 11(3):197-204.
    \44\ Frank RG, Brookmeyer R. Managed mental health care and 
patterns of inpatient utilization for treatment of affective 
disorders. Soc Psychiatry Psychiatric Epidemiol 1995 Aug; 30(5):220-
3.
    \45\ Wickizer TM, Lessler D, Travis KM.. Controlling inpatient 
psychiatric utilization through managed care. Am J Psychiatry 1996; 
153:339-45.
    \46\ Wickizer TM, Lessler D. Do treatment restrictions imposed 
by utilization management increase the likelihood of readmission for 
psychiatric patients? Med Care 1998; 36(6):844-50.
---------------------------------------------------------------------------

2. Transfers Resulting From Increased Access Under Medicaid
    Transfer payments are monetary payments from one group to another 
that do not affect total resources available to society. There is a 
potential that application of parity requirements under MHPAEA will 
result in transfers among different government entities. MH/SUD 
services receive greater funding from public sources, such as Medicaid, 
federal government block grants, state government general funds, and 
local government funding, than do medical and surgical services.\47\ 
Over time, MH/SUD spending has been shifting away from state and local 
funding, toward federal financing, especially Medicaid.\48\ The 
potential increase in the availability of MH/SUD services under 
Medicaid and CHIP as a result of the MHPAEA parity requirements may 
result in a reduction in use of, and spending on, services financed by 
other public sources such as state and local governments and federal 
block grants.\49\ Limited sound evidence exists about the size of this 
effect on states.
---------------------------------------------------------------------------

    \47\ Levit KR, Mark TL, Coffey RM, Frankel S, Santora P, 
Vandivort-Warren R, Malone K. Federal spending on behavioral health 
accelerated during recession as individuals lost employer insurance. 
Health Aff 2013 May; 32(5):952-62.
    \48\ Levit KR, Mark TL, Coffey RM, Frankel S, Santora P, 
Vandivort-Warren R, Malone K. Federal spending on behavioral health 
accelerated during recession as individuals lost employer insurance. 
Health Aff 2013 May; 32(5):952-62.
    \49\ Frank RG, Goldman HH, Hogan M. Medicaid and mental health: 
Be careful what you ask for. Health Aff 2003 Jan-Feb; 22(1):101-13.

---------------------------------------------------------------------------

[[Page 19441]]

D. Alternatives Considered

    We considered several other approaches for providing guidance to 
states regarding the application of the MHPAEA to Medicaid MCOs, ABPs, 
and CHIP. As stated in the preamble of this proposed rule, under our 
current policies, there is no affirmative obligation to ensure that MCO 
enrollees receive state plan benefits in a way that fully complies with 
MHPAEA. This is because section 1932(b)(8) of the Act does not apply to 
the design of the traditional Medicaid state plan, and state plans thus 
may be designed in a way that does not comply with MHPAEA requirements. 
Under current guidance, we have said that if an MCO is simply properly 
applying state plan benefits, there is no violation of section 
1932(b)(8) of the Act even if that benefit design does not conform to 
MHPAEA, because the MCO did not adopt that benefit design and thus was 
not at fault in its non-compliance. As explained above, we do not 
believe that this policy effectuates Congressional intent in enacting 
section 1932(b)(8) of the Act. Further, we believe that implementation 
of the statute requires that MCO enrollees receive benefits in a manner 
that complies with MHPAEA.
    We considered requiring that all state plan MH/SUD services be 
included under MCO contracts as the way to ensure that MCO enrollees 
receive the full protections of MHPAEA. However, we believe the 
approach we are proposing would allow states the most flexibility when 
applying mental health parity requirements to their Medicaid services 
across delivery systems. Given that there are many different delivery 
system configurations that carve out MH/SUD services, the proposed 
approach would allow states to comport with parity requirements for MCO 
enrollees without completely carving out MH/SUD services from their MCO 
or dropping MH/SUD coverage altogether.
    Also, under current statutes, regulations and policies, states 
would not be required under Federal law to apply MHPAEA provisions to 
PIHPs and PAHPs (many of which provide MH/SUD services) since these 
arrangements were not specifically addressed in section 1932(b)(8) of 
the Act, and MHPAEA does not directly apply to such contracts. 
Consideration of these unique state MH/SUD delivery systems is an 
important distinction in Medicaid when compared to the commercial 
market. Further, because the statutory provisions making mental health 
parity requirements applicable to MCOs do not explicitly address these 
situations, additional interpretation is needed.
    In addition to the delivery system issues, states would not be 
required to remove or align limits on services that were in the state 
plan for individuals enrolled in an MCO. As stated previously in this 
proposed regulation, these limits would be carried through in the 
development of rates, and cost of services outside of the state plan or 
a waiver of the state plan cannot be included. Without the proposed 
change in this rule, individuals enrolled in an MCO could still be 
subject to treatment limitations that are not compliant with parity 
requirements, which we believe is inconsistent with the intent of 
Congress in requiring in section 1932(b)(8) of the Act that MCOs 
deliver services in a manner consistent with MHPAEA requirements and 
the policies regarding application of MHPAEA to ABPs and CHIP that 
operate in a FFS arrangement. In addition, without these changes to the 
managed care rate setting process, it will be difficult for MCOs to 
comply with statutory requirements regarding financial requirements and 
treatment limitations.
    Finally, there are mental health parity provisions that are not 
applicable to the FFS delivery systems for Medicaid ABP benefits. These 
include: Annual and lifetime dollar limits, availability of plan 
information, and access to out-of-network providers.
    In addition, we considered the ability to provide guidance and 
enforce the provisions of MHPAEA's application to Medicaid and CHIP 
through sub-regulatory guidance. Over the past 5 years, we have used 
two SHO letters to provide guidance to states regarding MHPAEA and 
Medicaid and CHIP. While states and other stakeholders found this 
guidance useful, there were many questions or concerns regarding the 
lack of specificity regarding application of MHPAEA parity requirements 
to Medicaid and CHIP. There were several issues that states raised 
regarding this sub-regulatory guidance. One issue was the actuarial 
soundness requirements, which mandate that MCO payments be based on 
services as covered under state plans. Another was additional 
clarification of NQTLs and states' concerns regarding existing federal 
and state policies that required utilization management strategies that 
were inconsistent with the intent of MHPAEA. States also raised 
additional questions regarding application of MHPAEA parity 
requirements to other delivery systems including PIHPs, PAHPs, and FFS. 
We do not believe that additional subregulatory guidance would provide 
the necessary authority for MCOs and states to implement or enforce 
MHPAEA parity requirements for Medicaid beneficiaries enrolled in an 
MCO.
    We request public comment on our rationale for having regulations 
that are specific to Medicaid and CHIP.

E. Accounting Statement and Table

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars_a004_a-4/), in Table 7 we have 
prepared an accounting statement showing the classification of the 
impacts associated with implementation of this proposed rule.
    The projected impact on costs in 2015 was calculated by multiplying 
the percent anticipated increase in cost due to the application of 
parity requirements by expected Medicaid expenditures in 2015. Based on 
our analysis, the parity rule will lead to an increase of approximately 
0.03 percent in total Medicaid spending each year over 10 years. In 
2015, Medicaid expenditures overall are projected to equal 
approximately $513.4 billion.\50\ Thus, the undiscounted cost of the 
rule is estimated to be $157.4 million in 2015, and to rise 
proportionate to the growth in overall Medicaid spending in future 
years. These costs are split between the federal and state governments 
based on the population covered and the statutory matching rate.
---------------------------------------------------------------------------

    \50\ Centers for Medicare & Medicaid Services. National Health 
Expenditure Projections 2012-2022. Forecast Summary. http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/Proj2012.pdf. 
Accessed June 25, 2014.

[[Page 19442]]

            Table 7--Accounting Statement: Classification of Estimated Benefit, Costs, and Transfers
----------------------------------------------------------------------------------------------------------------
                                                                                     Units
                   Category                       Estimates   --------------------------------------------------
                                                                 Year dollar   Discount rate %   Period covered
----------------------------------------------------------------------------------------------------------------
                                 Transfers from Federal Government to Providers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($million/year).........           107.0            2015                7         2015-2019
                                                        107.5            2015                3         2015-2019
----------------------------------------------------------------------------------------------------------------
                                  Transfers from State Government to Providers
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($million/year).........            70.5            2015                7         2015-2019
                                                         70.8            2015                3         2015-2019
----------------------------------------------------------------------------------------------------------------
Note. The displayed numbers are rounded to the nearest thousand and therefore may not add up to the totals.

F. Regulatory Flexibility Act (RFA)

    The RFA requires agencies to analyze options for regulatory relief 
for small entities, if a rule has a significant impact on a substantial 
number of small entities. The great majority of hospitals and most 
other health care providers and suppliers are small entities, either by 
being nonprofit organizations or by meeting the SBA definition of a 
small business (having revenues of less than $7.5 million to $38.5 
million in any 1 year). States are not included in the definition of a 
small entity. This proposed rule does not change the rates at which 
providers would be reimbursed for any additional treatments and 
services that may be required, and MCOs, PIHPs, and PAHPs will be paid 
on an actuarially sound basis for any additional coverage that they 
will be required to provide. As indicated previously in this proposed 
rule, the increased costs will be borne by states and the federal 
government, which are not considered small entities. Therefore, the 
Secretary has determined that this proposed rule will not have a 
significant economic impact on a substantial number of small entities 
as that term is used in the RFA.
    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. 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.

G. Unfunded Mandates Reform Act (UMRA)

    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. UMRA does not address the total cost of 
a rule. Rather, it focuses on certain categories of cost, mainly those 
``Federal mandate'' costs resulting from (A) imposing enforceable 
duties on state, local, or tribal governments, or on the private 
sector, or (B) increasing the stringency of conditions in, or 
decreasing the funding of, state, local, or tribal governments under 
entitlement programs. The average state share of total Medicaid 
spending in 2015 is projected to be 39.9 percent. The total cost impact 
of this rule is estimated to be $157.4 million in 2015. Therefore, the 
total cost to states is projected to be approximately $62.8 million. 
Therefore, this proposed rule is not subject to UMRA.

H. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it issues 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.
    In the Secretary's view, this proposed rule has Federalism 
implications, because it has direct effects on the states, the 
relationship between the federal government and states, or on the 
distribution of power and responsibilities among various levels of 
government. However, in the Secretary's view, the Federalism 
implications of this proposed rule are substantially mitigated because, 
with regards to MCOs, ABPs, and CHIP, the Secretary expects that many 
states already offer benefits under their state plan and MCO contracts 
that meet or exceed the Federal mental health parity standards that 
would be implemented in this rule.
    Throughout the process of developing these regulations, to the 
extent feasible within the relevant provisions of the Act, PHS Act and 
MHPAEA, the Secretary has attempted to balance the latitude for states 
to structure their state plan services and MCO contracts according to 
the needs and preferences of the state, and the Congress' intent to 
provide uniform minimum protections to Medicaid and CHIP beneficiaries 
in every state. By doing so, it is the Secretary's view that this 
proposed rule complies with the requirements of Executive Order 13132.

I. Conclusion

    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 438

    Grant programs-health, Medicaid, Reporting and recordkeeping 
requirements.

42 CFR Part 440

    Grant programs-health, Medicaid reporting.

42 CFR Part 456

    Administrative practice and procedure, Drugs, Grant programs-
health, Health facilities, Medicaid, Reporting and recordkeeping 
requirements.

42 CFR Part 457

    Administrative practice and procedure, Grant programs-health, 
Health insurance, Reporting and recordkeeping requirements.

[[Page 19443]]

    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 438--MANAGED CARE

0
1. The authority citation for part 438 continues to read as follows:

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

0
2. Section 438.6 is amended by revising paragraph (e) and adding 
paragraph (n) to read as follows:

Sec.  438.6  Contract requirements.

* * * * *
    (e) Additional services that may be covered by a MCO, PIHP, or 
PAHP. A MCO, PIHP, or PAHP may cover, for enrollees, services that are 
in addition to those covered under the state plan as follows:
    (1) Any services necessary for compliance by the MCO, PIHP, or PAHP 
with the requirements of subpart K of this part and only to the extent 
such services are necessary for the MCO, PIHP, or PAHP to comply with 
Sec.  438.910; and
    (2) Any services that the MCO, PIHP, or PAHP voluntarily agrees to 
provide.
    (3) Only the costs associated with services in paragraph (e)(1) of 
this section may be included when determining the payment rates under 
paragraph (c) of this section.
* * * * *
    (n) Parity in mental health and substance use disorder benefits. 
(1) All MCO contracts, and any PIHP and PAHP contracts providing 
services to MCO enrollees, must ensure that enrollees receive services 
that are compliant with the requirements of subpart K of this part 
insofar as those requirements are applicable.
    (2) Any state providing any services to MCO enrollees using a 
delivery system other than the MCO delivery system must provide 
documentation of how the requirements of subpart K of this part are met 
with the submission of the MCO contract for review and approval under 
paragraph (a) of this section.
0
3. Subpart K is added to part 438 to read as follows:
Subpart K--Parity in Mental Health and Substance Use Disorder Benefits
Sec.
438.900 Meaning of terms.
438.905 Parity requirements for aggregate lifetime and annual dollar 
limits.
438.910 Parity requirements for financial requirements and treatment 
limitations.
438.915 Availability of information.
438.920 Applicability.
438.930 Compliance dates.

Subpart K--Parity in Mental Health and Substance Use Disorder 
Benefits

Sec.  438.900  Meaning of terms.

    For purposes of this subpart, except where the context clearly 
indicates otherwise, the following terms have the meanings indicated:
    Aggregate lifetime dollar limit means a dollar limitation on the 
total amount of specified benefits that may be paid under a MCO, PIHP, 
or PAHP.
    Annual dollar limit means a dollar limitation on the total amount 
of specified benefits that may be paid in a 12-month period under a 
MCO, PIHP, or PAHP.
    Cumulative financial requirements are financial requirements that 
determine whether or to what extent benefits are provided based on 
accumulated amounts and include deductibles and out-of-pocket maximums. 
(However, cumulative financial requirements do not include aggregate 
lifetime or annual dollar limits because these two terms are excluded 
from the meaning of financial requirements.)
    Early and Periodic Screening, Diagnostic and Treatment (EPSDT) 
benefits are benefits defined in section 1905(r) of the Act.
    Financial requirements include deductibles, copayments, 
coinsurance, or out-of-pocket maximums. Financial requirements do not 
include aggregate lifetime or annual dollar limits.
    Medical/surgical benefits means benefits for items or services for 
medical conditions or surgical procedures, as defined by the state and 
in accordance with applicable federal and state law, but do not include 
mental health or substance use disorder benefits. Any condition defined 
by the state as being or as not being a medical/surgical condition must 
be defined to be consistent with generally recognized independent 
standards of current medical practice (for example, the most current 
version of the International Classification of Diseases (ICD) or state 
guidelines). Medical/surgical benefits do not include long-term care 
services.
    Mental health benefits means benefits for items or services for 
mental health conditions, as defined by the state and in accordance 
with applicable federal and state law. Any condition defined by the 
state as being or as not being a mental health condition must be 
defined to be consistent with generally recognized independent 
standards of current medical practice (for example, the most current 
version of the Diagnostic and Statistical Manual of Mental Disorders 
(DSM), the most current version of the ICD, or state guidelines). 
Mental health benefits do not include long-term care services.
    Substance use disorder benefits means benefits for items or 
services for substance use disorders, as defined by the state and in 
accordance with applicable federal and state law. Any disorder defined 
by the state as being or as not being a substance use disorder must be 
defined to be consistent with generally recognized independent 
standards of current medical practice (for example, the most current 
version of the DSM, the most current version of the ICD, or state 
guidelines). Substance use disorder benefits do not include long-term 
care services.
    Treatment limitations include limits on benefits based on the 
frequency of treatment, number of visits, days of coverage, days in a 
waiting period, or other similar limits on the scope or duration of 
treatment. Treatment limitations include both quantitative treatment 
limitations, which are expressed numerically (such as 50 outpatient 
visits per year), and nonquantitative treatment limitations, which 
otherwise limit the scope or duration of benefits for treatment under a 
plan or coverage. (See Sec.  438.910(d)(2) for an illustrative list of 
nonquantitative treatment limitations.) A permanent exclusion of all 
benefits for a particular condition or disorder, however, is not a 
treatment limitation for purposes of this definition.

Sec.  438.905  Parity requirements for aggregate lifetime and annual 
dollar limits.

    (a) General--(1) General parity requirement. Each MCO, PIHP, and 
PAHP providing services to MCO enrollees must comply with paragraphs 
(b), (c), or (e) of this section for all enrollees of a MCO in states 
that cover both medical/surgical benefits and mental health or 
substance use disorder benefits under the state plan. This section 
details the application of the parity requirements for aggregate 
lifetime and annual dollar limits.
    (b) MCOs, PIHPs, or PAHPs with no limit or limits on less than one-
third of all medical/surgical benefits. If a MCO, PIHP, or PAHP does 
not include an aggregate lifetime or annual dollar limit on any 
medical/surgical benefits or includes an aggregate lifetime or annual 
dollar limit that applies to less than one-third of all medical/
surgical benefits provided to enrollees through a contract with the 
state, it may not impose an aggregate lifetime or annual dollar limit, 
respectively, on mental health or substance use disorder benefits.
    (c) MCOs, PIHPs, or PAHPs with a limit on at least two-thirds of 
all medical/surgical benefits. If a MCO,

[[Page 19444]]

PIHP, or PAHP includes an aggregate lifetime or annual dollar limit on 
at least two-thirds of all medical/surgical benefits provided to 
enrollees through a contract with the state, it must either--
    (1) Apply the aggregate lifetime or annual dollar limit both to the 
medical/surgical benefits to which the limit would otherwise apply and 
to mental health or substance use disorder benefits in a manner that 
does not distinguish between the medical/surgical benefits and mental 
health or substance use disorder benefits; or
    (2) Not include an aggregate lifetime or annual dollar limit on 
mental health or substance use disorder benefits that is more 
restrictive than the aggregate lifetime or annual dollar limit, 
respectively, on medical/surgical benefits.
    (d) Determining one-third and two-thirds of all medical/surgical 
benefits. For purposes of this section, the determination of whether 
the portion of medical/surgical benefits subject to an aggregate 
lifetime or annual dollar limit represents one-third or two-thirds of 
all medical/surgical benefits is based on the total dollar amount of 
all combinations of MCO, PIHP, and PAHP payments for medical/surgical 
benefits expected to be paid under the MCO, PIHP, or PAHP for a 
contract year (or for the portion of a contract year after a change in 
benefits that affects the applicability of the aggregate lifetime or 
annual dollar limits). Any reasonable method may be used to determine 
whether the dollar amount expected to be paid under the MCOs, PIHPs, 
and PAHPs will constitute one-third or two-thirds of the dollar amount 
of all payments for medical/surgical benefits.
    (e) MCO, PIHP, or PAHP not described in this section--(1) In 
general. A MCO, PIHP, or PAHP that is not described in paragraph (b) or 
(c) of this section for aggregate lifetime or annual dollar limits on 
medical/surgical benefits, must either--
    (i) Impose no aggregate lifetime or annual dollar limit, on mental 
health or substance use disorder benefits; or
    (ii) Impose an aggregate lifetime or annual dollar limit on mental 
health or substance use disorder benefits that is no more restrictive 
than an average limit calculated for medical/surgical benefits in the 
following manner. The average limit is calculated by taking into 
account the weighted average of the aggregate lifetime or annual dollar 
limits, as appropriate, that are applicable to the categories of 
medical/surgical benefits. Limits based on delivery mechanisms, such as 
inpatient/outpatient treatment or normal treatment of common, low-cost 
conditions (such as treatment of normal births), do not constitute 
categories for purposes of this paragraph (e)(1)(ii). In addition, for 
purposes of determining weighted averages, any benefits that are not 
within a category that is subject to a separately-designated dollar 
limit under the contract are taken into account as a single separate 
category by using an estimate of the upper limit on the dollar amount 
that a MCO, PIHP, or PAHP may reasonably be expected to incur for such 
benefits, taking into account any other applicable restrictions.
    (2) Weighting. For purposes of this paragraph (e), the weighting 
applicable to any category of medical/surgical benefits is determined 
in the manner set forth in paragraph (d) of this section for 
determining one-third or two-thirds of all medical/surgical benefits.

Sec.  438.910  Parity requirements for financial requirements and 
treatment limitations.

    (a) Clarification of terms--(1) Classification of benefits. When 
reference is made in this section to a classification of benefits, the 
term ``classification'' means a classification as described in 
paragraph (b)(2) of this section.
    (2) Type of financial requirement or treatment limitation. When 
reference is made in this section to a type of financial requirement or 
treatment limitation, the reference to type means its nature. Different 
types of financial requirements include deductibles, copayments, 
coinsurance, and out-of-pocket maximums. Different types of 
quantitative treatment limitations include annual, episode, and 
lifetime day and visit limits. See paragraph (d)(2) of this section for 
an illustrative list of nonquantitative treatment limitations.
    (3) Level of a type of financial requirement or treatment 
limitation. When reference is made in this section to a level of a type 
of financial requirement or treatment limitation, level refers to the 
magnitude of the type of financial requirement or treatment limitation.
    (b) General parity requirement--(1) General rule and scope. Each 
MCO, PIHP and PAHP providing services to MCO enrollees in a state that 
covers both medical/surgical benefits and mental health or substance 
use disorder benefits under the state plan, must not apply any 
financial requirement or treatment limitation to mental health or 
substance use disorder benefits in any classification that is more 
restrictive than the predominant financial requirement or treatment 
limitation of that type applied to substantially all medical/surgical 
benefits in the same classification furnished to enrollees (whether or 
not the benefits are furnished by the same MCO, PIHP, or PAHP). Whether 
a financial requirement or treatment limitation is a predominant 
financial requirement or treatment limitation that applies to 
substantially all medical/surgical benefits in a classification is 
determined separately for each type of financial requirement or 
treatment limitation. The application of the rules of this paragraph 
(b) to financial requirements and quantitative treatment limitations is 
addressed in paragraph (c) of this section; the application of the 
rules of this paragraph (b) to nonquantitative treatment limitations is 
addressed in paragraph (d) of this section.
    (2) Classifications of benefits used for applying rules. If an MCO 
enrollee is provided mental health or substance use disorder benefits 
in any classification of benefits described in this paragraph (b)(2), 
mental health or substance use disorder benefits must be provided to 
the enrollee in every classification in which medical/surgical benefits 
are provided. In determining the classification in which a particular 
benefit belongs, a MCO, PIHP, or PAHP must apply the same standards to 
medical/surgical benefits and to mental health or substance use 
disorder benefits. To the extent that a MCO, PIHP, or PAHP provides 
benefits in a classification and imposes any separate financial 
requirement or treatment limitation (or separate level of a financial 
requirement or treatment limitation) for benefits in the 
classification, the rules of this section apply separately for that 
classification for all financial requirements or treatment limitations. 
The following classifications of benefits are the only classifications 
used in applying the rules of this section:
    (i) Inpatient. Benefits furnished on an inpatient basis.
    (ii) Outpatient. Benefits furnished on an outpatient basis. See 
special rules for office visits in paragraph (c)(2) of this section.
    (iii) Emergency care. Benefits for emergency care.
    (iv) Prescription drugs. Benefits for prescription drugs. See 
special rules for multi-tiered prescription drug benefits in paragraph 
(c)(2) of this section.
    (c) Financial requirements and quantitative treatment limitations--
(1) Determining ``substantially all'' and ``predominant''--(i) 
Substantially all. For purposes of this section, a type of financial 
requirement or quantitative treatment limitation is considered to apply 
to substantially all medical/

[[Page 19445]]

surgical benefits in a classification of benefits if it applies to at 
least two-thirds of all medical/surgical benefits in that 
classification. If a type of financial requirement or quantitative 
treatment limitation does not apply to at least two-thirds of all 
medical/surgical benefits in a classification, then that type cannot be 
applied to mental health or substance use disorder benefits in that 
classification.
    (ii) Predominant. (A) If a type of financial requirement or 
quantitative treatment limitation applies to at least two-thirds of all 
medical/surgical benefits in a classification as determined under 
paragraph (c)(1)(i) of this section, the level of the financial 
requirement or quantitative treatment limitation that is considered the 
predominant level of that type in a classification of benefits is the 
level that applies to more than one-half of medical/surgical benefits 
in that classification subject to the financial requirement or 
quantitative treatment limitation.
    (B) If, for a type of financial requirement or quantitative 
treatment limitation that applies to at least two-thirds of all 
medical/surgical benefits in a classification, there is no single level 
that applies to more than one-half of medical/surgical benefits in the 
classification subject to the financial requirement or quantitative 
treatment limitation, the MCO, PIHP, or PAHP may combine levels until 
the combination of levels applies to more than one-half of medical/
surgical benefits subject to the financial requirement or quantitative 
treatment limitation in the classification. The least restrictive level 
within the combination is considered the predominant level of that type 
in the classification. (For this purpose, a MCO, PIHP, or PAHP may 
combine the most restrictive levels first, with each less restrictive 
level added to the combination until the combination applies to more 
than one-half of the benefits subject to the financial requirement or 
treatment limitation.)
    (iii) Portion based on MCO, PIHP or PAHP payments. For purposes of 
this section, the determination of the portion of medical/surgical 
benefits in a classification of benefits subject to a financial 
requirement or quantitative treatment limitation (or subject to any 
level of a financial requirement or quantitative treatment limitation) 
is based on the total dollar amount of all combinations of MCO, PIHP, 
and PAHP payments for medical/surgical benefits in the classification 
expected to be paid under the MCOs, PIHPs, and PAHPs for a contract 
year (or for the portion of a contract year after a change in benefits 
that affects the applicability of the financial requirement or 
quantitative treatment limitation).
    (iv) Clarifications for certain threshold requirements. For any 
deductible, the dollar amount of MCO, PIHP, or PAHP payments includes 
all payments for claims that would be subject to the deductible if it 
had not been satisfied. For any out-of-pocket maximum, the dollar 
amount of MCO, PIHP, or PAHP payments includes all payments associated 
with out-of-pocket payments that are taken into account towards the 
out-of-pocket maximum as well as all payments associated with out-of-
pocket payments that would have been made towards the out-of-pocket 
maximum if it had not been satisfied. Similar rules apply for any other 
thresholds at which the rate of MCO, PIHP, or PAHP payment changes.
    (v) Determining the dollar amount of MCO, PIHP, or PAHP payments. 
Subject to paragraph (c)(1)(iv) of this section, any reasonable method 
may be used to determine the dollar amount expected to be paid under a 
MCO, PIHP, or PAHP for medical/surgical benefits subject to a financial 
requirement or quantitative treatment limitation (or subject to any 
level of a financial requirement or quantitative treatment limitation).
    (2) Special rules--(i) Multi-tiered prescription drug benefits. If 
a MCO, PIHP, or PAHP applies different levels of financial requirements 
to different tiers of prescription drug benefits based on reasonable 
factors determined in accordance with the rules in paragraph (d)(1) of 
this section (relating to requirements for nonquantitative treatment 
limitations) and without regard to whether a drug is generally 
prescribed for medical/surgical benefits or for mental health or 
substance use disorder benefits, the MCO, PIHP, or PAHP satisfies the 
parity requirements of this section for prescription drug benefits. 
Reasonable factors include cost, efficacy, generic versus brand name, 
and mail order versus pharmacy pick-up/delivery.
    (ii) Sub-classifications permitted for office visits, separate from 
other outpatient services. For purposes of applying the financial 
requirement and treatment limitation rules of this section, a MCO, 
PIHP, or PAHP may divide its benefits furnished on an outpatient basis 
into the two sub-classifications described in this paragraph 
(c)(2)(ii). After the sub-classifications are established, the MCO, 
PIHP or PAHP may not impose any financial requirement or quantitative 
treatment limitation on mental health or substance use disorder 
benefits in any sub-classification that is more restrictive than the 
predominant financial requirement or quantitative treatment limitation 
that applies to substantially all medical/surgical benefits in the sub-
classification using the methodology set forth in paragraph (c)(1) of 
this section. Sub-classifications other than these special rules, such 
as separate sub-classifications for generalists and specialists, are 
not permitted. The two sub-classifications permitted under this 
paragraph (c)(2)(ii) are:
    (A) Office visits (such as physician visits); and
    (B) All other outpatient items and services (such as outpatient 
surgery, facility charges for day treatment centers, laboratory 
charges, or other medical items).
    (3) No separate cumulative financial requirements. A MCO, PIHP, or 
PAHP may not apply any cumulative financial requirement for mental 
health or substance use disorder benefits in a classification that 
accumulates separately from any established for medical/surgical 
benefits in the same classification.
    (4) Compliance with other cost-sharing rules. Each MCO, PIHP. and 
PAHP must meet the cost-sharing requirements in Sec.  438.108 when 
applying Medicaid cost-sharing.
    (d) Nonquantitative treatment limitations--(1) General rule. A MCO, 
PIHP, or PAHP may not impose a nonquantitative treatment limitation for 
mental health or substance use disorder benefits in any classification 
unless, under the policies and procedures of the MCO, PIHP, or PAHP as 
written and in operation, any processes, strategies, evidentiary 
standards, or other factors used in applying the nonquantitative 
treatment limitation to mental health or substance use disorder 
benefits in the classification are comparable to, and are applied no 
more stringently than, the processes, strategies, evidentiary 
standards, or other factors used in applying the limitation for 
medical/surgical benefits in the classification.
    (2) Illustrative list of nonquantitative treatment limitations. 
Nonquantitative treatment limitations include--
    (i) Medical management standards limiting or excluding benefits 
based on medical necessity or medical appropriateness, or based on 
whether the treatment is experimental or investigative;
    (ii) Formulary design for prescription drugs;
    (iii) For MCOs, PIHPs, or PAHPs with multiple network tiers (such 
as preferred providers and participating providers), network tier 
design;

[[Page 19446]]

    (iv) Standards for provider admission to participate in a network, 
including reimbursement rates;
    (v) MCO, PIHP, or PAHP methods for determining usual, customary, 
and reasonable charges;
    (vi) Refusal to pay for higher-cost therapies until it can be shown 
that a lower-cost therapy is not effective (also known as fail-first 
policies or step therapy protocols);
    (vii) Exclusions based on failure to complete a course of 
treatment;
    (viii) Restrictions based on geographic location, facility type, 
provider specialty, and other criteria that limit the scope or duration 
of benefits for services provided under the MCO, PIHP, or PAHP; and
    (ix) Standards for providing access to out-of-network providers
    (3) Application to out-of-network providers. Any MCO, PIHP or PAHP 
providing access to out-of-network providers for medical/surgical 
benefits within a classification, must use the same processes, 
strategies, evidentiary standards, or other factors in determining 
access to out-of-network providers for MH/SUD benefits. If a MCO, PIHP 
or PAHP is found to be in compliance with Sec.  438.206(b)(4), it will 
be deemed in compliance with the standards in this paragraph (d)(3).

Sec.  438.915  Availability of information.

    (a) Criteria for medical necessity determinations. The criteria for 
medical necessity determinations, made by a MCO or by a PIHP or PAHP 
providing services to an MCO enrollee, for mental health or substance 
use disorder benefits must be made available by the MCO, PIHP, or PAHP 
administrator to any enrollee, potential enrollee, or contracting 
provider upon request. MCOs, PIHPs, and PAHPs operating in compliance 
with Sec.  438.236(c) will be deemed compliant with the requirements in 
this paragraph (a).
    (b) Reason for any denial. The reason for any denial by a MCO, 
PIHP, or PAHP of reimbursement or payment for services for mental 
health or substance use disorder benefits in the case of any enrollee 
must be made available by the MCO, PIHP, or PAHP administrator to the 
enrollee.
    (c) Provisions of other law. Compliance with the disclosure 
requirements in paragraphs (a) and (b) of this section is not 
determinative of compliance with any other provision of applicable 
federal or state law.

Sec.  438.920  Applicability.

    (a) MCOs, PIHPs, and PAHPs. The requirements of this subpart apply 
to each MCO, PIHP, and PAHP offering services to enrollees of a MCO, in 
states covering medical/surgical and MH/SUD services under the state 
plan. These requirements regarding coverage for services that must be 
provided to enrollees of an MCO apply regardless of the delivery system 
of the medical/surgical or MH/SUD services under the State plan.
    (b) State responsibilities. (1) In any instance where the full 
scope of medical/surgical and MH/SUD services are not provided through 
the MCO, the State must review the MH/SUD benefits provided in the MCO, 
PIHP, PAHP, or FFS state plan service to ensure the full scope of 
services available to all enrollees of the MCO complies with the 
requirements in this subpart. The state must provide documentation of 
compliance with requirements in this subpart to the general public 
within 18 months of the effective date of the final rule.
    (2) In any instance where the full scope of medical/surgical and 
MH/SUD services are not provided through the MCO, the State must ensure 
that the enrollees of the MCO receive services in compliance with this 
subpart.
    (c) Scope. This subpart does not--
    (1) Require a MCO, PIHP, or PAHP to provide any mental health 
benefits or substance use disorder benefits beyond what is specified in 
its contract, and the provision of benefits by a MCO, PIHP, or PAHP for 
one or more mental health conditions or substance use disorders does 
not require the MCO, PIHP or PAHP to provide benefits for any other 
mental health condition or substance use disorder;
    (2) Require a MCO, PIHP, or PAHP that provides coverage for mental 
health or substance use disorder benefits only to the extent required 
under 1905(a)(4)(D) of the Act to provide additional mental health or 
substance use disorder benefits in any classification in accordance 
with this section; or
    (3) Affect the terms and conditions relating to the amount, 
duration, or scope of mental health or substance use disorder benefits 
under the Medicaid MCO, PIHP, or PAHP contract except as specifically 
provided in Sec. Sec.  438.905 and 438.910.

Sec.  438.930  Compliance dates.

    In general, contracts with MCOs, PIHPs, and PAHPs offering Medicaid 
state plan services to enrollees, and those entities, must comply with 
the requirements of this subpart no later than the beginning of the 
contract year starting 18 months after the [DATE OF PUBLICATION OF THE 
FINAL RULE].

PART 440--SERVICES: GENERAL PROVISIONS

0
4. The authority citation for part 440 continues to read as follows:

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

0
5. Section 440.395 is added to read as follows:

Sec.  440.395  Parity in mental health and substance use disorder 
benefits.

    (a) Meaning of terms. For purposes of this section, except where 
the context clearly indicates otherwise, the following terms have the 
meanings indicated:
    Aggregate lifetime dollar limit means a dollar limitation on the 
total amount of specified benefits that may be paid under an 
Alternative Benefit Plan (ABP).
    Annual dollar limit means a dollar limitation on the total amount 
of specified benefits that may be paid in a 12-month period under an 
ABP.
    Alternative Benefit Plans (ABPs) mean benefit packages in one or 
more of the benchmark coverage packages described in Sec. Sec.  
440.330(a) through (c) and 440.335. Benefits may be delivered through 
managed care and non-managed care delivery systems. Consistent with the 
requirements of Sec.  440.385, states must comply with the managed care 
provisions at section 1932 of the Act and part 438 of this chapter, if 
benchmark and benchmark-equivalent benefits are provided through a 
managed care entity.
    Cumulative financial requirements are financial requirements that 
determine whether or to what extent benefits are provided based on 
accumulated amounts and include deductibles and out-of-pocket maximums. 
(However, cumulative financial requirements do not include aggregate 
lifetime or annual dollar limits because these two terms are excluded 
from the meaning of financial requirements.)
    EPSDT means benefits defined in section 1905(r) of the Act.
    Financial requirements include deductibles, copayments, 
coinsurance, or out-of-pocket maximums. Financial requirements do not 
include aggregate lifetime or annual dollar limits.
    Medical/surgical benefits means benefits for items or services for 
medical conditions or surgical procedures, as defined by the state 
under the terms of the ABP and in accordance with applicable federal 
and state law, but does not include mental health or substance use 
disorder benefits. Any condition defined by the state as being or as 
not being a medical/surgical

[[Page 19447]]

condition must be defined to be consistent with generally recognized 
independent standards of current medical practice (for example, the 
most current version of the International Classification of Diseases 
(ICD) or state guidelines). Medical/surgical benefits do not include 
long-term services.
    Mental health benefits means benefits for items or services for 
mental health conditions, as defined by the state under the terms of 
the ABP and in accordance with applicable federal and state law. Any 
condition defined by the state as being or as not being a mental health 
condition must be defined to be consistent with generally recognized 
independent standards of current medical practice (for example, the 
most current version of the Diagnostic and Statistical Manual of Mental 
Disorders (DSM), the most current version of the ICD, or state 
guidelines. Mental health benefits do not include long-term care 
services.
    Substance use disorder benefits means benefits for items or 
services for substance use disorders, as defined by the state under the 
terms of the ABP and in accordance with applicable federal and state 
law. Any disorder defined by the state as being or as not being a 
substance use disorder must be defined to be consistent with generally 
recognized independent standards of current medical practice (for 
example, the most current version of the DSM, the most current version 
of the ICD, or state guidelines). Substance use disorder benefits do 
not include long-term care services.
    Treatment limitations include limits on benefits based on the 
frequency of treatment, number of visits, days of coverage, days in a 
waiting period, or other similar limits on the scope or duration of 
treatment. Treatment limitations include both quantitative treatment 
limitations, which are expressed numerically (such as 50 outpatient 
visits per year), and nonquantitative treatment limitations, which 
otherwise limit the scope or duration of benefits for treatment under 
an ABP. (See paragraph (b)(4)(ii) of this section for an illustrative 
list of nonquantitative treatment limitations.) A permanent exclusion 
of all benefits for a particular condition or disorder, however, is not 
a treatment limitation for purposes of this definition.
    (b) Parity requirements for financial requirements and treatment 
limitations--(1) Clarification of terms--(i) Classification of 
benefits. When reference is made in this paragraph (b) to a 
classification of benefits, the term ``classification'' means a 
classification as described in paragraph (b)(2)(ii) of this section.
    (ii) Type of financial requirement or treatment limitation. When 
reference is made in this paragraph (b) to a type of financial 
requirement or treatment limitation, the reference to type means its 
nature. Different types of financial requirements include deductibles, 
copayments, coinsurance, and out-of-pocket maximums. Different types of 
quantitative treatment limitations include annual, episode, and 
lifetime day and visit limits. See paragraph (b)(4)(ii) of this section 
for an illustrative list of nonquantitative treatment limitations.
    (iii) Level of a type of financial requirement or treatment 
limitation. When reference is made in this paragraph (b) to a level of 
a type of financial requirement or treatment limitation, level refers 
to the magnitude of the type of financial requirement or treatment 
limitation.
    (2) General parity requirement--(i) General rule. A state may not 
apply within an ABP any financial requirement or treatment limitation 
to mental health or substance use disorder benefits in any 
classification that is more restrictive than the predominant financial 
requirement or treatment limitation of that type applied to 
substantially all medical/surgical benefits in the same classification. 
Whether a financial requirement or treatment limitation is a 
predominant financial requirement or treatment limitation that applies 
to substantially all medical/surgical benefits in a classification is 
determined separately for each type of financial requirement or 
treatment limitation. The application of the rules of this paragraph 
(b)(2) to financial requirements and quantitative treatment limitations 
is addressed in paragraph (b)(3) of this section; the application of 
the rules of this paragraph (b)(2) to nonquantitative treatment 
limitations is addressed in paragraph (b)(4) of this section.
    (ii) Classifications of benefits used for applying rules. ABPs must 
include mental health or substance use disorder benefits in every 
classification of benefits described in this paragraph (b)(2)(ii) in 
which medical/surgical benefits are provided. In determining the 
classification in which a particular benefit belongs, the state must 
apply the same standards to medical/surgical benefits and to mental 
health or substance use disorder benefits. To the extent that a state 
provides ABP benefits in a classification and imposes any separate 
financial requirement or treatment limitation (or separate level of a 
financial requirement or treatment limitation) for benefits in the 
classification, the rules of this paragraph (b) apply separately for 
that classification for all financial requirements or treatment 
limitations. The following classifications of benefits are the only 
classifications used in applying the rules of this paragraph (b):
    (A) Inpatient. Benefits furnished on an inpatient basis.
    (B) Outpatient. Benefits furnished on an outpatient basis. See 
special rules for office visits in paragraph (b)(3)(ii)(B)(1) of this 
section.
    (C) Emergency care. Benefits for emergency care.
    (D) Prescription drugs. Benefits for prescription drugs. See 
special rules for multi-tiered prescription drug benefits in paragraph 
(b)(3)(ii) of this section.
    (3) Financial requirements and quantitative treatment limitations--
(i) Determining ``substantially all'' and ``predominant''--(A) 
Substantially all. For purposes of this paragraph (b), a type of 
financial requirement or quantitative treatment limitation is 
considered to apply to substantially all medical/surgical benefits in a 
classification of benefits if it applies to at least two-thirds of all 
medical/surgical benefits in that classification. If a type of 
financial requirement or quantitative treatment limitation does not 
apply to at least two-thirds of all medical/surgical benefits in a 
classification, then that type cannot be applied to mental health or 
substance use disorder benefits in that classification.
    (B) Predominant--(1) If a type of financial requirement or 
quantitative treatment limitation applies to at least two-thirds of all 
medical/surgical benefits in a classification as determined under 
paragraph (b)(3)(i)(A) of this section, the level of the financial 
requirement or quantitative treatment limitation that is considered the 
predominant level of that type in a classification of benefits is the 
level that applies to more than one-half of medical/surgical benefits 
in that classification subject to the financial requirement or 
quantitative treatment limitation.
    (2) If, for a type of financial requirement or quantitative 
treatment limitation that applies to at least two-thirds of all 
medical/surgical benefits in a classification, there is no single level 
that applies to more than one-half of medical/surgical benefits in the 
classification subject to the financial requirement or quantitative 
treatment limitation, the state may combine levels until the 
combination of levels applies to more than one-half of medical/surgical 
benefits subject to the financial

[[Page 19448]]

requirement or quantitative treatment limitation in the classification. 
The least restrictive level within the combination is considered the 
predominant level of that type in the classification. (For this 
purpose, a state may combine the most restrictive levels first, with 
each less restrictive level added to the combination until the 
combination applies to more than one-half of the benefits subject to 
the financial requirement or treatment limitation.)
    (C) Portion based on ABP payments. For purposes of this paragraph 
(b), the determination of the portion of medical/surgical benefits in a 
classification of benefits subject to a financial requirement or 
quantitative treatment limitation (or subject to any level of a 
financial requirement or quantitative treatment limitation) is based on 
the dollar amount of all ABP payments for medical/surgical benefits in 
the classification expected to be paid under the ABP for the plan year 
(or for the portion of the plan year after a change in ABP benefits 
that affects the applicability of the financial requirement or 
quantitative treatment limitation).
    (D) Clarifications for certain threshold requirements. For any 
deductible, the dollar amount of ABP payments includes all payments for 
claims that would be subject to the deductible if it had not been 
satisfied. For any out-of-pocket maximum, the dollar amount of ABP 
payments includes all payments associated with out-of-pocket payments 
that are taken into account towards the out-of-pocket maximum as well 
as all payments associated with out-of-pocket payments that would have 
been made towards the out-of-pocket maximum if it had not been 
satisfied. Similar rules apply for any other thresholds at which the 
rate of payment changes.
    (E) Determining the dollar amount of ABP payments. Subject to 
paragraph (b)(3)(i)(D) of this section, any reasonable method may be 
used to determine the dollar amount expected to be paid for medical/
surgical benefits subject to a financial requirement or quantitative 
treatment limitation (or subject to any level of a financial 
requirement or quantitative treatment limitation).
    (ii) Special rules--(A) Multi-tiered prescription drug benefits. If 
a state or plan administrator applies different levels of financial 
requirements to different tiers of prescription drug benefits based on 
reasonable factors determined in accordance with the rules in paragraph 
(b)(4)(i) of this section (relating to requirements for nonquantitative 
treatment limitations) and without regard to whether a drug is 
generally prescribed for medical/surgical benefits or for mental health 
or substance use disorder benefits, the ABP satisfies the parity 
requirements of this paragraph (b) for prescription drug benefits. 
Reasonable factors include cost, efficacy, generic versus brand name, 
and mail order versus pharmacy pick-up/delivery.
    (B) Sub-classifications permitted for office visits, separate from 
other outpatient services. For purposes of applying the financial 
requirement and treatment limitation rules of this paragraph (b), a 
state may divide its benefits furnished on an outpatient basis into the 
two sub-classifications described in this paragraph (b)(3)(ii)(B). 
After the sub-classifications are established, the state may not impose 
any financial requirement or quantitative treatment limitation on 
mental health or substance use disorder benefits in any sub-
classification that is more restrictive than the predominant financial 
requirement or quantitative treatment limitation that applies to 
substantially all medical/surgical benefits in the sub-classification 
using the methodology set forth in paragraph (b)(3)(i) of this section. 
Sub-classifications other than these special rules, such as separate 
sub-classifications for generalists and specialists, are not permitted. 
The two sub-classifications permitted under this paragraph 
(b)(3)(ii)(B) are:
    (1) Office visits (such as physician visits); and
    (2) All other outpatient items and services (such as outpatient 
surgery, laboratory services, or other medical items).
    (iii) No separate cumulative financial requirements. A state may 
not apply any cumulative financial requirement for mental health or 
substance use disorder benefits in a classification that accumulates 
separately from any established for medical/surgical benefits in the 
same classification.
    (iv) Compliance with other cost-sharing rules. States must meet the 
requirements of Sec. Sec.  447.50 through 447.57 of this chapter when 
applying Medicaid cost-sharing.
    (4) Nonquantitative treatment limitations--(i) General rule. A 
state may not impose a nonquantitative treatment limitation for mental 
health or substance use disorder benefits in any classification unless, 
under the terms of the ABP as written and in operation, any processes, 
strategies, evidentiary standards, or other factors used in applying 
the nonquantitative treatment limitation to mental health or substance 
use disorder benefits in the classification are comparable to, and are 
applied no more stringently than, the processes, strategies, 
evidentiary standards, or other factors used in applying the limitation 
for medical/surgical benefits in the classification.
    (ii) Illustrative list of nonquantitative treatment limitations. 
Nonquantitative treatment limitations include--
    (A) Medical management standards limiting or excluding benefits 
based on medical necessity or medical appropriateness, or based on 
whether the treatment is experimental or investigative;
    (B) Formulary design for prescription drugs;
    (C) Standards for provider admission to participate in a network, 
including reimbursement rates;
    (D) Methods for determining usual, customary, and reasonable 
charges;
    (E) Refusal to pay for higher-cost therapies until it can be shown 
that a lower-cost therapy is not effective (also known as fail-first 
policies or step therapy protocols);
    (F) Exclusions based on failure to complete a course of treatment; 
and
    (G) Restrictions based on geographic location, facility type, 
provider specialty, and other criteria that limit the scope or duration 
of benefits or services provided under the ABP.
    (c) Availability of information--(1) Criteria for medical necessity 
determinations. The criteria for medical necessity determinations made 
by the state for beneficiaries served through the ABP for mental health 
or substance use disorder benefits must be made available by the state 
to any beneficiary or Medicaid provider upon request.
    (2) Reason for any denial. The reason for any denial made by the 
state in the case of a beneficiary served through an ABP of 
reimbursement or payment for services for mental health or substance 
use disorder benefits must be made available by the state to the 
beneficiary.
    (3) Provisions of other law. Compliance with the disclosure 
requirements in paragraphs (c)(1) and (2) of this section is not 
determinative of compliance with any other provision of applicable 
federal or state law.
    (d) Applicability--(1) Alternative Benefit Plans (ABPs). The 
requirements of this section apply to states providing benefits through 
ABPs. For those states providing ABPs through an MCO, PIHP, or PAHP the 
rules of 42 CFR part 438, subpart K also apply, and approved contracts 
will be viewed as evidence of compliance with the requirements of this 
section.
    (2) Scope. This section does not--
    (i) Require a state to provide any specific mental health benefits 
or substance use disorder benefits;

[[Page 19449]]

however, in providing coverage through an ABP, the state must include 
the ten essential health benefits as required in Sec.  440.347, which 
include mental health and substance use disorder benefits or
    (ii) Affect the terms and conditions relating to the amount, 
duration, or scope of mental health or substance use disorder benefits 
under the ABP except as specifically provided in paragraph (b) of this 
section.
    (3) State plan requirement. If a state plan provides for an ABP, 
the state must provide sufficient information in ABP state plan 
amendment requests to assure compliance with the requirements of this 
subpart.
    (4) Compliance dates--(i) In general. ABP coverage offered by 
states must comply with the requirements of this section no later than 
18 months after the publication of the final rule.
    (ii) [Reserved]

PART 456--UTILIZATION CONTROL

0
6. The authority citation for part 456 continues to read as follows:

    Authority:  Sec. 1102 of the Social Security Act (42 U.S.C. 
1302), unless otherwise noted.

Sec.  456.171  [Removed and Reserved]

0
7. Section 456.171 is removed and reserved.

PART 457--ALLOTMENTS AND GRANTS TO STATES

0
8. The authority citation for part 457 continues to read as follows:

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

0
9. Section 457.496 is added to subpart D to read as follows:

Sec.  457.496  Parity in mental health and substance use disorder 
benefits.

    (a) Meaning of terms. For purposes of this section, except where 
the context clearly indicates otherwise, the following terms have the 
meanings indicated:
    Aggregate lifetime dollar limit means a dollar limitation on the 
total amount of specified benefits that may be paid under a CHIP state 
plan or a Managed Care Entity (MCE) (as defined at Sec.  457.10) that 
contracts with the CHIP state plan. CHIP state plans must meet the 
requirements of Sec.  457.480.
    Annual dollar limit means a dollar limitation on the total amount 
of specified benefits that may be paid in a 12-month period under a 
CHIP state plan or a MCE that contracts with a CHIP state plan. CHIP 
state plans must meet the requirements at Sec.  457.480.
    CHIP State Plan has the meaning assigned at Sec.  457.50.
    Cumulative financial requirements are financial requirements that 
determine whether or to what extent benefits are provided based on 
accumulated amounts and include deductibles and out-of-pocket maximums. 
(However, cumulative financial requirements do not include aggregate 
lifetime or annual dollar limits because these two terms are excluded 
from the meaning of financial requirements.)
    Early and Periodic Screening, Diagnostic and Treatment (EPSDT) 
benefits has the meaning defined in section 1905(r) of the Act.
    Financial requirements include deductibles, copayments, 
coinsurance, or out-of-pocket maximums. Financial requirements do not 
include aggregate lifetime or annual dollar limits.
    Medical/surgical benefits means benefits for items or services for 
medical conditions or surgical procedures, as defined under the terms 
of the CHIP state plan in accordance with applicable federal and state 
law, but does not include mental health or substance use disorder 
benefits. Any condition defined by the CHIP state plan as being or not 
being a medical/surgical condition must be defined to be consistent 
with generally recognized independent standards of current medical 
practice (for example, the most current version of the International 
Classification of Diseases (ICD) or generally applicable state 
guidelines). Medical/surgical benefits do not include long-term care 
services.
    Mental health benefits means benefits for items or services that 
treat or otherwise address mental health conditions, as defined under 
the terms of the CHIP state plan in accordance with applicable federal 
and state law, and consistent with generally recognized independent 
standards of current medical practice. Standards of current medical 
practice can be based on the most current version of the DSM, the most 
current version of the ICD, or generally applicable state guidelines. 
The term does not include long term care services.
    Substance use disorder benefits means benefits for items or 
services for substance use disorders, as defined under the terms of the 
CHIP state plan in accordance with applicable federal and state law, 
and consistent with generally recognized independent standards of 
current medical practice. Standards of current medical practice can be 
based on the most current version of the DSM, the most current version 
of the ICD, or generally applicable state guidelines. The term does not 
include long term care services.
    Treatment limitations include limits on benefits based on the 
frequency of treatment, number of visits, days of coverage, days in a 
waiting period, or other similar limits on the scope or duration of 
treatment. Treatment limitations include both quantitative treatment 
limitations, which are expressed numerically (such as 50 outpatient 
visits per year), and nonquantitative treatment limitations, which 
otherwise limit the scope or duration of benefits for treatment under 
the CHIP state plan. (See paragraph (d)(4)(ii) of this section for an 
illustrative list of nonquantitative treatment limitations.) A 
permanent exclusion of all benefits for a particular condition or 
disorder, however, is not a treatment limitation for purposes of this 
definition.
    (b) State CHIP plan providing EPSDT benefits. A state CHIP plan 
that provides benefits through expansion of Medicaid programs and 
provides EPSDT benefits is deemed to be in compliance with the parity 
requirements for financial requirements and treatment limitations. 
Annual or lifetime limits are not permissible in EPSDT benefits.
    (c) Parity requirements for aggregate lifetime and annual dollar 
limits. This paragraph (c) details the application of the parity 
requirements for aggregate lifetime and annual dollar limits. A CHIP 
state plan that provides both medical/surgical benefits and mental 
health or substance use disorder benefits must comply with paragraph 
(c)(1), (2), or (4) of this section.
    (1) Plan with no limit or limits on less than one-third of all 
medical/surgical benefits. If a CHIP state plan does not include an 
aggregate lifetime or annual dollar limit on any medical/surgical 
benefits or includes an aggregate lifetime or annual dollar limit that 
applies to less than one-third of all medical/surgical benefits, it may 
not impose an aggregate lifetime or annual dollar limit, respectively, 
on mental health or substance use disorder benefits.
    (2) CHIP state plans with a limit on at least two-thirds of all 
medical/surgical benefits. If a CHIP state plan includes an aggregate 
lifetime or annual dollar limit on at least two-thirds of all medical/
surgical benefits, it must either--
    (i) Apply the aggregate lifetime or annual dollar limit both to the 
medical/surgical benefits to which the limit would otherwise apply and 
to mental health or substance use disorder benefits in a manner that 
does not distinguish between the medical/

[[Page 19450]]

surgical benefits and mental health or substance use disorder benefits; 
or
    (ii) Not include an aggregate lifetime or annual dollar limit on 
mental health or substance use disorder benefits that is more 
restrictive than the aggregate lifetime or annual dollar limit, 
respectively, on medical/surgical benefits. (For cumulative limits 
other than aggregate lifetime or annual dollar limits, see paragraph 
(d)(3)(iii) of this section prohibiting separately accumulating 
cumulative financial requirements.)
    (3) Determining one-third and two-thirds of all medical/surgical 
benefits. For purposes of this paragraph (c), the determination of 
whether the portion of medical/surgical benefits subject to an 
aggregate lifetime or annual dollar limit represents one-third or two-
thirds of all medical/surgical benefits is based on the dollar amount 
of all plan payments for medical/surgical benefits expected to be paid 
under the CHIP state plan for the state plan year (or for the portion 
of the plan year after a change in plan benefits that affects the 
applicability of the aggregate lifetime or annual dollar limits). Any 
reasonable method may be used to determine whether the dollar amount 
expected to be paid under the CHIP state plan will constitute one-third 
or two-thirds of the dollar amount of all plan payments for medical/
surgical benefits.
    (4) Plan not described in this section--(i) In general. A CHIP 
state plan that is not described in paragraph (c)(1) or (2) of this 
section for aggregate lifetime or annual dollar limits on medical/
surgical benefits, must either--
    (A) Impose no aggregate lifetime or annual dollar limit, as 
appropriate, on mental health or substance use disorder benefits; or
    (B) Impose an aggregate lifetime or annual dollar limit on mental 
health or substance use disorder benefits that is no more restrictive 
than an average limit calculated for medical/surgical benefits in the 
following manner. The average limit is calculated by taking into 
account the weighted average of the aggregate lifetime or annual dollar 
limits, as appropriate, that are applicable to the categories of 
medical/surgical benefits. Limits based on delivery systems, such as 
inpatient/outpatient treatment or normal treatment of common, low-cost 
conditions (such as treatment of normal births), do not constitute 
categories for purposes of this paragraph (c)(4)(i)(B). In addition, 
for purposes of determining weighted averages, any benefits that are 
not within a category that is subject to a separately-designated dollar 
limit under the plan are taken into account as a single separate 
category by using an estimate of the upper limit on the dollar amount 
that a plan may reasonably be expected to incur for such benefits, 
taking into account any other applicable restrictions under the plan.
    (ii) Weighting. For purposes of this paragraph (c)(4), the 
weighting applicable to any category of medical/surgical benefits is 
determined in the manner set forth in paragraph (c)(3) of this section 
for determining one-third or two-thirds of all medical/surgical 
benefits.
    (d) Parity requirements for financial requirements and treatment 
limitations--(1) Clarification of terms--(i) Classification of 
benefits. When reference is made in this paragraph (d) to a 
classification of benefits, the term ``classification'' means a 
classification as described in paragraph (d)(2)(ii) of this section.
    (ii) Type of financial requirement or treatment limitation. When 
reference is made in this paragraph (d) to a type of financial 
requirement or treatment limitation, the reference to type means its 
nature. Different types of financial requirements include deductibles, 
copayments, coinsurance, and out-of-pocket maximums. Different types of 
quantitative treatment limitations include annual, episode, and 
lifetime day and visit limits. See paragraph (d)(4)(ii) of this section 
for an illustrative list of nonquantitative treatment limitations.
    (iii) Level of a type of financial requirement or treatment 
limitation. When reference is made in this paragraph (d) to a level of 
a type of financial requirement or treatment limitation, level refers 
to the magnitude of the type of financial requirement or treatment 
limitation.
    (2) General parity requirement--(i) General rule. A CHIP state plan 
or a MCE that contracts with CHIP through its state plan that provides 
both medical/surgical benefits and mental health or substance use 
disorder benefits, including when such benefits are delivered through 
an MCE, may not apply any financial requirement or treatment limitation 
to mental health or substance use disorder benefits in any 
classification that is more restrictive than the predominant financial 
requirement or treatment limitation of that type applied to 
substantially all medical/surgical benefits in the same classification. 
Whether a financial requirement or treatment limitation is a 
predominant financial requirement or treatment limitation that applies 
to substantially all medical/surgical benefits in a classification is 
determined separately for each type of financial requirement or 
treatment limitation. The application of the rules of this paragraph 
(d)(2) to financial requirements and quantitative treatment limitations 
is addressed in paragraph (d)(3) of this section; the application of 
the rules of this paragraph (d)(2) to nonquantitative treatment 
limitations is addressed in paragraph (d)(4) of this section.
    (ii) Classifications of benefits used for applying rules. If a CHIP 
state plan provides mental health or substance use disorder benefits in 
any classification of benefits described in this paragraph (d)(2)(ii), 
mental health or substance use disorder benefits must be provided in 
every classification in which medical/surgical benefits are provided. 
In determining the classification in which a particular benefit 
belongs, the same standards must apply to medical/surgical benefits and 
to mental health or substance use disorder benefits. To the extent that 
a CHIP state plan provides benefits in a classification and imposes any 
separate financial requirement or treatment limitation (or separate 
level of a financial requirement or treatment limitation) for benefits 
in the classification, the rules of this paragraph (d) apply separately 
for that classification for all financial requirements or treatment 
limitations. The following classifications of benefits are the only 
classifications used in applying the rules of this paragraph (d):
    (A) Inpatient. Benefits furnished on an inpatient basis.
    (B) Outpatient. Benefits furnished on an outpatient basis. See 
special rules for office visits in paragraph (d)(3)(iii) of this 
section.
    (C) Emergency care. Benefits for emergency care.
    (D) Prescription drugs. Benefits for prescription drugs. See 
special rules for multi-tiered prescription drug benefits in paragraph 
(d)(3)(iii) of this section.
    (3) Financial requirements and quantitative treatment limitations--
(i) Determining ``substantially all'' and ``predominant''--(A) 
Substantially all. For purposes of this paragraph (d), a type of 
financial requirement or quantitative treatment limitation is 
considered to apply to substantially all medical/surgical benefits in a 
classification of benefits if it applies to at least two-thirds of all 
medical/surgical benefits in that classification. If a type of 
financial requirement or quantitative treatment limitation does not 
apply to at least two-thirds of all medical/surgical benefits in a 
classification, then that type cannot be applied to mental health or 
substance use disorder benefits in that classification.

[[Page 19451]]

    (B) Predominant. (1) If a type of financial requirement or 
quantitative treatment limitation applies to at least two-thirds of all 
medical/surgical benefits in a classification as determined under 
paragraph (d)(3)(i)(A) of this section, the level of the financial 
requirement or quantitative treatment limitation that is considered the 
predominant level of that type in a classification of benefits is the 
level that applies to more than one-half of medical/surgical benefits 
in that classification subject to the financial requirement or 
quantitative treatment limitation.
    (2) If, for a type of financial requirement or quantitative 
treatment limitation that applies to at least two-thirds of all 
medical/surgical benefits in a classification, there is no single level 
that applies to more than one-half of medical/surgical benefits in the 
classification subject to the financial requirement or quantitative 
treatment limitation, the CHIP state plan (or health insurance issuer) 
may combine levels until the combination of levels applies to more than 
one-half of medical/surgical benefits subject to the financial 
requirement or quantitative treatment limitation in the classification. 
The least restrictive level within the combination is considered the 
predominant level of that type in the classification. (For this 
purpose, a CHIP state plan may combine the most restrictive levels 
first, with each less restrictive level added to the combination until 
the combination applies to more than one-half of the benefits subject 
to the financial requirement or treatment limitation.)
    (C) Portion based on plan payments. For purposes of this paragraph 
(d), the determination of the portion of medical/surgical benefits in a 
classification of benefits subject to a financial requirement or 
quantitative treatment limitation (or subject to any level of a 
financial requirement or quantitative treatment limitation) is based on 
the dollar amount of all CHIP state plan payments and combinations of 
MCE payments for medical/surgical benefits in the classification 
expected to be paid under the plan or MCE or combination that contracts 
with the CHIP state plan for the plan year (or for the portion of the 
plan year after a change in plan benefits that affects the 
applicability of the financial requirement or quantitative treatment 
limitation).
    (D) Clarifications for certain threshold requirements. For any 
deductible, the dollar amount of a CHIP state plan payments includes 
all plan payments for claims that would be subject to the deductible if 
it had not been satisfied. In accordance with the cumulative cost-
sharing maximum in Sec.  457.560, or any other out-of-pocket maximum in 
the CHIP state plan, the dollar amount of plan payments includes all 
CHIP state plan payments associated with out-of-pocket payments that 
are taken into account towards the out-of-pocket maximum as well as all 
plan payments associated with out-of-pocket payments that would have 
been made towards the out-of-pocket maximum if it had not been 
satisfied. Similar rules apply for any other thresholds at which the 
rate of health plan payment changes.
    (E) Determining the dollar amount of CHIP state plan payments. 
Subject to paragraph (d)(3)(i)(D) of this section, any reasonable 
method may be used to determine the dollar amount expected to be paid 
under a CHIP state plan for medical/surgical benefits subject to a 
financial requirement or quantitative treatment limitation (or subject 
to any level of a financial requirement or quantitative treatment 
limitation).
    (ii) Special rules--(A) Multi-tiered prescription drug benefits. If 
a CHIP state plan applies different levels of financial requirements to 
different tiers of prescription drug benefits based on reasonable 
factors determined in accordance with the rules in paragraph (d)(4)(i) 
of this section (relating to requirements for nonquantitative treatment 
limitations) and without regard to whether a drug is generally 
prescribed for medical/surgical benefits or for mental health or 
substance use disorder benefits, the health plan satisfies the parity 
requirements of this paragraph (d) for prescription drug benefits. 
Reasonable factors include cost, efficacy, generic versus brand name, 
and mail order versus pharmacy pick-up/delivery.
    (B) Sub-classifications permitted for office visits, separate from 
other outpatient services. For purposes of applying the financial 
requirement and treatment limitation rules of this paragraph (d), a 
CHIP state plan may divide its benefits furnished on an outpatient 
basis into the two sub-classifications described in this paragraph 
(d)(3)(ii)(B). After the sub-classifications are established, the CHIP 
state plan may not impose any financial requirement or quantitative 
treatment limitation on mental health or substance use disorder 
benefits in any sub-classification that is more restrictive than the 
predominant financial requirement or quantitative treatment limitation 
that applies to substantially all medical/surgical benefits in the sub-
classification using the methodology set forth in paragraph (d)(3)(i) 
of this section. Sub-classifications other than these special rules, 
such as separate sub-classifications for generalists and specialists, 
are not permitted. The two sub-classifications permitted under this 
paragraph (d)(3)(ii)(B) are:
    (1) Office visits (such as physician visits); and
    (2) All other outpatient items and services (such as outpatient 
surgery, facility charges for day treatment centers, laboratory 
charges, or other medical items).
    (iii) No separate cumulative financial requirements. A CHIP state 
plan may not apply any cumulative financial requirement for mental 
health or substance use disorder benefits in a classification that 
accumulates separately from any established for medical/surgical 
benefits in the same classification.
    (4) Nonquantitative treatment limitations--(i) General rule. A CHIP 
state plan may not impose a nonquantitative treatment limitation for 
mental health or substance use disorder benefits in any classification 
unless, under the terms of the CHIP state plan as written and in 
operation, any processes, strategies, evidentiary standards, or other 
factors used in applying the nonquantitative treatment limitation to 
mental health or substance use disorder benefits in the classification 
are comparable to, and are applied no more stringently than, the 
processes, strategies, evidentiary standards, or other factors used in 
applying the limitation for medical/surgical benefits in the 
classification.
    (ii) Illustrative list of nonquantitative treatment limitations. 
Nonquantitative treatment limitations include--
    (A) Medical management standards limiting or excluding benefits 
based on medical necessity or medical appropriateness, or based on 
whether the treatment is experimental or investigative;
    (B) Formulary design for prescription drugs;
    (C) For plans with multiple network tiers (such as preferred 
providers and participating providers), network tier design;
    (D) Standards for provider admission to participate in a network, 
including reimbursement rates;
    (E) Plan methods for determining usual, customary, and reasonable 
charges;
    (F) Refusal to pay for higher-cost therapies until it can be shown 
that a lower-cost therapy is not effective (also known as fail-first 
policies or step therapy protocols);
    (G) Exclusions based on failure to complete a course of treatment; 
and
    (H) Restrictions based on geographic location, facility type, 
provider

[[Page 19452]]

specialty, and other criteria that limit the scope or duration of 
benefits for services provided under the plan or coverage.
    (I) Standards for providing access to out-of-network providers
    (5) Application to out-of-network providers. Any CHIP state plan 
providing access to out-of-network providers for medical/surgical 
benefits within a classification must use the same processes, 
strategies, evidentiary standards, or other factors in determining 
access to out-of-network providers for mental health and substance use 
disorder benefits. If the CHIP state plan is found to be in compliance 
with Sec.  438.206(b)(4) of this chapter, they will be deemed in 
compliance with the standards in this paragraph (d)(5).
    (e) Availability of plan information--(1) Criteria for medical 
necessity determinations. The criteria for medical necessity 
determinations made under a CHIP state plan including when benefits are 
furnished through a MCE contractor for mental health or substance use 
disorder benefits must be made available by the plan administrator (or 
the state offering the coverage) to any current enrollee or potential 
enrollee or contracting provider upon request. Health plans operating 
in compliance with Sec.  438.236(c) of this chapter will be determined 
compliant with the requirements in this paragraph (e).
    (2) Reason for any denial. The reason for any denial under a health 
plan of reimbursement or payment for services for mental health or 
substance use disorder benefits in the case of any enrollee must be 
made available by the plan administrator or the state to the enrollee.
    (3) Provisions of other law. Compliance with the disclosure 
requirements in paragraphs (e)(1) and (2) of this section is not 
determinative of compliance with any other provision of applicable 
federal or state law.
    (f) Applicability--(1) CHIP state plans. The requirements of this 
section apply to CHIP state plans offering medical/surgical benefits 
and mental health or substance use disorder benefits to their enrollees 
including when benefits are furnished under a contract with MCEs. If, 
under an arrangement or arrangements to provide CHIP state plan 
benefits any enrollee can simultaneously receive coverage for medical/
surgical benefits and coverage for mental health or substance use 
disorder benefits, then the requirements of this section apply 
separately for each combination of medical/surgical benefits and of 
mental health or substance use disorder benefits that any enrollee can 
simultaneously receive from the state Medicaid agency.
    (2) Scope. This section does not--
    (i) Require a CHIP state plan or a MCE that contracts with a CHIP 
state plan to provide any mental health benefits or substance use 
disorder benefits, and the provision of benefits by a CHIP state plan 
or a MCE that contracts with a CHIP state plan for one or more mental 
health conditions or substance use disorders does not require the plan 
or health insurance coverage under this section to provide benefits for 
any other mental health condition or substance use disorder;
    (ii) Affect the terms and conditions relating to the amount, 
duration, or scope of mental health or substance use disorder benefits 
under the CHIP state plan or a MCE that contracts with a CHIP state 
plan except as specifically provided in paragraphs (c) and (d) of this 
section.
    (g) Compliance dates--(i) In general. CHIP state plans (including 
those that contract with a MCE) must comply with the requirements of 
this section no later than [DATE 18 MONTHS AFTER THE PUBLICATION OF THE 
FINAL RULE].
    (ii) [Reserved]

    Dated: March 18, 2015.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: April 1, 2015.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2015-08135 Filed 4-6-15; 4:15 pm]
 BILLING CODE 4120-01-P
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