6228 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Health Care Financing Administration

42 CFR Part 400, 430, 431,434, 435,

438, 440, and 447

[HCFA–2001–FC]

RIN 0938–AI70

Medicaid Program; Medicaid Managed

Care

AGENCY: Health Care Financing

Administration (HCFA), HHS.

ACTION: Final rule with comment period.

SUMMARY: This final rule with comment

period amends the Medicaid regulations

to implement provisions of the Balanced

Budget Act of 1997 (BBA) that allow the

States greater flexibility by permitting

them to amend their State plan to

require certain categories of Medicaid

beneficiaries to enroll in managed care

entities without obtaining waivers if

beneficiary choice is provided; establish

new beneficiary protections in areas

such as quality assurance, grievance

rights, and coverage of emergency

services; eliminate certain requirements

viewed by State agencies as

impediments to the growth of managed

care programs, such as the enrollment

composition requirement, the right to

disenroll without cause at any time, and

the prohibition against enrollee costsharing. In addition, this final rule

expands on regulatory beneficiary

protections provided to enrollees of

prepaid health plans (PHPs) by

requiring that PHPs comply with

specified BBA requirements that would

not otherwise apply to PHPs.

DATES: Effective Date: These regulations

are effective on April 19, 2001.

Provisions that must be implemented

thorough contracts with managed care

organizations, prepaid health plans,

health insuring organizations, or

enrollment brokers are effective with

respect to contracts that are up for

renewal or renegotiation on or after

April 19, 2001, but no longer than April

19, 2002.

Comment Date: We will consider

comments on the upper payment limits

in § 438.(c) if we receive them at the

appropriate address, as provided below,

no later than 5 p.m. on March 20, 2001.

ADDRESSES: Mail written comments (1

original and 3 copies) to the following

address: Health Care Financing

Administration, Department of Health

and Human Services, Attention: HCFA–

2001–FC, P.O. Box 8010, Baltimore, MD

21244–8010 .

To ensure that mailed comments are

received in time for us to consider them,

please allow for possible delays in

delivering them.

If you prefer, you may deliver your

written comments (1 original and 3

copies) to one of the following

addresses: Room 443–G, Hubert H.

Humphrey Building, 200 Independence

Avenue, SW., Washington, DC 20201, or

Room C5–16–03, 7500 Security

Boulevard, Baltimore, MD 21244–8010.

Comments mailed to the above

addresses may be delayed and received

too late for us to consider them.

Because of staff and resource

limitations, we cannot accept comments

by facsimile (FAX) transmission. In

commenting, please refer to file code

HCFA–2001–FC. Comments received

timely will be available for public

inspection as they are received,

generally beginning approximately 3

weeks after publication of a document,

in Room 443–G of the Department’s

office at 200 Independence Avenue,

SW., Washington, DC, on Monday

through Friday of each week from 8:30

to 5 p.m. (phone: (202) 690–7890).

FOR FURTHER INFORMATION CONTACT:

Subparts A and B—Bruce Johnson: (410)

786–0615

Subpart C—Tim Roe: (410) 786–6647

Subpart D—Ann Page: (410) 786–0083

Subpart F—Tim Roe: (410) 786–2006

Subpart H—Tim Roe: (410) 786–2006

Subpart I—Tim Roe: (410) 786–2006

Subpart J—Bruce Johnson: (410) 786–

0615

SUPPLEMENTARY INFORMATION:

Copies

To order copies of the Federal

Register containing this document, send

your request to: New Orders,

Superintendent of Documents, P.O. Box

371954, Pittsburgh, PA 15250–7954.

Specify the date of the issue requested

and enclose a check or money order

payable to the Superintendent of

Documents, or enclose your Visa or

Master Card number and expiration

date. Credit card orders can also be

placed by calling the order desk at (202)

512–1800 or by faxing to (202) 512–

2250. The cost for each copy is $9. As

an alternative, you can view and

photocopy the Federal Register

document at most libraries designated

as Federal Depository Libraries and at

many other public and academic

libraries throughout the country that

receive the Federal Register. This

Federal Register document is also

available from the Federal Register

online database through GPO access, a

service of the U.S. Government Printing

Office. The Website address is http://

www.access.gpo.gov/nara/index.html.

I. Background

Title XIX of the Social Security Act

(the Act) established the Medicaid

program, under which matching Federal

funds are provided to State agencies to

pay for coverage of health care services

to low-income pregnant women,

families and aged, blind, and disabled

individuals. The Medicaid program is

administered by States according to

Federal statutory and regulatory

requirements, under the aegis of a ‘‘State

plan’’ that must be approved by the

Health Care Financing Administration

(HCFA). At the program’ s inception,

most health coverage under the

Medicaid program was provided by

reimbursing health care providers on a

fee-for-service basis for services

furnished to Medicaid beneficiaries.

(Note: The term ‘‘beneficiaries’’ is used

throughout the preamble to refer to

individuals eligible for and receiving

Medicaid benefits. The term

‘‘recipients’’ is used in the text of the

regulation and is synonymous with

‘‘beneficiary’’).

Increasingly, however, State agencies

have provided Medicaid coverage

through managed care contracts, under

which a managed care organization

(MCO) or other similar entity is paid a

fixed monthly capitation payment for

each beneficiary enrolled with the entity

for health coverage. Enrolled

beneficiaries are required to receive the

majority of health care services through

the managed care entity. In most States,

enrollment in these managed care

arrangements is currently mandatory for

at least certain categories of

beneficiaries. Prior to the enactment of

the Balanced Budget Act of 1997 (BBA),

State agencies were required to obtain a

waiver of a statutory ‘‘freedom of choice

requirement’’ in order to operate these

mandatory managed care programs. No

such waiver was required for

arrangements involving voluntary

enrollment in managed care.

The Balanced Budget Act of 1997

Chapter One of the Medicaid

provisions (Subtitle H) of the BBA

significantly strengthens Medicaid

managed care programs by modifying

prior law to: (1) reflect the more

widespread use of managed care by

State agencies to serve Medicaid

beneficiaries; (2) build on the increased

expertise acquired by HCFA and the

State agencies in the administration of

managed care programs; (3) incorporate

the knowledge that has been learned

from Medicaid, Medicare and private

sector managed care programs and their

oversight organizations; and (4) provide

a framework that will allow HCFA and

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6229

State agencies to continue to incorporate

further advances in the oversight of

managed care, particularly as it pertains

to the protection of beneficiaries and the

quality of care delivered to Medicaid

enrollees. This final rule with comment

period implements most of the

provisions of that chapter (that is,

sections 4701 through 4710). It

addresses BBA provisions that reduce

the need for State agencies to obtain

waivers to implement certain managed

care programs; eliminate enrollment

composition requirements for managed

care contracts; increase beneficiary

protections for enrollees in Medicaid

managed care entities; improve quality

assurance; establish solvency standards;

protect against fraud and abuse; permit

a period of guaranteed eligibility for

Medicaid beneficiaries; and improve

certain administrative features of State

managed care programs. It also

strengthens existing regulatory

requirements that apply to prepaid

health plans (PHPs) by applying to PHPs

certain requirements that the BBA

imposes on MCOs.

Several principles guided the

development of the final rule. First, the

rule was developed with a clear

emphasis on consumer protections. We

have addressed the issues identified by

advocates regarding the rights of

Medicaid beneficiaries, particularly

vulnerable populations, and how they

can be protected as State agencies

increasingly replace fee-for-service

Medicaid delivery systems with

managed care programs. In doing so, we

have been guided by the Consumers Bill

of Rights and Responsibilities (CBRR)

issued in November 1997 by the

President’s Advisory Commission on

Consumer Protection and Quality in the

Health Care Industry. A Presidential

directive ordered the Medicaid program

to comply, to the extent permitted by

law, with the recommendations in the

CBRR. As a result, when writing this

regulation, we incorporated the CBRR

recommendations whenever authorized

by law.

Second, we attempted to provide

State agencies with sufficient flexibility

to continue to be innovative in the

development and improvement of their

State Medicaid managed care programs.

We recognized that uniform, national

standards were not always appropriate

in all instances and tried to identify

areas where States needed flexibility to

develop their own standards, unless an

overriding beneficiary interest needed to

be taken into account. The regulations

were also written to support State

agencies in their role as ‘‘health care

purchasers,’’ in addition to their role as

‘‘health care regulators.’’ State agencies,

like group purchasers in the private

sector, are continuing to seek better

value for their health care dollars, when

‘‘value’’ means the best possible

combination of both quality and price.

Relevant subparts of this final rule

attempt to provide State agencies with

the tools needed to become better

purchasers.

Third, wherever we determined it was

appropriate to develop Medicaid

regulatory language that is parallel to

the language used in the final

Medicare+Choice (M+C) regulations

published on June 9, 2000 (65 FR

40170), we did so. The latter M+C final

rule implements Medicare managed care

provisions in the BBA, many of which

are similar to the Medicaid provisions

implemented in this final rule.

Fourth, with respect to the qualityrelated provisions, we opted to take a

more conservative approach and not

impose greater regulatory burden

without a strong evidence base.

Finally, the BBA directed the

Secretary of the Department of Health

and Human Services to:

conduct a study concerning the safeguards (if

any) that may be needed to ensure that the

health care needs of individuals with special

health care needs and chronic conditions

who are enrolled with Medicaid managed

care organizations are adequately met.

(Section 4705(c)(2) of the Balanced Budget

Act of 1997.)

In response to this charge from the

Congress, during October 1998 to

August 1999, HCFA conducted a study

of existing research, data, and other

information in a variety of areas related

to the needs of special populations.

HCFA has already taken steps to address

many of these recommendations

through revisions to the 1915(b) waiver

process and provision of technical

assistance and training activities to

States. HCFA’s responses in this final

rule with comment period to comments

on the proposed rule pertaining to

safeguards for populations with special

health care needs have been informed

by our analysis of information gathered

for the report to Congress. The final rule

reflects revisions in response to

comments based on this analysis.

This final rule with comment period

creates a new part 438 in title 42 of the

Code of Federal Regulations. All new

managed care regulations created under

the authority of the BBA, other sections

of existing Medicaid regulations

pertaining to managed care, and

appropriate cross references appear in

the new part 438. By creating this new

part, we are attempting to help users of

the regulations to better comprehend the

overall regulatory framework for

Medicaid managed care. More detailed

discussions of the content of each of the

subparts of this final rule are found at

the beginning of the section of the

preamble discussing each subpart.

Statutory Basis

Section 4701 of the BBA creates

section 1932 of the Act, changes

terminology in title XIX of the Act (most

significantly, the BBA uses the term

‘‘managed care organization’’ to refer to

entities previously labeled ‘‘health

maintenance organizations’’), and

amends section 1903(m) of the Act to

require that contracts under that section

and contracting MCOs comply with

applicable requirements in new section

1932. Among other things, section 1932

of the Act permits State agencies to

require most groups of Medicaid

beneficiaries to enroll in managed care

arrangements without waiver authority

under sections 1915(b) or 1115 of the

Act. Under the law prior to the BBA, a

State agency was required to request

Federal waiver authority under section

1915(b) or pursuant to a demonstration

authority under section 1115 in order to

restrict beneficiaries’ Medicaid coverage

to managed care arrangements. Section

1932 of the Act also defines the term

‘‘managed care entity’’ (MCE) to include

MCOs and primary care case managers

meeting a new definition in section

1905(t) of the Act; establishes new

requirements for managed care

enrollment and choice of coverage; and

requires MCOs, primary care case

managers (PCCMs), and State agencies

to provide specified information to

enrollees and potential enrollees.

Section 4702 of the BBA amends

section 1905 of the Act to permit State

agencies to provide primary care case

management services without waiver

authority. Instead, primary care case

management services may be made

available under a State’s Medicaid plan

as an optional service.

Section 4703 of the BBA eliminates a

former statutory requirement that no

more than 75 percent of the enrollees in

an MCO be Medicaid or Medicare

beneficiaries.

Section 4704 of the BBA creates

section 1932(b) of the Act to add

increased protections for those enrolled

in managed care arrangements. These

include, among others, the application

of a ‘‘prudent layperson’s’’ standard to

determine whether emergency room use

by a beneficiary was appropriate and

must be covered; criteria for showing

adequate capacity and services;

grievance procedures; and protections

for enrollees against liability for

payment of an organization’s or

provider’s debts in the case of

insolvency.

6230 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

Section 4705 of the BBA creates

section 1932(c) of the Act, which

requires State agencies to develop and

implement quality assessment and

improvement strategies for their

managed care arrangements and to

provide for external, independent

review of managed care activities.

Section 4706 of the BBA provides

that, with limited exceptions, an MCO

must meet the same solvency standards

set by State agencies for private HMOs

or be licensed or certified by the State

as a risk-bearing entity.

Section 4707 of the BBA creates

section 1932(d) of the Act to add

protections against fraud and abuse,

such as restrictions on marketing and

sanctions for noncompliance.

Section 4708 of the BBA adds a

number of provisions to improve the

administration of managed care

arrangements. These include, among

others, provisions raising the threshold

value of managed care contracts that

require the Secretary’s prior approval,

and permitting the same copayments in

MCOs as apply to fee-for-service

arrangements.

Section 4709 of the BBA allows State

agencies the option to provide 6 months

of guaranteed eligibility for all

individuals enrolled in an MCE.

Section 4710 of the BBA specifies the

effective dates for all the provisions

identified in sections 4701 through

4709.

Proposed Rule

On September 29, 1998, we published

a proposed rule setting forth proposed

regulations implementing the above

statutory provisions, as well as

proposing to strengthen regulatory PHP

requirements by incorporating by

regulation requirements that would

otherwise apply only to MCOs. (63 FR

52022) A summary of the specific

provisions of the proposed regulations

upon which we received public

comments is set forth at the beginning

of the discussion below of the

comments we received. For a fuller

discussion of our basis and purpose for

the approach taken in the September 29,

1998 proposed rule, see the preamble to

that document, at 63 FR 52022 through

52074.

We received 305 comments on the

September 29, 1998 proposed rule. The

comments were extensive and generally

pertained to all the sections contained

in the proposed rule. We carefully

reviewed all of the comments and

revisited the policies contained in the

proposed rule that related to the

comments.

II. Analysis of and Response to Public

Comments on the Proposed Rule

A. General Provisions of the Proposed

Rule (Subpart A)

1. Basis and Scope (Proposed § 438.1)

Section 438.1 of the proposed

regulation set forth the basis and scope

of part 438 including the fact that

regulations in this part implement

authority in sections 1902(a)(4),

1903(m), 1905(t), and 1932 of the Act.

Proposed § 438.1 also briefly described

these statutory provisions.

2. Definitions (Proposed §§ 438.2, 430.5)

Section 438.2 of the proposed rule

included definitions of terms that would

apply for purposes of proposed part 438.

The proposed definitions and relevant

comments and our responses are

provided below. As used in this part—

Authorized representative means an

individual authorized by an enrollee to

act on his or her behalf in any dealings

with an MCE or the State. The rules for

appointment of representatives set forth

in 20 CFR part 404, subpart R apply

unless otherwise provided in this

subpart.

Managed care entity (MCE) means—

(1) A Medicaid managed care

organization (MCO) that has a

comprehensive risk contract under

section 1903(m) of the Act; or

(2) A primary care case manager.

Managed care organization (MCO)

means—

(1) A Federally qualified HMO that

meets the advance directives

requirements of subpart I of part 489 of

this chapter; or

(2) Any public or private entity that

meets the advance directives

requirements and is determined to also

meet the following conditions:

(i) Is organized primarily for the

purpose of providing health care

services.

(ii) Makes the services it provides to

its Medicaid enrollees as accessible (in

terms of timeliness, amount, duration,

and scope) as those services are to other

Medicaid recipients within the area

served by the entity.

(iii) Meets the solvency standards of

§ 438.116.

Prepaid health plan (PHP) means an

entity that provides medical services to

enrolled recipients under contract with

the State agency, and on the basis of

prepaid capitation fees, but does not

have a comprehensive risk contract.

Primary care means all health care

services and laboratory services

customarily provided by or through a

general practitioner, family physician,

internal medicine physician,

obstetrician/gynecologist, or

pediatrician, in accordance with State

licensure and certification laws and

regulations.

Primary care case management means

a system under which a primary care

case manager contracts with the State to

furnish case management services

(which include the location,

coordination and monitoring of primary

health care services) to Medicaid

recipients.

Primary care case manager means a

physician, a physician group practice,

an entity that employs or arranges with

physicians to furnish primary care case

management services or, at State option,

one of the following:

(1) A physician assistant.

(2) A nurse practitioner.

(3) A certified nurse-midwife.

Provider means—

(1) Any individual who is engaged in

the delivery of health care services in a

State and is licensed or certified by the

State to carry out that activity in the

State; and

(2) Any entity that is engaged in the

delivery of health care services in a

State and is licensed or certified by the

State to deliver those services if

licensing or certification is required by

State law or regulation.

We also received comments on

definitions of ‘‘comprehensive risk

contract’’ in § 430.5, which defines a

‘‘Comprehensive risk contract’’ as a

contract that covers comprehensive

services, that is, inpatient hospital

services and any of the following

services, or any three or more of the

following services: (1) outpatient

hospital services; (2) rural health clinic

services; (3) FQHC services; (4) other

laboratory and X-ray services; (5)

nursing facility (NF) services; (6) early

and periodic screening, diagnostic, and

treatment (EPSDT) services; (7) family

planning services; (8) physician

services; and (9) home health services.

We have moved this definition, along

with the following other managed carerelated definitions, from part 430 to

§ 438.2. In addition, we have clarified

the definition of health insuring

organization so that it does not appear

to require that the health insuring

organization’s (HIO’s) providers be

capitated.

Capitation payment means a payment

the State agency makes periodically to

a contractor on behalf of each recipient

enrolled under a contract for the

provision of medical services under the

State plan. The State agency makes the

payment regardless of whether the

particular recipient receives services

during the period covered by the

payment.

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6231

Federally qualified HMO means an

HMO that HCFA has determined to be

a qualified HMO under section 1310(d)

of the PHS Act.

Health insuring organization means

an entity that, in exchange for capitation

payments, covers services for

recipients—

(1) Through payments to, or

arrangements with, providers;

(2) Under a risk contract.

Nonrisk contract means a contract

under which the contractor—

(1) Is not at financial risk for changes

in utilization or for costs incurred under

the contract that do not exceed the

upper payment limits specified in

§ 447.362 of this chapter; and

(2) May be reimbursed by the State at

the end of the contract period on the

basis of the incurred costs, subject to the

specified limits.

Comments on Definitions

Comment: Several commenters

believe that we should delete the

reference to 20 CFR part 404, subpart R

in the definition of authorized

representative. The commenters believe

that these rules, which generally govern

representative payees for Social Security

programs, have little, if any, relevance

to the Medicaid program and that these

requirements would limit assistance to

beneficiaries in the Medicaid managed

care enrollment process. They indicated

that current rules recognize that

beneficiaries may require assistance in a

variety of circumstances and provide

that applicants and recipients may

obtain that assistance from a variety of

sources. For example, commenters

pointed out that in formal proceedings

such as fair hearings, Medicaid

beneficiaries enjoy the right to

‘‘represent themselves, use legal

counsel, a relative, friend or other

spokesman.’’ (§ 431.206.) If the

applicant is incompetent or

incapacitated, anyone acting

responsibly for the applicant can make

application on the applicant’s behalf

(§ 435.907). People with disabilities who

are incompetent or incapacitated can

currently be represented by anyone

acting responsibly on their behalf.

Commenters indicated that State law is

available and is used to step in when a

person cannot make medical decisions

on his or her behalf.

Response: We concur with the

commenters and have deleted the

reference to 20 CFR part 404. We have

also deleted the reference to

‘‘authorized,’’ using only the term

‘‘representative’’ to allow for a broad

range of representatives, consistent with

existing policies and practices. The

definition, which has been moved to

§ 430.5, now reads ‘‘Representative has

the meaning given the term by each

State consistent with its laws,

regulations, and policies.’’

We agree with the commenters that

the appropriateness of a representative

depends on the significance of the

activity for which he or she is acting as

representative, so that States should

have the flexibility to determine who

may represent the beneficiary in various

activities. The State may establish

various criteria depending upon the

situation (for example, disenrollment

requests, choice of health plans,

receiving notices, filing grievance and

appeals (including requests for

expedited review, being included as a

party to the appeal and the State fair

hearing, receiving marketing materials,

being provided opportunity to review

records, etc.) In determining who may

represent beneficiaries, we anticipate

that States will provide special

consideration for individuals with

cognitive impairments, who are unable

to appoint their own representatives but

who may be especially vulnerable and

require assistance in accessing the

protections offered in these regulations.

Comment: One commenter found the

definition of PHP to be too vague.

Specifically, the commenter was not

aware of what was meant by

‘‘comprehensive’’ and that it was

confusing to use the words ‘‘capitation’’

and ‘‘fee’’ to describe a capitation

payment. The commenter recommended

that we not use the word ‘‘fee’’ in

conjunction with capitation and that we

define ‘‘comprehensive.’’

Another commenter believes the

proposed regulations should include a

new definition of a prepaid health plan

(PHP) to include primary care case

managers that are paid on a capitated

basis for primary care services only. A

commenter recommended that any

entity meeting the definition of primary

care case manager in section 1905(t) of

the Act should be treated the same,

whether capitated or paid on a fee-forservice (FFS) basis under State plan

payment rates.

Response: Normally, we use the

phrase ‘‘capitation payment’’ or

‘‘capitation rate’’ to describe the

capitation method of payment rather

than use ‘‘capitation fee.’’ As such, we

agree with the commenter that the word

‘‘fee,’’ which is associated with ‘‘fee-forservice’’ payment, does not fit well with

the word ‘‘capitation.’’ We therefore are

revising the definition of PHP by

replacing the word ‘‘fee’’ with the word

‘‘payment’’ after ‘‘capitation.’’

With respect to the commenter’s

request that ‘‘comprehensive’’ be

defined, the September 29, 1998

proposed regulations contained a

definition of ‘‘comprehensive risk

contract’’ that would apply for purposes

of the definition of PHP. In the

September 29, 1998 proposed rule, it

was proposed that this definition be

included in § 430.5. Since the

commenter apparently did not see this

definition, and was not aware that it

pertains only to part 438, we are moving

the definition of ‘‘comprehensive risk

contract’’ from § 430.5 to § 438.2.

We disagree that a primary care case

manager paid on a capitation basis

should be treated the same as one paid

on a fee-for-service basis based on State

plan payment rates. The definition of

primary care case manager in section

1905(t)(2) of the Act does not preclude

payment on a capitation basis. Thus, an

entity that meets this definition is

subject to the rules and requirements

that apply to a primary care case

manager, whether the entity is paid on

a fee-for-service basis, a risk capitation

basis, or some other basis. To the extent

that a primary care case manager is paid

on a capitation basis for providing less

than a comprehensive array of services,

it would also meet the definition of a

PHP and be subject to the requirements

in § 438.8. In this case, the primary care

case manager would be both a PHP and

a PCCM. When the MCO rules that

apply to PHPs are stricter than the rules

that apply to all primary care case

managers, a primary care case manager

paid on a capitation basis would have

to follow the MCO rules by virtue of its

status as a PHP.

Comment: One commenter noted that

the proposed definition of primary care

refers to service customarily furnished

by various types of physicians but does

not mention nurse midwives, nurse

practitioners, and physician assistants.

The commenter asked us to define

primary care to describe the functions of

a primary care provider to allow

inclusion of those classes of providers

who are permitted under State law to

practice as primary care providers. A

second commenter requested that nurse

practitioners and certified nurse

midwives be expressly referenced in the

definition of primary care.

A few commenters asked us to

specifically include Federally qualified

health centers (FQHCs) and rural health

centers (RHCs) within the definition of

primary care case manager, which the

commenters appear to believe would be

necessary in order for FQHCs and RHCs

to have the option of serving as a

primary care case manager (and as a

result be eligible for automatic

reenrollment). One commenter noted

that the rule failed to identify

obstetricians and gynecologists (ObVerDate 11<MAY>2000 21:50 Jan 18, 2001 Jkt 194001 PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 E:\FR\FM\19JAR7.SGM pfrm01 PsN: 19JAR7
6232 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

Gyns) as primary care case managers

and recommended their inclusion in

that definition of primary care case

manager.

One commenter urged that the

definitions of primary care and primary

care case manager include licensure or

certification imposed by tribal

governments in the case of individuals,

groups, or entities that deliver health

care services on a reservation. This

commenter believes that this would be

needed in order for some Tribes to

implement tribal MCOs or PCCMs. A

second commenter also noted that the

definition of primary care case manager

assumed State licensure and noted that

the concept of tribal sovereignty

generally precludes State licensing and

certification of tribally operated

programs. In order to implement an

Indian Health Services (IHS) or tribally

operated MCE, this commenter asked

that language be added exempting tribes

and the IHS from State license or

certification requirements.

Finally, one commenter requested

that the definitions of primary care and

primary care case manager be more clear

in order to distinguish between a PCCM

system and a capitated program. The

commenter urged that the language

make clear that States have the option

of offering a PCCM option as a form of

noncapitated managed care. This

commenter urged HCFA to require the

PCCM option as an element of

mandatory managed care at least for

people with severe disabilities.

Response: Our definitions of primary

care and primary care case manager

mirror the statutory language in section

1905(t) of the Act. We believe that the

Congress intended to limit the kinds of

health care and laboratory services

considered to be primary care to those

‘‘customarily provided’’ by the

providers listed in the statute (and in

the September 29, 1998 proposed rule).

Contrary to the apparent belief of the

first commenter discussed above, we

believe this approach does focus on the

‘‘functions’’ performed, not on who is

performing these functions. If the

definition had been intended to limit

primary care to services actually

furnished by the physicians referenced,

it would have said services ‘‘provided

by’’ these providers, not services that

are ‘‘customarily provided by’’ these

providers. We thus believe the intent of

the definition of primary care is to

specify the health care and laboratory

services considered to be ‘‘primary

care.’’ This means that under the

proposed rule, the types of practitioners

mentioned by the commenters could

provide ‘‘primary care services’’ if they

are ‘‘provided in accordance with State

licensure and certification laws and

regulations.’’

The definition of primary care case

manager specifies those practitioners

who may provide primary care case

management services (for example,

locating, coordinating and monitoring

health care), which may also include the

provision of ‘‘primary care’’ if permitted

under State law. Nurse practitioners,

certified nurse midwives, and physician

assistants are included in that definition

at State option. Ob-Gyns are already

included in the term ‘‘physicians’’ as

individuals who the statute specifies

may be primary care case managers, and

a separate mention is not necessary

(particularly since Ob-Gyns are

specifically mentioned in the definition

of primary care. In addition, the

definition of primary care case manager

allows for ‘‘an entity employing or

having other arrangements with

physicians to . . .’’ serve as a primary

care case manager. This would include

both RHC and FQHCs, which thus

similarly do not need to be mentioned

by name. This policy is consistent with

what we have allowed under the section

1915(b) of the Act waiver authority.

From the comments received, it is

clear that there was confusion between

the definition for ‘‘primary care case

manager’’ and that for ‘‘provider.’’ There

is also confusion over the term PCCM,

which has been used both to identify a

managed care system established by the

State and type of provider who

participates in that system. We are using

PCCM to mean ‘‘primary care case

manager’’—a specific term used to

describe those providers who qualify to

provide primary care case management

services. Conversely, the term

‘‘provider’’ is a general term we use in

this rule to identify health care

professionals who meet the definition;

this includes but is not limited to

primary care case managers.

The definition of ‘‘provider’’ as

published in our September 29, 1998

proposed rule, mirrors the definition of

provider published in the June 29, 2000

M+C regulation. However, to further

clarify the definition and to be

consistent with the definition of

‘‘physician’’ used in section 1861(r)(1)

of the Act, we are revising the definition

of ‘‘provider’’ (which we are moving to

§ 400.203 in this final rule) to be ‘‘any

individual or entity that is engaged in

the delivery of health care services in a

State and is legally authorized by the

State to engage in that activity in the

State.’’ We have substituted the words

‘‘licensed or certified’’ with ‘‘legally

authorized.’’ The revised definition

allows States, at their option, to include

licensure or certification requirements

imposed by Tribal governments. It also

provides States the flexibility to

determine what State requirements any

provider must meet (for example,

licensure and certification

requirements) in order to provide

services under managed care

arrangements.

In response to the comments about

the provision of primary care by

providers certified by Tribes, we believe

that a change to the definition of

primary care incorporating the above

language used in the definition of

provider would permit states to allow

Tribal-certified providers to furnish

primary care as primary care case

managers. Accordingly, in response to

these comments, in the definition of

‘‘primary care,’’ we are changing ‘‘in

accordance with State licensure and

certification laws and regulations’’ to

‘‘to the extent the provision of these

services is legally authorized in the

State in which they are provided.’’ As

in the case of our definition of

‘‘provider,’’ we believe that this change

is consistent with the Congress’ intent

that States have the discretion to

regulate and authorize these services,

while permitting the State flexibility in

the approach it uses to do so. We

disagree with the commenters that the

definition of ‘‘primary care case

manager’’ necessarily assumes

certification by the State and therefore

believe that no changes to this

definition are necessary in order for

States to permit Tribe-certified

providers to serve as primary care case

managers.

The primary care and primary care

case management definitions do not

address the type of payment provided

for these services. As stated previously,

the definitions related to primary care

case manager services generally mirror

section 1905(t) of the Act, which does

not address payment for these services.

These services are usually reimbursed

on a fee-for-service (FFS) basis.

However, some States do contract with

providers or entities on a capitated basis

for primary care services. Our definition

allows for this practice to continue.

States now have more flexibility to

offer Medicaid beneficiaries access to

primary care case management services;

section 1915(b) of the Act and section

1115 of the Act waiver authority are no

longer the only options for States.

Section 4702 of the BBA not only

provides the definition of primary care

case management services in section

1905(t) of the Act (along with

definitions of ‘‘primary care case

manager,’’ ‘‘primary care case

management contract’’ and ‘‘primary

care’’) and sets forth the contracting

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6233

requirements for providing these

services, it also allows States to add

primary care case management services

as an optional State plan service.

Moreover, section 4701 of the BBA

allows States to enroll specified

beneficiaries into a PCCM program

under a mandatory managed care

program without the need to obtain a

waiver authority. The BBA does not,

however, require States to have PCCM

as an option when implementing

mandatory managed care programs. As

specified in § 438.52 of the September

29, 1998 proposed rule, the final rule

continues to require States to provide a

choice of at least two MCOs, PHPs, or

PCCMs to beneficiaries required to

enroll in a managed care program; but

States can choose whether to offer a

PCCM program or simply offer a choice

of two or more MCOs.

Comment: One commenter believes

the definition of ‘‘comprehensive risk

contract’’ (now in § 438.2) should

include language that makes explicit

HCFA’s longstanding interpretation that

contracts covering specialty care only,

such as behavior health contracts, are

not comprehensive risk contracts. The

commenter suggested that we include

this clarification in the definition of

comprehensive risk contract. In

addition, the commenter suggested that

MCO and MCE be defined in § 430.5

because the terms are used several times

throughout the Medicaid regulations set

forth in subchapter C before they are

fully defined in § 438.2.

Response: We do not believe it is

necessary to include language expressly

reflecting our longstanding position that

the provision of only a limited package

of inpatient services related to

behavioral health problems (or other

similarly narrow area) does not

constitute the coverage of ‘‘inpatient

services’’ as used in the introductory

clause in section 1903(m)(2)(A) of the

Act, and in the definition of

‘‘comprehensive risk contract’’ that

implements this statutory language.

Under this interpretation, the reference

to ‘‘inpatient’’ services is to coverage of

the full range of these services, not a

narrow subset. There does not appear to

be any confusion regarding this

interpretation, and we do not believe

that any change in regulations text is

justified.

We agree with the commenter that the

terms MCO and MCE are used in part

430 before they are defined in § 438.2.

Therefore, we are moving all of the

relevant managed care definitions from

§ 430.5 to § 438.2, which will place all

managed care definitions in one section.

This will also eliminate duplicate

definitions (such as PHP) in both

sections.

Comment: One commenter believes

that ‘‘partial’’ risk arrangements (for

example, withhold or bonus

arrangements that involve risk without

traditional capitation) are not addressed

in the definitions of nonrisk contract,

PHP, and risk contract. This commenter

also found that these arrangements are

omitted in the reference in the

parenthetical in proposed § 438.50(a) to

‘‘whether fee-for-service or capitation’’

payment will be used. The commenter

recommended that to allow for States to

adopt partial risk-sharing arrangements,

the regulations should specify the

regulatory requirements that apply if the

State chooses to enter into partial risk

arrangements.

Response: To the extent a partial risk

arrangement puts an entity at ‘‘financial

risk for changes in utilization,’’ it would

not qualify as a ‘‘nonrisk contract’’

under our definition. It would, however,

fall within the definition of ‘‘risk

contract’’ since the entity would

‘‘assume risk for the costs of services’’

and could incur losses if the costs

exceed payment. In other words, when

funds are put at risk, the contract is a

risk contract that would be subject to

MCO requirements if it were

comprehensive. We agree with the

commenter, however, that a partial risk

contract that is less than comprehensive

and does not involve prepaid capitation,

arguably would not technically fall

within the existing definition of PHP.

This could create an unintended

loophole. We therefore are revising the

definition of PHP to include these

payment arrangements by adding the

phrase ‘‘or on other payment

arrangements that do not employ State

plan payment rates.’’ This language

would continue to exempt entities paid

on a fee-for-service basis based on State

plan payment rates from the PHP (and

thus MCO) requirements, even if they

were paid a ‘‘case management fee’’ as

a primary care case manager. In this

latter situation, there is no financial

incentive to deny services.

We also agree with the commenter

that the parenthetical in proposed

§ 438.50(a) (which has been moved to

§ 438.50(b) as part of a reorganization of

that section) excludes partial risk

payment arrangements that do not

involve capitation. We therefore are

adding a ‘‘for example’’ at the beginning

of the parenthetical to indicate that

these are just examples of what might be

specified.

Comment: One commenter suggested

that we add the sentence, ‘‘An entity

must be found to meet the definition of

an MCO to enter into Medicaid’s

comprehensive risk contract’’ under the

definition of MCO. Other commenters

were concerned that the requirement

that an MCO is ‘‘organized primarily for

the purposes of providing health care

services’’ could be read to preclude from

participation a legal entity that is not

necessarily organized primarily to

provide health care, such as a county

government.

Another commenter noted that

although it appears clear from the

discussion of the purpose of the

definitions in this section and the

provisions of § 438.8 that the definition

of an MCO is not intended to include

PHPs, it would be clearer if this was

explicitly stated. The commenter

suggested that we include in our

definition of an MCO, a statement that

specifies PHPs are not considered

MCOs. The commenter also suggested

that we add language to the definition

of PHP to address the potential for risk

arrangements with PHPs other than

capitation by adding the phrase ‘‘or

other risk arrangements’’ after the words

‘‘prepaid capitation fees’’ because some

waivers do not make capitation

payments. Another commenter

requested that we clarify if MCE

includes PCCM programs.

One commenter thought that we

interchangeably used the terms MCO

and MCE, and used MCE when PCCM

was intended, and therefore suggested

that we further define the term MCE.

The commenter recommended changing

MCE to PCCM when appropriate and

also revising text to indicate the

conditions under which regulations

apply to both MCOs and MCEs.

Response: We believe that it would be

inaccurate to add the sentence ‘‘an

entity must be found to meet the

definition of an MCO to enter into

Medicaid’s comprehensive risk

contract’’ because certain statutory

exemptions allow for other entities to

enter into these contracts. We also

believe that § 438.6(a) makes clear the

entities with which a State agency may

enter into a comprehensive risk

contract, and makes clear that this

includes an MCO. We agree that a

county is not organized ‘‘primarily’’ for

the purpose of providing health care

services and that counties should be

permitted to contract as MCOs if all of

the requirements in sections 1903(m)

and 1932 of the Act are otherwise

satisfied. In our proposed definition of

MCO, we retained the requirement that

the entity be organized ‘‘primarily for

the purpose’’ of providing health care

services from our pre-BBA definition of

HMO. Since this requirement is not

included in the statutory definition of

MCO in section 1903(m)(1)(A) of the Act

6234 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

and could potentially provide an

impediment to the availability of

county-sponsored managed care

arrangements, we are deleting this

requirement in response to this

comment.

While we do not agree with the

commenter’s suggestion that it be

specified in the definition of MCO that

PHPs are excluded, we agree that it

would not be clear from the current

definition of MCO that an entity that

otherwise meets the definition would be

excluded if it does not have a

comprehensive risk contract. While the

definition of MCE refers to an MCO that

has a comprehensive risk contract under

section 1903(m) of the Act, the MCO

definition itself does not include this

restriction. Since the regulations use

‘‘MCO requirements’’ as a shorthand for

requirements that apply to

comprehensive risk contractors, we

agree that it would be a good idea to

include this concept in the definition of

MCO. Because an entity is required to

meet the definition of MCO as a

condition for qualifying for a

comprehensive risk contract, we are

revising the definition of MCO to

provide that it is an entity ‘‘that has, or

is seeking to qualify for, a

comprehensive risk contract under this

part.’’ With this qualification, it should

be clear that a PHP would not be

included since a PHP is by definition an

entity that ‘‘does not have a

comprehensive risk contract.’’ With

respect to the commenter’s suggestion

that ‘‘or other risk arrangements’’ be

added to the definition of PHP after

‘‘prepaid capitation basis,’’ we believe

that the commenter’s concern has been

addressed by the revision we have made

in response to the previous comment.

The alternative arrangements to

capitation suggested by the commenter

would be included in the phrase ‘‘other

payment arrangements that do not

employ State plan payment rates.’’ The

reason we did not adopt the

commenter’s specific suggestion of

‘‘other risk arrangements’’ is that this

would imply that the reference to

‘‘prepaid capitation basis’’ was

exclusively a risk arrangement, when in

fact there have been nonrisk PHPs. (In

these cases, capitation payments have

been subject to a cost-reconciliation

process.) Our alternative approach

continues to accommodate nonrisk

contracts as PHPs.

With respect to comments on the use

of the terms MCO, MCE and PCCM, we

do not believe that the terms are used

interchangeably in the September 29,

1998 proposed rule, but we understand

that the application of these terms to

various provisions of the regulation has

caused confusion. There is a significant

difference between an MCO and MCE.

An MCE is either an MCO with a risk

comprehensive contract or a primary

care case manager. The terms MCO and

MCE are used in the statute and in the

rule to identify when different

requirements apply.

However, in the interest of clarity, we

are changing the regulations text to

indicate when regulations apply to

MCOs, PCCMs, or both. We are also

deleting the definition of MCE since the

term will no longer be necessary as a

result of this change.

3. Contract Requirements (Proposed

§ 438.6)

Proposed § 438.6 set forth rules

governing contracts with MCOs, PHPs,

or PCCMs. Paragraph (a) of proposed

§ 438.6 set forth the entities with which

a State may enter into a comprehensive

risk contract. Paragraph (b) provided

that the actuarial basis for capitation

payments must be specified in the

contract and that the capitation

payments could not exceed the upper

payment limit in § 447.361. Paragraph

(c) contained requirements regarding

enrollment, that enrollments be

accepted in the order of application up

to capacity limits, that enrollment be

voluntary unless specified exceptions

apply, and that beneficiaries not be

discriminated against based on health

status. Paragraph (d) provided that

MCEs can cover services for enrollees

not covered for nonenrolled individuals.

Paragraph (e) required that contracts

must meet the requirements in § 438.6.

Paragraph (f) required that risk contracts

provide the State and HHS access to

financial records of MCEs. Paragraph (g)

required compliance with physician

incentive plan requirements in

§§ 422.208 and 422.210. Paragraph (h)

required compliance with advance

directive requirements. Paragraph (i)

provided that with certain exceptions,

HIOs are subject to MCO requirements.

Paragraph (j) set forth the new rules in

section 1905(t) (3) of the Act that apply

to contracts with primary care case

managers.

Computation of Capitation Payments

(Proposed §§ 438.6(b), 438.64)

The September 29, 1998 proposed

rule proposed that two provisions

addressing capitation rates be moved

from part 434 to the new part 438 but

proposed to retain the existing

requirements governing capitation

payments, which are incorporated in a

new proposed §§ 438.6(b) and 438.64.

Proposed § 438.6(b) required that

contracts specify the actuarial basis for

capitation and that ‘‘the capitation

payments and any other payments

provided for in the contract do not

exceed the payment limits set forth in

§ 447.361.’’ Proposed § 438.64 reflected

the requirement in section

1903(m)(2)(A)(iii) of the Act that rates

be computed on an ‘‘actuarially sound

basis.’’

Comment: A large number of

comments from States, provider

associations, and advocates objected to

the requirement in proposed

§ 438.6(b)(2) that capitation payments

and other payments to the provider

cannot exceed the upper payment limit

(UPL) set forth at § 447.361. The

commenters stated that many States no

longer have a fee-for-service base to use

in computing the UPL and that it was

no longer a valid measure of costs, since

it did not recognize or include: (1)

additional costs resulting from new

regulatory requirements in the

September 29, 1998 proposed rule; (2)

the costs of required expanded or

mandated benefits; (3) overall

administrative costs of MCOs; (4) MCO

start-up costs; or the decline in MCO

profits (in commercial, Medicare, and

Medicaid plans). Several commenters

indicated that this requirement

potentially contradicted the requirement

in § 438.64 that rates be computed on an

actuarially sound basis since rates that

are truly actuarially sound could in

some cases exceed the UPL.

Commenters recommended that HCFA

revise or eliminate the UPL requirement

and replace it with new rules on rate

setting.

Two commenters stated that there

were no good arguments for changing

the current UPL provisions.

Response: We agree with the

commenters that problems are presented

by our decision in the September 29,

1998 proposed rule to retain the current

UPL requirement in proposed

§ 438.6(b)(2). We acknowledge that

many States no longer have fee-forservice base year data recent enough to

use as a reasonable comparison to the

costs of a current capitated managed

care system. We therefore are accepting

the recommendations of the

commenters and are in this final rule

deleting § 447.361 and revising § 438.6

by creating a new § 438.6(c), Payments

under risk contracts, which (1) does not

include a UPL; (2) requires actuarial

certification of capitation rates; (3)

specifies data elements that must be

included in the methodology used to set

capitation rates; (4) requires States to

consider the costs for individuals with

chronic illness, disability, ongoing

health care needs or catastrophic claims

in developing rates; (5) requires States

to provide explanations of risk sharing

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6235

or incentive methodologies; and (6)

imposes special rules, including a

limitation on the amount that can be

paid under FFP in some of these

arrangements. While these changes are

being included in this final rule in

response to comments on the September

29, 1998 proposed rule, because they

involve a new approach to regulating

capitation payments, we are providing

for a 60-day comment period limited to

our decision to replace the existing UPL

with new § 438.6(c).

In making these changes, we are

moving from a review that compares

capitation rates in risk contracts to the

historical fee-for-service cost of the

services under contract for an

actuarially equivalent nonenrolled

population to a review of the utilization

and cost assumptions and methodology

used by the State to set the actual

capitation rates. We believe that this

change will result in a more appropriate

review of capitation rates by examining

how the rates have been established

rather than how they compare to an

increasingly difficult to establish fee-forservice equivalent.

This change does not affect the rules

governing UPLs for other types of

providers or services including the

currently applicable provisions in

§ 447.272, § 447.304, § 447.321 or those

in a proposed rule on payments to

hospitals, nursing facilities,

intermediate care facilities for the

mentally retarded, and clinics published

on October 10, 2000 (65 FR 60151). Nor

will this change affect the UPL for

nonrisk contracts in § 447.362, which

remains in effect.

While comments are solicited on all

aspects of this change, we are

specifically requesting comments and

suggestions on the provisions in

§ 438.6(c) and § 438.814 that impose

special rules on contracts with incentive

arrangements or risk-sharing

mechanisms. As set forth above, FFP is

only available for risk contracts to the

extent that payments are determined on

an actuarially sound basis. ‘‘Under these

provisions, we have determined that

where total payments exceed 105

percent of the capitation payments paid

under the contract, these payments are

no longer actuarially sound. Thus, no

FFP would be available for payments

resulting from risk corridors or

incentive arrangements for amounts that

exceed 105 percent of the capitation

payments made under the contract. If

the risk corridor or incentive

arrangement does not apply to all

enrollees or services under the contract,

the 105 percent limit is based only on

that portion of total capitation payments

for the enrollees or services covered by

the arrangement.’’ States could make

payments under these arrangements

with their own funds but would be

precluded from claiming FFP for these

payments.

This limitation protects the Federal

government against potentially

unlimited exposure under risk corridor

or bonus arrangements. This is

particularly important since the ‘‘costeffectiveness’’ requirement in section

1915(b) of the Act and the ‘‘budget

neutrality’’ standard imposed under

section 1115(a) of the Act

demonstrations generally do not contain

an outright limit on the Federal share of

expenditures under the contract. And,

neither of these limits apply to

voluntary managed care contracts under

section 1915(a) of the Act or contracts

for mandatory enrollment under section

1932(a)(1)(A) of the Act using State plan

authority.

Without any upper limit on the

amount that can be paid in incentive

arrangements or risk-sharing

mechanisms, the potential exists for

inefficiency or inappropriate actions by

the contractor to maximize funding,

resulting in rates that bear no

relationship to those certified by

actuaries and which thus are no longer

‘‘actuarially sound.’’ We have provided

for the limitations in §§ 438.6(c)(5)(ii)

and 438.814 as a workable alternative to

the current UPL, which meets the

following criteria: (1) it provides a clear,

consistent rule that can be applied to all

risk contracts, regardless of the

authority under which the contract

operates (waiver or otherwise); (2) it

should not discourage the use of any of

these arrangements; (3) it explicitly

conditions Federal matching funds on

the imposition of these limits under any

of these arrangements to prevent any

potential abuses; and (4) it can be easily

administered.

Although not part of this final rule,

we also are revising the policies

governing cost effectiveness for section

1915(b) of the Act waiver programs. The

current regulations at § 431.55, which

require waiver programs to be costeffective and efficient and require States

to document this cost-effectiveness of

their waiver programs, will remain

unchanged. However, HCFA is

modifying the process by which States

document this cost-effectiveness

through re-issuance of State Medicaid

Manual provisions and revision of the

section 1915(b) of the Act Medicaid

waiver applications. The revised waiver

cost-effectiveness test will apply to all

section 1915(b) of the Act waivers,

regardless of the payment system (for

example, FFS, capitation) in the State’s

waiver program.

Comment: Several commenters stated

that the current UPL limit does not

recognize the cost of providing care to

particularly vulnerable populations and

that States should be required to use

risk-adjusted capitation rates for

homeless and other populations with

special health care needs. Some of these

commenters added that HCFA should

encourage States to reimburse MCOs

their actual costs for these populations

until sufficient data is developed to

apply the risk adjustors.

Response: HCFA encourages States to

develop capitation rates that are as

accurate as possible in predicting the

costs of any population enrolled in

managed care. To this end, most States

already use rates that are risk-adjusted

for demographic factors such as age,

gender, locality, and adjusted for

category of eligibility, all of which will

now be required under § 438.6(c)(3)(iii).

Only a few States use diagnosis-based

risk adjustors, which under

§ 438.6(c)(3)(iii)(E) of this final rule

would be optional. We are not

mandating the use of risk adjustment as

suggested by the commenter because

risk adjustors (both health status and

demographic risk adjustors) can only be

used when the population falling into

any one category is both readily

identifiable and large enough to be a

statistically valid-sized group. When

States have the capability to identify

and separate the costs of any

individuals with chronic illness,

disability, or extensive ongoing health

care needs, we would encourage the

State to take this into account in its ratesetting methodology. Because the ability

to apply these methodologies will vary

from State to State, we are not willing

to impose this requirement.

However, we are requiring States to

utilize risk adjustment, risk sharing, or

other mechanisms or assumptions to

account for the cost of services for

individuals with chronic illness,

disability, ongoing health care needs, or

catastrophic claims when setting the

capitation rate. Other identifiable

factors, which may have impact on the

expected health care costs of an

individual, may also be used in setting

more accurate capitation rates.

Further, we believe that moving from

the UPL requirement to an enhanced

documentation of the assumptions and

methodology used to develop capitation

rates will result in rates that are

determined on a more reasonable and

predictable basis specific to the

population enrolled than the UPL

requirement’s comparison to fee-forservice costs.

Current regulations provide authority

for States to contract with MCOs on a

6236 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

nonrisk basis. This type of contract

reduces the contractor’s risk for changes

in enrollee utilization of services under

the contract. This provision permits

payment to the contractor based on the

contractor’s costs, subject to the nonrisk

upper payment limit in § 447.362

(which is based on FFS costs of the

services actually provided, plus an

adjustment for administrative costs).

However, currently there are very few

States with nonrisk contacts. Given our

new model of rate review, and the

requirement in § 438.6(c)(3)(iv) that

‘‘individuals with chronic illness,

disability, ongoing health care needs or

catastrophic claims’’ be taken into

account, we do not believe it is

necessary or appropriate to encourage

the greater use of nonrisk contracts as

suggested by the commenters.

Comment: Several commenters

contended that States’ rate-setting

processes can be inconsistent, arbitrary,

and secretive, and recommended that

HCFA require a public process in which

States would have to disclose the

actuarial information and assumptions

in the rate setting process. One

commenter wanted HCFA assurance

that it would continue to review

capitation rates in contracts.

Response: We do not believe that

requiring a public process in State rate

setting would be conducive to more

effective rate setting by States. There are

currently 19 States that use some form

of competitive bidding and 35 States

that use a negotiation process to set

rates (including some that use a

combination of these methods).

Imposing a public participation process

outside of the requirements for

competitive procurement, or in the

midst of negotiations between the State

and potential contractors, would not be

helpful to these processes. We believe

that these methods for establishing

payment rates differ significantly from

FFS under which States establish fee

schedules for Medicaid provider

payments, such as with institutional

payments when a public process is

required. Further, we believe that the

new rate-setting process set forth at

§ 438.6(c) will help to make all parties

aware of the elements required and

assumptions that must be taken into

account in establishing capitation rates.

Comment: Several commenters stated

that HCFA should define ‘‘actuarially

sound.’’

Response: In discussions with

actuaries, we have found that there is no

universally accepted definition of the

term actuarially sound. In the past, we

have intended this provision to mean a

reflection of past costs and prediction of

the future costs of specific services for

a specific population based upon

concepts of predictability and

reasonableness. In § 438.6(c)(1)(i), we

have defined the term actuarially sound

capitation rates. We have used this term

in order to reflect that the emphasis in

our review of rates is on the State’s

assumptions and process used in

determining capitation rates, rather than

payment amounts. These are defined as

rates that are certified by an actuary,

developed in accordance with generally

accepted actuarial principles and

practices, and appropriate for the

population and services covered under

the contract. The American Academy of

Actuaries defines generally accepted

actuarial principles and practices as:

* * * those derived from the professional

actuarial literature from their common use by

actuaries. Actuarial principles and practices

are generally accepted when they are

consistent with practices described in the

actuarial standards of practice adopted by the

actuarial Standards Board and to the degrees

that they are established by precedent or

common usage. (From Section 2, Second

Exposure Draft, Proposed Actuarial Standard

of Practice, Utilization of Generally Accepted

Actuarial Principle and Practices, American

Academy of Actuaries.)

The required certification by the

State’s actuary should include the

actuary’s determination of the range of

soundness for the proposed rates (or

specific rate cells). This would be

helpful in resolving any disputes that

could arise over the soundness of the

rates and would supplement the

required documentation of the elements

and process used to set the capitation

rates.

We believe that our definition of

actuarially sound capitation rates and

new rate setting review requirements

provide HCFA’s interpretation of

actuarial soundness as set forth in

section 1903(m)(2)(A)(iii) of the Act.

Comment: One commenter wanted

HCFA to apply the actuarial soundness

requirement to MCO payments to

providers.

Response: We do not have the

authority to impose these requirements

on rates paid by MCOs to their

subcontractors. The only instances in

which the statute provides authority to

regulate payments by MCOs to

subcontractors are the physician

incentive plan requirements imposed

under section 1903(m)(2)(A)(x) of the

Act, and the requirement in section

1903(m)(2)(A)(ix) of the Act that

payments by MCOs to FQHCs and RHCs

be no less than rates paid to similar

subcontractors providing a similar range

of services.

Comment: Several commenters stated

that HCFA should develop an

administrative process for the resolution

of rate issues between MCOs and States

when potential contractors do not

believe that their payment rates are

sufficient .

Response: We do not believe it would

be appropriate for us to mandate a

specific administrative review process

for MCO disputes with States over

payment rates. It is a State’s decision

whether to utilize a managed care

delivery system in its Medicaid

program, and part of that decision may

be based upon the rates it believes it can

afford to offer prospective MCOs or

PHPs. If the rates are not high enough

to obtain a sufficient number of

contractors, the State must make a

decision whether to raise its rates or

discontinue its managed care program.

HCFA has no authority to require a state

to continue or begin a managed care

program. We note, however, that under

the new procedures in § 438.6(c), HCFA

will be reviewing rates for actuarial

soundness, so this review provides

certain protections to MCOs as to the

adequacy of payment rates and should

at least in part address the commenters’

concerns.

Comment: HCFA should offer

technical assistance to States in setting

capitation rates.

Response: Section 1903(k) of the Act

specifically authorizes us to provide this

assistance at no cost to the State, and we

have done so in the past. Currently,

however, most States have elected to

contract with actuarial firms for this

assistance.

Comment: One commenter was

concerned that language in the

September 29, 1998 proposed rule

implied that HCFA would no longer

review capitation rates and wanted

HCFA assurance that it would continue

to review capitation rates in contracts.

Response: HCFA will continue to

review rates established between states

and MCOs or PHPs. In fact, new

§ 438.6(c) applies these rate-setting

requirements to all risk contracts, and

we have created a new § 438.6(a) that

provides that the HCFA Regional Office

must review and approve all MCO and

PHP contracts.

Prohibition of Enrollment

Discrimination (Proposed § 438.6(c))

Proposed § 438.6(c) (recodified as

§ 438.6(d) in this final rule) established

rules for enrollment and set forth

prohibitions against discrimination in

the enrollment process. Specifically,

proposed § 438.6(c) required that

enrollees be accepted in the order in

which they applied up to specified

capacity limits, provided that with

specified exceptions enrollment must be

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6237

voluntary, and prohibited

discrimination based on health status.

Comment: Several commenters noted

that the September 29, 1998 proposed

rule appropriately prohibits health

plans from ‘‘cherry picking,’’ which is

the concept of discriminating against

persons who may have high health care

needs. However, they noted that the

requirement only applies during open

enrollment. The commenters believe

that the requirement should not apply

only to ‘‘official’’ open enrollment

periods, since enrollment can occur at

any time during the year as individuals

become Medicaid-eligible. The

commenters suggested that we revise

the September 29, 1998 proposed rule to

include the following: ‘‘MCE contracts

must provide that MCEs will not

discriminate on the basis of race, color,

or national origin. In addition, the MCE

must not use any policy or practice that

has the effect of discriminating on the

basis of race, color, or national origin.’’

This is required under Title VI of the

Civil Rights Act and implementing

regulations.

Response: We agree with the

commenter that there is no reason for

limiting the requirement that the MCE

accept individuals for enrollment in the

order in which they apply only to open

enrollment periods. Therefore, we are

revising § 438.6(d)(1) to specify that

‘‘The MCO, PHP, or PCCM accepts

individuals eligible for enrollment in

the order in which they apply without

restriction (unless authorized by the

Regional Administrator) up to the limits

set under contract.’’

We also agree that MCOs, PHPs, or

PCCMs should not discriminate based

on health status, race, color, or national

origin and that MCO contracts should

contain assurances of compliance with

Title VI of the Civil Rights Act and other

applicable civil rights and other Federal

and State statutes. Thus, we are revising

§ 438.6(d)(4) to include this provision.

Comment: A commenter noted that

the September 29, 1998 proposed rule

provides that the contract must prohibit

MCEs from discriminating in its

enrollment process based on health

status or need for health care. The

commenter further noted that its State

controls the enrollment process and

requires the MCO to accept individuals

who choose or are assigned the MCO.

Thus, the MCO is incapable of

discrimination. The commenter

suggested that we require that States

comply with this requirement without

necessarily requiring language in MCO

contracts.

Response: Section 438.6(d)

implements sections 1903(m)(2)(A)(v)

and 1905(t)(3)(D) of the Act, which

prohibit discrimination on the basis of

health status by an MCO or PCCM, not

the State. We believe that this is because

the Congress presumed that the State

would engage in no such

discrimination, since it would have no

incentive to do so. Indeed, in the case

of an MCO, PHP, or PCCM paid on a

risk basis, it would be in the State’s

financial interests for beneficiaries with

higher health care costs to be enrolled.

To the extent a State does not permit an

MCO to make enrollment decisions, this

would ensure compliance with section

1903(m)(2)(A)(v) of the Act and

§ 438.6(d). We believe that requiring this

provision in the contracts is the best

approach to ensure that all MCOs, PHPs,

and PCCMs consistently comply with

this requirement.

Comment: One commenter contended

that requiring MCOs, PHPs, and PCCMs

to accept individuals eligible for

enrollment in the order in which they

apply without restriction contradicts the

requirement in § 438.50(f)(2) that MCOs,

PHPs, and PCCMs seek to preserve the

established relationship that an

individual has with his or her primary

care provider.

Response: We do not believe that the

enrollment requirement under

§ 438.6(d)(1) contradicts the continuity

of patient and physician relationships,

since it affects only the effective date of

enrollments and not the extent to which

provider relationships can be

maintained once enrollment is effective.

We also note that the requirement in

§ 438.6(d)(1) refers to individuals who

‘‘apply’’ for enrollment, while

§ 438.50(f)(2) applies in the context of

‘‘default’’ enrollments under a State

plan mandatory enrollment program.

Additional Services Under MCO

Contracts (Proposed § 438.6(d))

Proposed § 438.6(d) (recodified in this

final rule at § 438.6(e)) provided that an

MCE is permitted to cover services for

enrollees that are not covered under the

State plan for beneficiaries not enrolled.

Comment: One commenter noted that

the discussion of the purpose of

proposed § 438.6(d) in the preamble

identifies the provision as applicable to

MCO contracts, but the text of the

September 29, 1998 proposed rule

references MCE and not MCO. The

commenter suggested that we change

the reference from MCE to MCO. The

commenter believes that this change

would also have the effect of applying

this provision to PHPs, which the

commenter thought was appropriate.

Response: The commenter was correct

that the text of the preamble to the

September 29, 1998 proposed rule

identifies this provision as applicable to

MCOs and that the text of the section

references MCEs. Typically, only an

MCO (which by definition is paid on a

risk basis) or a primary care case

manager paid on a risk basis (which

would make it a PHP) would offer

additional services not covered under

the State plan for nonenrollees. This is

because these entities would typically

use ‘‘savings’’ (a portion of the risk

payment not needed to cover State plan

services) to cover the additional services

in question. This is why the preamble

to the September 29, 1998 proposed rule

spoke only of MCOs (which, as the

commenter pointed out, would extend

to PHPs as well). However, this

provision of the regulations is based on

the fact that under a voluntary

enrollment situation, section 1915(a) of

the Act permits contracts with an

organization ‘‘which has agreed to

provide care and services in addition to

those offered under the State plan’’ only

to individuals ‘‘who elect to obtain such

care and services from such

organization.’’ Under section 1915(a) of

the Act, States are deemed to be in

compliance with statewideness and

comparability requirements in this

situation. There is nothing in section

1915(a) of the Act that limits this result

to an MCO (or to MCOs and PHPs) or

even requires the organization offering

additional services to those who choose

to enroll to be paid on a risk basis. In

the case of mandatory enrollment under

section 1932(a) of the Act, an exemption

from Statewideness and comparability

requirements permitting additional

services for enrollees is similarly

provided without regard to whether the

entity is an MCO or a primary care case

manager. Finally, there is nothing in

section 1915(b) or section 1115(a) of the

Act that would limit the applicability of

the waivers of Statewideness and

comparability provided for thereunder

to MCOs and PHPs. For these reasons,

even though it is unlikely that a nonrisk

PHP or PCCM would offer additional

services, we are clarifying the reference

in what is now § 438.6(e) to apply to

MCOs, PHPs, and PCCMs.

Comment: While several commenters

recognized that the language in

proposed § 438.6(d) exists in the current

regulation, they believe that the current

regulation has been subject to varied

interpretation over the years. The

commenters suggested that we clarify

whether or not these additional services

are included in the base used to

determine the upper payment limit

(UPL). In other words, if the MCO

provides additional services, the

commenters believe we should clarify

whether or not the State is free to

6238 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

increase the capitation rates to reflect

the costs of those services, even if the

costs did not occur in FFS.

Response: Under the former UPL

requirement, the costs of additional

services would not have been included

in the FFS base in computing the UPL.

However, as indicated above, we are

eliminating the UPL requirement and

substituting a requirement that rates be

actuarially sound, certified by an

actuary to this effect, and developed in

accordance with generally accepted

actuarial principles upon the projected

cost of services contained in the State

plan. Section 438.6(c)(4) requires States

to base their capitation rates only upon

the costs of services covered under the

State plan. Thus, even in the absence of

the UPL requirement, capitation rates

may not reflect the cost of these

additional services.

Comment: One commenter wanted us

to clarify what additional services could

be offered under proposed § 438.6(d)

and whether these services would be

eligible for FFP.

Response: The additional services that

can be offered may be optional services

described in section 1905 of the Act or

any other medically related services,

that are not covered under the State

plan. However, as noted in the previous

response, the provision of the additional

services authorized here is not to be

recognized in the capitation rate paid to

an MCO or in the FFP available to the

State.

Comment: One commenter disagreed

with the position that these additional

services should not be subject to the

statewideness and comparability

requirements. This commenter believes

that waiving these requirements could

potentially lead to discrimination on the

basis of health status or disability.

Response: Additional services have

been provided by HMOs and PHPs

under § 434.20(d) for many years prior

to the enactment of the BBA, and we do

not believe that this has led to

enrollment discrimination. Further, the

prohibition on enrollment

discrimination in § 438.6(d) requires

that MCOs, PHPs, or PCCMs accept

individuals in the order in which they

apply without restrictions, which will

protect enrollees from discrimination on

the basis of health status or disability.

Compliance With Contracting Rules

(Proposed § 438.6(e))

Proposed § 438.6(e) (recodified in this

final rule at § 438.6(f)) required

contracts with MCOs and primary care

case managers to comply with the

requirements in § 438.6.

While we received no comments on

this provision, the comment discussed

above suggesting that the discrimination

provision include language requiring

compliance with civil rights laws has

prompted us to include a general

provision that contracts comply with all

applicable State and Federal laws in

what is now § 438.6(f). This provision

merely recognizes obligations that

already exist as a matter of law, and

does not impose any new obligations or

alter any existing ones. It essentially is

a statement that HCFA expects

contractors to comply with the law. The

revised text now reads as follows:

(f) Compliance with applicable statutes

and contracting rules. All contracts under

this subpart must—

(1) Comply with all applicable State and

Federal laws; and

(2) Meet all the requirements of this

section.

Inspection and Audit of Records

(Proposed § 438.6(f))

Proposed § 438.6(f) (codified in this

final rule at § 438.6(g)) required risk

contracts to include provisions allowing

State and Federal inspection and audit

of MCE and MCE subcontractors’

financial records. We received no

comments on this provision.

Physician Incentive Plan (Proposed

§ 438.6(g))

Proposed § 438.6(g) (codified in this

final rule at § 438.6(h)) required that

contracts provide for compliance with

the rules governing physician incentive

plans that apply to Medicare+Choice

organization contracts. These rules

require that stop loss protection be

provided when a physician incentive

plan puts a physician at ‘‘substantial

financial risk’’ (defined in the June 29,

2000 Medicare+Choice regulations) for

the costs of services he or she does not

provide.

Comment: One commenter supported

requiring Medicaid MCOs and

nonexempt HIOs to comply with

Physician Incentive Plan requirements.

Response: The requirement is

maintained as set forth in the September

29, 1998 proposed rule.

Advance Directives (Proposed

§ 438.6(h))

Proposed § 438.6(h) (recodified in this

final rule at § 438.6(i)) required that

MCOs comply with the advance

directive requirements in subpart I of

part 489, provide oral and written

information on advance directives, and

reflect changes in State law within 90

days.

Comment: One commenter supported

requiring MCOs and nonexempt HIOs to

comply with advance directive

requirements. Several commenters

noted that the current advance directive

requirement in § 434.28 does not

include a requirement to provide adult

enrollees with oral information on

advance directives. They added that this

requirement was not included in the

BBA and that written information

should suffice. They suggested that we

revise proposed § 438.6(h)(2) to

eliminate the requirement for oral

information, which would permit MCOs

to respond orally only to answer

questions that arise. Another commenter

recommended deleting the entire

requirement as excessive and

unwarranted, except upon request by

enrollees. Another commenter noted

that MCE Member Handbooks address

advance directives but not in the detail

now required and will require possible

revisions and reissuance by MCEs.

Response: The commenter is correct

that §§ 434.28 and 489.100 do not

require MCOs to provide adult enrollees

with oral information on advance

directives policies. Section 434.28 notes

that the requirement in § 489.100

includes provisions to inform and

distribute written information to adult

individuals concerning policies on

advance directives. However, § 489.102

does not specify that individuals must

be informed orally but describes the

requirement to provide written

information. Therefore, we agree with

the commenters that oral information is

not required, and we have revised the

advanced directive requirement now

codified at § 438.6(i)(2) to eliminate the

requirement to provide oral information.

Because section 1903(m)(1)(A) of the

Act requires MCOs to provide

information on advance directives to

enrollees, we do not have the authority

to delete the entire requirement. Since

the advance directive policies did not

change before the September 29, 1998

proposed regulation, we do not believe

Member Handbooks would need

revisions, unless they did not comply

with § 434.28 before the September 29,

1998 proposed regulation.

Comment: Although proposed

§ 438.6(h)(2) provided that an MCO

must include a description of applicable

State law and proposed § 438.6(h)(3)

specified that the information must

reflect changes in the State law as soon

as possible but no later than 90 days

after the effective date of the change,

several commenters believe that it was

too administratively burdensome for

MCOs to comply with these

requirements and recommended that we

remove them from the regulation.

Response: This provision is required

by section 1903(m)(1)(A) of the Act,

which extends the advance directives

requirements of section 1902(w) of the

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6239

Act to MCOs. As a statutory

requirement, we do not have the

authority to remove this requirement

from the regulations.

Nonexempt Health Insuring

Organizations (Proposed § 438.6(i))

Proposed § 438.6(i) (recodified in this

final rule at § 438.6(j)) clarifies that

HIOs that began operating on or after

January 1, 1986, and are not exempted

by statute, are subject to MCO

requirements and may not enter into a

comprehensive risk contract if they do

not meet the definition of MCO. We

received no comments on this

provision.

Primary Care Case Management

Contracts (Proposed § 438.6(j))

Proposed § 438.6(j) (recodified in this

final rule at § 438.6(k)) implemented the

requirements in section 1905(t)(3) of the

Act that apply to ‘‘primary care case

management contracts.’’ Specifically,

proposed § 438.6(j) required that these

contracts (1) provide for reasonable and

adequate hours of operation, including

24-hour availability of information,

referral, and treatment for emergency

medical conditions; (2) restrict

enrollment to recipients who reside

sufficiently near one of the manager’s

delivery sites to reach that site within a

reasonable time using available and

affordable modes of transportation; (3)

provide for arrangements with, or

referrals to, sufficient numbers of

physicians and other practitioners to

ensure that services under the contract

can be furnished to enrollees promptly

and without compromise to quality of

care; (4) prohibit discrimination in

enrollment, disenrollment, and

reenrollment based on the recipient’s

health status and need for health care

services; and (5) provide that enrollees

have the right to terminate enrollment.

Comment: One commenter contended

that the primary care case manager

contract standards in proposed § 438.6(j)

were minimal at best. The commenter

asked that patients have rights of access,

coverage, information, and disclosure

that are as strong as those that apply to

MCOs and PHPs.

Another commenter noted the

importance of the primary care case

manager contract provision to rural

beneficiaries because they are more

likely to live greater distances from

primary care case manager delivery

sites. This commenter asked that we

define ‘‘sufficiently’’ and ‘‘reasonable’’

as used in proposed § 436.8(j)(2)

(‘‘sufficiently near . . . to reach . . .

within a reasonable time’’) and

‘‘sufficient’’ in proposed § 436.8(j)(3)

(‘‘sufficient number of physicians or

other practitioners’’). This commenter

asked us to adopt a ‘‘lesser of 30

minutes rules’’ for rural areas with a

defined exception for frontier areas

approved by HCFA.

Another commenter believes that in

the case of direct contracts with primary

care providers, our regulations should

take into account that these providers

may have small group practices and not

impose requirements on these providers

that are more appropriate for large

organizations. The commenter suggested

that there should be a way to

distinguish the small group provider

from the larger group provider and that

we should place fewer requirements on

primary care case managers.

Specifically, this commenter cited

requirements such as specific driving or

travel distance or 24-hour availability to

services as not practicable for small

providers and not always important to

beneficiaries willing to travel long

distances to be with a doctor they trust.

The commenter also contended that

recipients who have ongoing

satisfactory relationships with personal

doctors should be allowed to maintain

those relationships and that most of the

requirements for MCOs are not

appropriate for medical group or

individual doctors. The commenter

believes that there have not been serious

problems of quality and access with

PCCM programs; and that the

management component has proven

cost efficient. The commenter is

concerned that managed care has

already driven out many small health

care providers and that HCFA should

ensure that further regulation does not

drive out more small providers (who are

essential to people with disabilities).

Response: As noted above, the

contract requirements for primary care

case managers in proposed § 438.6(j)

largely mirror the language set forth in

section 1905(t)(3) of the Act, which was

added by section 4702 of the BBA. The

BBA is clear in setting forth which

contracting requirements should be

placed on PCCMs, which should be

placed on MCOs, and which apply to all

MCOs and PCCMs. As we discussed in

the preamble to the September 29, 1998

proposed rule at 63 FR 52026, PCCM

contracts must include those

requirements set forth in section

1905(t)(3) of the Act as well as any

requirements in section 1932 of the Act

that apply to MCEs. For example, a

PCCM must meet the information

requirements set forth in § 438.10 that

apply to it. We also have applied access,

coverage, and information requirements

to primary care case managers when

applicable. When the BBA specifies that

requirements apply to MCOs, these

requirements are not applicable to

primary care contracts as long as the

services are reimbursed on a fee-forservice basis based on State plan

payment rates. (To the extent that a

primary care case manager meets the

definition of a PHP, however, it would

also be subject, by regulation, to

specified MCO requirements.)

The requirement in proposed

§ 438.6(j)(1) that primary care case

manager contracts ensure 24-hour

availability of information, referral, and

treatment for emergency medical

conditions simply reflects the

requirement in section 1905(t)(3)(A) of

the Act, and therefore cannot be revised.

We note, however, that providers have

flexibility as to how they meet this

requirement. For example, providers

can have an employee or an answering

service or machine that immediately

pages an on-call medical professional.

This requirement is essential to

allowing referrals to be made for

nonemergency services, or information

to be given about accessing services, or

medical problems to be handled during

nonoffice hours.

The requirement in proposed

§ 438.6(j)(2) that beneficiaries be able to

access care within a reasonable time

using affordable modes of transportation

similarly reflects statutory language in

section 1905(t)(3)(B) of the Act that

cannot be changed. Again, however,

States have the flexibility to determine

their own standards to allow for

differences based on the needs of the

beneficiaries, provider availability, and

the geographic uniqueness of the State.

HCFA anticipates that State agencies

will take responsibility for ensuring that

these standards are met. One example,

as noted in the preamble of the

September 29, 1998 proposed rule, is

the 30-minute travel time standard.

Many States have adopted this standard

and apply it to urban areas. Other State

agencies have established 10-mile to 30-

mile travel distance depending on the

area. HCFA encourages States to

develop their PCCM programs so that an

enrollee residing in the services areas

should not have to travel an

unreasonable distance beyond what is

customary under FFS arrangements.

Due to enrollee-specific needs, types of

providers needed to meet enrollee

needs, availability of public

transportation, etc. HCFA is not

proposing a set of standards for each

PCCM program.

We encourage States to, and States

often do, make exceptions for

beneficiaries who request to travel

further than the time and distance

standards set by the State. We also

encourage States, to the extent practical,

6240 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

to allow beneficiaries who have ongoing

successful relationships with providers

to maintain those relationships.

However, section 1905(t)(3) of the Act

does not require this in the case of

PCCM contracts.

Section 1905(t)(3) of the Act does not

distinguish between small group

providers and large group providers and

applies its requirements to all primary

care case manager contracts. We,

therefore, do not have the authority to

exempt smaller providers from

requirements in section 1905(t)(3) of the

Act that are reflected in what is now

§ 438.6(k), which therefore will remain

as written in the September 29, 1998

proposed rule.

4. Provisions That Apply to PHPs

(Proposed 438.8)

Proposed § 438.8 provided that

specified requirements that apply to

MCOs and MCO contracts apply to

PHPs and PHP contracts. Specifically,

under proposed paragraph (a), the

requirements in proposed § 438.6 would

apply with the exception of those that

pertain to physician incentive plans,

advance directives, and HIOs. Proposed

paragraphs (b), (c), and (d) incorporated,

respectively, the information

requirements in proposed § 438.10, the

provider discrimination requirement in

proposed § 438.12, and the enrollee

protections in proposed subpart C of

part 438. Proposed paragraph (e)

incorporated the quality assurance

requirements in proposed subpart E of

part 438 to the extent they are

applicable to services furnished by the

PHP. Proposed paragraph (f)

incorporated the requirements in

proposed subpart F of part 438 except

for proposed § 438.424(b). And

proposed paragraph (g) incorporated the

enrollment and disenrollment

requirements in paragraphs (e) through

(h) of proposed § 438.56 and the conflict

of interest safeguards in proposed

§ 438.58.

Physician Incentive/Advance Directives

Comment: Several commenters are

concerned that HCFA has not included

provisions relating to physician

incentive plans and advance directives

in its regulations of PHPs. These

commenters believe that these two

provisions are of vital importance to

people with disabilities and chronic

illnesses. They believe that to the extent

that PHPs perform the same

responsibilities as MCOs, they should

be subject to the standards comparable

to those applied to MCOs.

Some commenters focused on

physician incentive plan requirements,

agreeing with the above commenters

that they should apply when PHPs

transfer substantial financial risk to

physicians or physician groups. If a

State elects to carve out behavioral

health, these commenters believe that

the same financial arrangement between

a PHP and that medical group should be

subject to the physician incentive

requirements.

The commenters believe that

physician incentive plan requirements

provide some measure of protection for

beneficiaries who might otherwise be

under-treated or not treated at all

because they have expensive or ongoing care needs. They noted that

people with chronic and disabling

medical or psychiatric disabilities are at

high risk for receiving inadequate care

because of the high costs often

associated with meeting their needs.

Moreover, some of the most noted

media coverage of treatment cut backs

and cut offs has occurred in behavioral

health managed care settings when

financial incentives are almost always

an issue.

These commenters also suggested that

enrollees of PHPs should have the same

opportunities to execute advance

directives prior to the need for this

hospitalization, as should enrollees of

behavioral health PHPs that cover and

provide stabilization and other types of

short-term, acute psychiatric

interventions in nonhospital settings

when psychiatric advance directives

might be warranted. Our September 29,

1998 proposed regulations seem to

undermine this movement and would

likely make acceptance of advance

directives by PHPs more difficult. They

strongly urged HCFA to make the

consumer protections regarding

physician incentive plans and advance

directives applicable to PHPs.

Another commenter noted that HCFA

should give State agencies the discretion

to apply advance directives

requirements to PHPs. Depending on the

nature of the services provided by the

PHP, State agencies may believe that it

is appropriate for the PHPs to meet the

advance directive requirement.

Response: We agree with the

commenter that PHPs should provide

their enrollees with an opportunity to

execute an advance directive to the

extent that the PHP performs similar

responsibilities as an MCO. So, for

example, it may be appropriate for those

PHPs that furnish institutional services

to provide the opportunity for advance

directive. However, there are many

PHPs that do not furnish institutional

services. Further there are some PHPs

that furnish nonclinical services only,

such as transportation services. We

believe these types of PHPs should not

be subject to the advance directive

provisions. As a result, we are changing

§ 438.8(a) to read ‘‘(b) The requirement

of § 438.6(h) except for—(1) PHPs that

contract for nonclinical services, such as

transportation services; and (2) when a

State believed it is not appropriate for

PHPs to meet the advance directive

requirement, such as PHPs that only

provide dental coverage.’’

With respect to physician incentive

plan requirements, we also agree that

these provisions represent significant

beneficiary protections that should be

extended to enrollees in PHPs that

transfer substantial financial risk to

physicians or physician groups. We

have modified § 438.8(a) to reflect this

change.

Comment: One commenter

recommended that this section be

carefully reviewed to ensure that it is

clear about the requirements applicable

to PHPs. The commenter apparently

believes that requirements only apply to

PHPs when the term MCO is used in the

sections referenced in paragraphs (a)

through (g). In a number of these

sections, the commenter concluded

from this belief that this would exempt

PHPs from provisions that the

commenter believes should apply. The

commenter also believes that § 438.8

does not include references to sections

that the commenter believes should be

applicable. For example, § 438.802 is

not included, although the commenter

believes that paragraphs (a) and (c)

should apply. The commenter suggested

HCFA re-evaluate the use of this

mechanism to identify PHP

requirements and consider adding

specific references to PHPs in each

applicable section.

Response: Section 438.802, which

discusses the conditions under which

FFP is available to MCOs, is based on

section 1903(m) of the Act, which does

not apply to PHPs. This provision thus

does not provide authority to disallow

FFP in payments to PHPs. In order to

avoid any confusion as to which

provisions apply to PHPs, we have

added specific references to PHPs in

each applicable section. We are also

keeping § 438.8, which identifies most

of those provisions that apply to PHPs.

Inapplicability of Sanctions Provisions

to PHPs

Comment: One commenter noted that

the list of MCO provisions that apply to

PHPs omitted the sanctions under

subpart I. It is unclear whether this

sanction authority applies to PHPs

through other regulatory provisions. If

not, the commenter recommended that

HCFA amend the September 29, 1998

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6241

proposed rules to apply the subpart I

sanction authority to PHPs.

Response: The proposed PHP

regulations are based on the authority

under section 1902(a)(4) of the Act to

provide for methods of administration

that are ‘‘found by the Secretary to be

necessary for . . . proper and efficient

administration.’’ While we believe this

provides authority to establish

requirements that apply to PHPs, we do

not believe that would provide authority

to promulgate regulations that would

authorize a State to impose civil money

penalties or other sanctions that are

provided for by the Congress only in the

case of MCOs. However, States may

cover PHP under their own State

sanction laws, and we encourage States

to do so whenever they believe it is

necessary.

PHPs Regulated as MCOs

Comment: Several commenters were

pleased that we, relying on our

authority under section 1902(a)(4) of the

Act, decided to require by regulation

that PHPs comply with regulations

implementing many consumer

protections which the Congress applied

to MCOs in the BBA. One commenter

believes that it would be a terrible irony

for those with these specialized and

significant health care needs to be

relegated to having fewer rights than

other Medicaid recipients. These

commenters believe that PHP enrollees

should be entitled to the same

protections as MCO enrollees since

PHPs perform the same responsibilities

as MCOs and have similar financial

incentives through risk contracts with

States.

Several other commenters, however,

believe that the BBA did not give the

statutory authority in effect to extend

statutory MCO requirements by

regulation to PHPs. They were

concerned that this would be a strong

deterrent for some plans and providers

who may want to participate but would

see meeting the requirements of BBA as

too burdensome. The commenters noted

that it may be difficult for behavioral

health PHPs and dental health PHPs to

meet some of the BBA regulatory

requirements. These commenters

believed that this would create an

undue administrative burden on both

the State agency and capitated

behavioral health providers. The

commenters requested that HCFA

carefully consider the administrative

costs associated with the application of

the MCO requirements to risk-bearing

providers that provide limited Medicaid

services. Particular areas of concern for

PHPs included meeting some of the

licensing and certification requirements,

information requirements, and State

plan and contract requirements. Other

commenters noted that the enrollment

and disenrollment requirements are

simply not suitable for capitated

behavioral health providers. They

believe that this requirement would

result in higher cost and less choice

because of the negative impact it will

have on subcontractors’ participation.

One commenter suggested that PHPs

should not be covered by provisions of

the September 29, 1998 proposed rule.

Response: The BBA and the

legislative history of the Medicaid

managed care provisions in the BBA are

silent on the question of how PHPs are

to be treated. The BBA did not change

the fact that managed care entities

regulated as PHPs are only subject to

regulatory requirements that we may

publish. We agree with the commenter

that the BBA does not itself provide us

with authority to regulate PHPs, and we

are not relying on the BBA as authority

for these regulations. Rather, as noted

above, we are relying on our authority

under section 1902(a)(4) of the Act to

establish requirements found by the

Secretary to be ‘‘necessary’’ for ‘‘proper

and efficient administration.’’ This has

been the basis of PHP regulations from

the beginning. The existing PHP

regulations in part 434 similarly

extended to PHPs by regulation

requirements in section 1903(m) of the

Act that otherwise only applied to

comprehensive risk contractors. For

example, under § 434.26(a), both PHPs

and HMOs were required to limit their

Medicare and Medicaid enrollment to

75 percent of total enrollment. It is true

that under § 434.26(b)(4), this

requirement could be waived for ‘‘good

cause’’ in the case of PHPs. Nonetheless,

there is longstanding precedent for

applying selected requirements in

section 1903(m) of the Act by regulation

to PHPs. Other longstanding PHP

requirements imposed by regulation

under the authority in section 1902(a)(4)

of the Act include requirements in

§ 434.27 related to termination of

enrollment (for example, a prohibition

on termination because of an adverse

change in an enrollee’s health status),

the choice of health professional

requirement in § 434.29, requirements

in § 434.30 related to emergency

medical services, the requirement under

§ 434.32 that the contract provide for a

State-approved grievance procedure, the

requirement in § 434.34 that the contract

provide for an internal quality assurance

system meeting specified standards, and

the marketing requirements in § 434.36.

We are extending similar requirements

in the State responsibilities contained in

subpart B of this regulation to PHPs.

All of these requirements were

imposed through the same notice and

comment rulemaking process being

used in this final rule. The only

difference between existing

requirements and the requirements

imposed under this final rule is a matter

of degree, not the nature of the

requirements in question. We have

determined that the BBA contains

important beneficiary protections that

should be extended by regulation to

most PHPs.

It should be noted that not all MCO

requirements are being imposed on

PHPs and that some PHPs are not

required to meet certain specified

requirements. For example, as just noted

above, we have declined to require that

the provisions for sanctions in subpart

I be applied to PHPs. Also, some PHPs

do not provide the complete set of

inpatient hospital services as this term

is used in section 1903(m)(2)(A) of the

Act, and the exception to the State

solvency standards requirement in

§ 438.116(c)(1) would apply.

Solvency Standards (Proposed

§ 438.8(d))

Among the beneficiary protections in

proposed subpart C that are applied to

PHPs under proposed § 438.8(d) are

solvency standards in proposed

§ 438.116. We received several

comments on this requirement.

Comment: Several commenters noted

that some PHPs would have problems

meeting these solvency requirements

because not all PHPs, particularly those

providing behavioral health services,

would fall under one of the exemptions

in proposed § 438.116(c). One of the

commenters believes it was unclear

what a State would have to do to certify

a PHP for solvency. The commenter

noted that States often use different

methodologies than those used for

MCOs to determine the solvency

standards for PHPs and suggested that

States be given more flexibility in this

area to set their own PHP solvency

standards. Another commenter noted

that the solvency requirement is totally

inappropriate to PHPs, especially when

they serve as subcontractors to an MCO.

Response: Section 438.116(b) requires

an MCO, and by operation of § 438.8(d),

a PHP, to meet the solvency standards

established by the State for private

HMOs or to be licensed or certified by

the State as a risk-bearing entity.

However, § 438.116(c) provides for

several possible exceptions to the State

solvency standards requirement. If the

PHP does not provide the complete set

of inpatient hospital services under

6242 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

section 1903(m)(2)(A) of the Act, the

exception to the State solvency

standards requirement in § 438.116(c)(1)

would apply. Therefore, the exception

in § 438.116(c) would normally apply to

behavioral health type PHPs. Even

though a PHP may be exempt from the

solvency standards in § 438.116(b), it

still must meet the basic requirements

in § 438.116(a), which requires each

PHP to provide assurances satisfactory

to the State showing that it has adequate

provisions against the risk of insolvency

to ensure that its Medicaid enrollees

will not be liable for the MCO’s debts if

it becomes insolvent.

5. Information Requirements (Proposed

§§ 438.10 and 438.318)

Proposed § 438.10 set forth

requirements that apply to States, MCEs

or enrollment brokers concerning the

provision of information to enrollees

and potential enrollees. Paragraph (a)

set forth the basic rule that these entities

must comply with applicable

requirements. Paragraph (b) set forth

requirements relating to language and

oral interpretation services. Paragraph

(c) set forth requirements regarding the

format of materials. Paragraph (d)

specified to whom information must be

provided and when it must be provided.

Paragraph (e) specified the information

that must be provided, including

information on the amount duration and

scope of benefits, procedures for

obtaining services, names and locations

of providers (and which are accepting

new patients), any restrictions on

freedom of choice, the extent to which

out of network providers can be used

and after-hours and emergency coverage

are provided, policies on referrals for

specialty care, cost sharing, the rights

and responsibilities of enrollees, and

information on complaints, grievances

and fair hearings. Paragraph (f) specifies

additional information that must be

made available upon request. Paragraph

(g) required that services not provided

under the contract be identified.

Paragraph (h) specified information that

primary care case managers are required

to provide. And paragraph (i) set forth

additional information requirements

that apply in the case of a mandatory

enrollment program under the authority

in section 1932(a)(1)(A) of the Act.

Proposed § 438.318 (recodified at

§ 438.218 in this final rule) required

that, as a part of the State’s ‘‘quality

strategy,’’ the requirements in proposed

§ 438.10 must be satisfied, and that

contracts must specify that certain

information specified in § 438.318(b)(2)

be provided.

Comment: Many commenters

remarked that proposed § 438.318,

‘‘Enrollee information,’’ is redundant

with § 438.10 because both require

elements of information that a State,

MCE, MCO, or PCCM must provide to

enrollees and potential enrollees.

Commenters recommended combining

these sections with a clear distinction

between who must provide information.

In addition, several commenters also

believed that there should be no

distinction between mandatory

managed care and nonmandatory

managed care with respect to

information requirements and that

requirements should be applicable to

both. Further, commenters believe that

the regulation exacerbated a problem

that exists to some extent in the statute

since some requirements apply to

MCOs, some to MCEs, and some to

States.

Response: Proposed §§ 438.10 and

438.318 have been combined in

response to the commenters’ concerns;

however, the requirements remain

essentially the same, since these

requirements reflect statutory

requirements set forth in section

1932(a)(5) of the Act. Specifically, as the

distinction is made in statute, the

requirements distinguish between the

information that must be provided by

MCOs, PHPs, and primary care case

managers. There is a further distinction

in the statute for mandatory managed

care systems under section 1932 of the

Act. In specifying in the proposed

regulations who had to provide

information, States were afforded the

maximum flexibility possible since

some States have prohibitions regarding

distribution of information by MCOs,

while some States require MCOs or

enrollment brokers to distribute

information. Although the specific

requirements are now part of § 438.10,

in the quality requirements now

codified in subpart D, § 438.218 requires

that § 438.10 constitute part of the

State’s quality strategy.

Comment: A commenter indicated

that the term ‘‘potential enrollee’’

needed to be defined because it was

unclear if it meant eligible for Medicaid

or eligible for enrollment in a managed

care plan.

Response: The term ‘‘potential

enrollee’’ in this section refers to an

individual that has been found eligible

for Medicaid and is either required to,

or permitted to, join an MCO, PHP, or

PCCM. We believe this is clarified with

the revised format; therefore, we will

not be adding a definition to the

regulations text.

Comment: Commenters indicated that

the language and format requirements

should also apply to member

newsletters, health risk appraisal

surveys, and health education and

preventive care information.

Response: Section 438.10(a)(4)

(codified at § 438.10(a)(2) in the

September 29, 1998 proposed rule)

expressly provides that the provisions of

paragraphs (b) (language) and (c)

(format) apply to all information

furnished to enrollees and potential

enrollees, such as enrollment notices,

informational, and instructional

materials and the information specified

within the section. HCFA believes that

this addresses the commenter’s

concerns, since the language and format

provisions apply to all information

furnished to enrollees and potential

enrollees, and not just those specified in

the § 438.10 itself.

Comment: Many commenters wanted

HCFA to require in the regulation that

all information and instructional

materials (including charts and upon

request information) be designated

public records and be available to the

public.

Response: Assuming that the material

the commenters referenced is general

information and not specific to an

enrollee or potential enrollee, we

believe that the information specified in

§ 438.10 is generally publicly available

and therefore may be obtained from the

State by following State procedures if

the State is in possession of the

information. If we are in possession of

the information, the information can

also be obtained from us under the

Freedom of Information Act. We note

that States may have procedures to

follow for obtaining information.

Comment: A commenter

recommended that HCFA encourage

States to develop other mediums of

notification about managed care options

such as public service announcements

on radio or TV, posting information on

the Internet, and billboards.

Response: While we are not

mandating how a State makes

individuals aware of their health benefit

options, § 438.10 requires that States

undertake the activities necessary to

fully educate and inform enrollees and

potential enrollees about their health

care options and how to access benefits.

Comment: Commenters believe that

all information provided to enrollees by

the State, MCE, or enrollment broker

should be developed in consultation

with consumers and stakeholder groups.

Response: Although we encourage

States to work with consumer and

stakeholder groups in the development

of material, we do not believe it is

necessary to mandate this as part of

§§ 438.10 or 438.218. However, many of

the elements listed within § 438.10

would be considered marketing material

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6243

and would therefore have to be

reviewed in accordance with the

marketing standards at § 438.104, which

require consultation with the Medical

Care Advisory Committee (MCAC)

established under § 431.12 or a similar

entity. The MCAC’s or similar entity’s

membership is required by regulation to

include consumer membership. Further,

under § 438.218, information standards

are part of the overall quality strategy at

§ 438.304, which includes requirements

regarding consumer involvement.

Language Requirements (Proposed

§ 438.10(b)

Comment: Several commenters found

the requirement to make information

available in the languages that

predominate throughout the State to be

problematic; however, commenters

offered differing opinions on what they

wanted to see in the regulation. Many

supported our decision not to include a

specific percentage threshold for a

language to be considered prevalent in

a geographic area but remained

concerned that the preamble language

referenced a 5 percent figure and that

HCFA’s Medicaid Managed Care

Marketing Guidelines include a 10

percent figure. One commenter

suggested that it was too costly for

MCOs to meet the costs of printing and

distributing materials in other languages

at the 5 percent threshold. Another

commenter believes that the

requirements for language and format

were overly prescriptive in light of the

absence of any evidence that

information is not being given to

enrollees in an understandable format.

Commenters pointed out that these

additional administrative costs are

funded out of the same dollar that

supports the delivery of care.

In contrast, we also heard from many

commenters who understood the need

for balance between State flexibility and

beneficiary protections but believe that

HCFA favored State flexibility too

much. Commenters stated that only

offering guidance in this area was

insufficient. They contended that States

should be afforded flexibility in

developing methods to provide

linguistically and culturally competent

services but not in determining whether

there is a need for these services in a

particular State or service area.

Commenters requested that the

regulation itself include specifics like

those discussed in the preamble.

Numerous commenters recommended

using a prevalent language threshold as

a numerical value rather than a

percentage. Several commenters

recommended that HCFA adopt the

standard employed in California, which

calls for translation of written material

when there are 3,000 Medicaid

beneficiaries in an MCO’s service area

who have limited English proficiency,

or 1,000 such Medicaid beneficiaries

residing in one zip code, or 1,500 such

beneficiaries in two adjacent zip codes.

Some commenters noted that even if an

individual was not a member of a

prevalent language group, he or she had

to have access to information.

Response: We believe that the

language and format requirements are

essential elements for ensuring that

enrollees and potential enrollees receive

the information necessary to make an

informed choice and access benefits.

While we believe they are essential

elements, we also continues to believe

that the best methodology for

determining the prevalent language

spoken by a population in a geographic

area may differ from State to State and

therefore we will not be modifying the

regulation to mandate a specific

methodology. Further, as we are leaving

this methodology for States to

determine, the 5 percent rate provided

in the preamble should be viewed only

as an example and not as a standard.

The 10 percent figure in the ‘‘Medicaid

Managed Care Marketing Guidelines,’’

which also contain suggested guidelines

and not mandates, may also be

acceptable if it meets the needs of the

State. We note, however, that a number

of commenters believe that a numeric

threshold rather than a percentage was

more appropriate because of variations

in population density. The commenters

believe that percentage thresholds

would result in empirically low

threshold numbers in low density

population areas and unacceptably high

threshold numbers in high density

populations. We find merit in this

argument, which we believe further

supports our decision to permit the

State to determine the best methodology

for its situation. We do note the

commenters’ suggestions as another

example for making this determination.

We also note that the HHS Office of

Civil Rights (OCR) has issued policy

guidance on meeting the language needs

of recipients of public funds. (See

‘‘Policy Guidance on the Prohibition

Against National Origin Discrimination

as it Affects Persons with Limited

English Proficiency,’’ 65 FR 52762,

August 30, 2000.) This guidance gives

further examples and guidance on

meeting individuals’ language needs.

Lastly, we agree with the commenter

that oral interpretation services must be

available free of charge to each potential

enrollee and enrollee even if he or she

is not a member of a prevalent language

group.

Comment: A commenter noted that

the oral interpretation requirements in

proposed § 438.10(b) apply to MCEs and

interpreted this to mean that it would

not apply to PHPs. The commenter

apparently interpreted § 438.8 to

incorporate only requirements for which

MCOs are mentioned by name. Under

this interpretation of § 438.8,

requirements that apply to MCEs (such

as the language requirements in

§ 438.10(b)) would not be incorporated

for PHPs. The commenter believes that

the language requirements in § 438.10(b)

should apply to PHPs.

Response: As noted above, § 438.8

subjects PHPs and PHP contracts to the

requirements in paragraphs (a) through

(g) that apply to MCOs and MCO

contracts. Therefore, since the

requirements in § 438.10 are specified in

§ 438.8(b), these requirements apply to

PHPs.

Comment: In addition to requiring

that States develop a methodology for

determining the prevalence of

beneficiaries needing language

assistance, some commenters wanted

HCFA to recommend a methodology for

States to use in determining the

prevalence of disabilities in the enrollee

population.

Response: While we understand that

it may be useful to know the percentage

of individuals that may have a

disability, we note that the State and

MCOs and PHPs must meet the needs of

all potential enrollees and enrollees and

are specifically required under the

Americans with Disabilities Act to

accommodate the special needs of

disabled individuals. We also note that

there is a requirement in § 438.206(d)

(codified in § 438.306(d) in the

September 29, 1998 proposed rule) that

States ensure that MCOs maintain a

network that is sufficient to provide

adequate access, taking into

consideration the anticipated

enrollment, with ‘‘attention to pregnant

women, children, persons with complex

and serious medical conditions and

persons with special health care needs,’’

as well as ‘‘the expected utilization of

services, considering enrollee

characteristics and health care needs.’’

We therefore do not believe that an

additional requirement is warranted;

however, the State is free to implement

such a requirement.

Comment: A commenter

recommended that in addition to

making oral interpretation services

available, HCFA should mandate States

to require professional training of

interpreters, appropriate accreditation,

and appropriate confidential

6244 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

interpretation services. In addition, the

commenter recommended the

elimination of family members as

translators because of confidentiality

issues and sufficient reimbursement for

translation services, as well as

interpretation services. A commenter

further indicated that the State should

adjust the capitation rate to reflect

reimbursement of interpretation services

if the MCO is expected to provide the

services.

Response: We believe that it is

appropriate and necessary to require

that interpretation and translation

services be available for all potential

enrollees and enrollees and have added

this requirement to the regulations text.

We also believe that the States should

be afforded the flexibility to determine

how these translation services are

provided and paid for (except that

beneficiaries cannot be charged for these

services). The Office of Civil Rights has

issued policy guidance on the training

and use of translators, which may be

helpful to States in determining how to

meet this requirement.

Format Requirements (Proposed

§ 438.10(c)(2))

Comment: A commenter noted that

proposed § 438.10(c)(2) required that

informational material take into

consideration people with special needs

such as the visually impaired or those

with limited reading proficiency. The

commenter suggested adding language

that specifically states that material in

alternative formats will be provided to

an enrollee only upon request.

Response: While we do not expect a

State and MCO, PHP, or PCCM to

provide information in alternative

formats to all potential enrollees and

enrollees, regardless of whether or not

they have a special need, we do expect

the State and MCO, PHP, or PCCM to

provide the information when requested

and to fully inform potential enrollees

and enrollees about the availability of

the information. We have modified

§ 438.10(c) to provide in

§ 438.10(c)(1)(ii) that information only

need be ‘‘available’’ in alternative

formats that take into account enrollees

with special needs and to make clear in

revised § 438.10(c)(2) that enrollees will

be informed ‘‘on how to obtain

information in the appropriate format.’’

Comment: Several commenters were

pleased with language in the preamble

to the September 29, 1998 proposed rule

discussing what constitutes accessible

information for people with disabilities

and/or limited reading proficiency but

believe that this language should be

placed in the regulations text. For

example, these commenters favored

including references in the regulations

to 14-point type, a fourth or fifth grade

reading level, and the use of focus

groups to test cognitive understanding.

One commenter suggested that a failure

to do so would be a violation of the

Americans With Disabilities Act.

Response: Because there is not one

commonly accepted standard for

providing formats for beneficiaries with

special needs, and in light of variances

in enrolled population across States, we

believe that a State is in the best

position to determine the best formats

for information. Allowing States to

determine the format for information is

consistent with the Americans With

Disabilities Act, because States have a

requirement under § 438.10(c)(1)(i) to

present the information in easily

understood language and format, and

under § 438.6(c)(1)(ii) to take into

consideration the special needs of

enrollees. Therefore, States are required

to meet the information needs of all

enrollees; however, we are allowing the

States flexibility in determining how

they will meet these needs.

Additionally, States are required to

comply with the Americans with

Disabilities Act without regard to the

provisions of this regulation

Comment: A commenter objected that

the prescriptive nature of the preamble

language requiring information to be

written at a fourth or fifth grade level

could be problematic when providing

information on the amount, duration,

and scope of benefits.

Response: We do not agree that the

preamble language is too prescriptive.

While we have recommended that

information be provided at a fourth or

fifth grade level, the regulation currently

affords the flexibility for States to set

their own reading level standards, based

on the needs of their population.

Comment: Commenters recommended

that the requirement in proposed

§ 438.10(c)(2) that special needs of the

visually impaired be taken into account

also be applied to persons with hearing

impairments and persons with cognitive

impairments.

Response: Section 438.10(c)(1)(ii) of

this final rule requires that materials

take ‘‘into consideration the special

needs of those who, for example, are

visually impaired or who have limited

reading proficiency.’’ (Emphasis added.)

Thus, this list is not intended to be

exhaustive, and the special needs listed

are just two examples. Individuals with

hearing impairments and cognitive

impairments would also be considered

individuals with special needs that

must be considered in material

development. We do not believe that it

would be possible to have an exhaustive

list of special needs as the enrolled

populations and needs of enrollees vary

by State. In addition, the individuals

with special needs vary depending on

the circumstance for providing

information. For example, an individual

with a hearing impairment would not

need custom material for mailings but

would for educational presentations. We

do expect a State and an MCO, PHP, or

PCCM to take into consideration the

needs of all potential enrollees and

enrollees in their State and MCO,

respectively.

Comment: A commenter indicated

that communications to homeless

persons regarding Medicaid Managed

Care benefits must take into account a

high level of transience, illiteracy, and

cognitive impairment in this group.

Response: As stated above, the

requirement to take into consideration

special needs of individuals applies to

all individuals with special needs

including people who are homeless.

Comment: Commenters indicated that

the regulation should recognize that

effective communication may not only

require accessible formats but also

requires the need for staff training in the

managed care plan, health care

provider’s office, and the Medicaid

agency to effectively interact with

persons with disabilities, including

hearing impairments and cognitive

learning problems. Commenters further

indicated that to be effective, face-toface interactions may be required.

Response: We agree with the

commenter that effective

communication may require more than

printed material and have revised the

language at § 438.10(c)(1)(ii) to also

require that material is provided in an

‘‘appropriate manner’ that takes into

consideration the special needs of

individuals. We have also added a

requirement in § 438.10(c)(5) that the

State and MCO have mechanisms in

place to assist potential enrollees and

enrollees with understanding the

managed care program and their

benefits.

Comment: A commenter believes that

the regulations lack the detail needed to

assure that States and MCE’s understand

their obligation to ensure culturally and

linguistically appropriate benefits for

Medicaid beneficiaries at all levels of

the health care delivery system.

Response: We do not agree with the

commenter because there are various

sections of the regulation that address

cultural issues and impose obligations

on States to take these issues into

account, including the requirements in

§ 438.10 discussed in this section and

requirements in § 438.206 (codified at

§ 438.306 in the September 29, 1998

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6245

proposed rule) discussed below. While

we have not provided detailed

‘‘specifications’’ in all cases as to how

States fulfill these obligations, since we

believe States should be provided some

flexibility in this area, States will be

responsible for accomplishing the

commenter’s desired results, regardless

of what methods they use to achieve

them.

We have required that oral

interpretation services and translation

be provided free of charge to

beneficiaries and that information on

primary care providers include

languages spoken.

Comment: Some commenters

advocated that all information should be

reviewed and approved by the State if

not distributed by the State.

Response: Many of the elements listed

in § 438.10 are considered marketing

material and must therefore be reviewed

in accordance with the marketing

standards at § 438.104. Paragraph (b)(2)

of § 438.104 specifies that each MCO,

PHP, or PCCM contract must provide

that the entity does not distribute any

marketing materials without first

obtaining State approval. Further, those

that might not be considered marketing

materials, such as appointment notices,

etc. still must meet the information

standards in § 438.10, including

understandability.

When Information Must Be Provided

(Proposed § 410(d) and (f)).

Comment: Several commenters sought

clarification of when complete benefit

information was required to be provided

to beneficiaries. One commenter

recommended that the ‘‘once a year’’

requirement of § 438.10(d)(2) be

changed to ‘‘at least once a year’’ to

make it clear that this information need

not be provided at a specific anniversary

time but rather may be included with

other information in the normal course

of business during the year.

Response: We agree with the

commenter that greater flexibility is

needed, and we therefore have provided

in a recodified § 438.10(e)(1)(ii) that

after the initial provision of information

to new enrollees, any significant change

in this information must be provided 30

days prior to the effective date of the

change. We have also added a

requirement in a new § 438.10(f)(4) that

all of the information that is ‘‘provided’’

pursuant to new paragraphs (d) and (e)

(proposed § 438.10(e)) also be available

‘‘upon request’’ at any time.

Comment: One commenter expressed

concern that the proposed requirement

for primary care case managers to

provide additional information ‘‘before’’

or ‘‘during’’ enrollment is confusing as

‘‘before’’ or ‘‘during’’ can refer to two

separate time frames. The commenter

recommended that the primary care case

manager, or State on behalf of the

primary care case manager, be required

to provide information ‘‘on’’ enrollment.

Response: We agree with the

commenter that further clarification is

necessary. The regulation has been

modified to reflect the same time frames

as those required of MCOs, or the State

on behalf of the MCO.

Comment: A commenter believes that

in addition to annual notification, there

should be notification ‘‘as soon as

changes occur’’ in any of the provisions

listed in proposed § 438.10(e) (now in

§§ 438.10(d)(2) and (e)(2)).

Response: We agree with the

commenter that enrollees should be

notified if there is a significant change

within the program and have modified

the regulations in response to this

comment. In the new § 438.10(e)(1)(ii),

we are requiring that when there is a

significant change (as defined by the

State) in the information provided

under § 438.10(e)(2), a revised version of

the information in paragraph (e)(2) must

be provided at least 30 days prior to the

effective date of the change. We believe

the State is best suited to define what is

considered to be a significant change.

Comment: Commenters wanted us to

further define when the MCO (or the

State) must provide information to

enrollees. One commenter suggested

that the provision be modified to state

that the information should be given

within ‘‘a reasonable time after the MCO

receives the notice of the recipient’s

enrollment or the effective date of the

enrollment, whichever is later.’’

Another commenter suggested 7 days

after enrollment.

Response: The regulation requires that

the information be provided within a

‘‘reasonable time after it receives, from

the State or the enrollment broker,

notice of the recipient’s enrollment.’’

We believe that the State is in the best

position to define this specific time

requirement for providing information.

Comment: Commenters indicated that

the dissemination of information is very

costly. Additionally, commenters

believe that the States were in the best

position to provide comparative

information. The preference of these

commenters was that the State agency

assume the administrative responsibility

for providing information.

Response: We believe we have

provided States with significant

flexibility, given the detailed statutory

requirements in section 1932(a)(5) of the

Act. We agree with the commenter that

States should assume responsibility,

within the constraints of the

requirements in section 1932(a)(5) of the

Act, and specifically that States should

have the flexibility to decide whether

they or MCOs provide comparative

information.

Comment: A commenter suggested

that the regulations should require

States to have a mechanism for notifying

their enrollees of their right to request

and obtain basic information.

Response: Section 438.10(e)(1)(i)

requires that States ensure that enrollees

are provided the information at least

once a year, rather than just be notified

as in the proposed rule.

Comment: A commenter

recommended that MCOs provide

information directly to enrolled

adolescents.

Response: While it is probable that

adolescents would receive information

directly when enrollment is not linked

by family unit, in the case of a family

unit we believe that sending one copy

of information to each household is

sufficient and would constitute

providing the information to all

‘‘enrollees’’ in that household, provided

alternative formats are not necessary for

special need reasons. The cost of

requiring MCOs to mail directly to

multiple family members could be

prohibitive. However, this regulation

does not prohibit States from imposing

this requirement.

Comment: A commenter urged that

HCFA ensure that individuals not have

to go great lengths to obtain information

and that a general request for

information should trigger the provision

of full information.

Response: We agree with the

commenter. Section 438.10(f) includes a

requirement that all elements of

information be available ‘‘upon

request.’’ We expect that States and

MCOs will not make the process of

obtaining information difficult and will

provide comprehensive information if

any information is requested, since it is

in the best interest of all parties that the

individuals be as knowledgeable as

possible about their health care options,

rights, and responsibilities.

Required Information (Proposed

§ 438.10(e))

Comment: Some commenters argued

that proposed §§ 438.10 and 438.318

would impose information requirements

upon States or their contracted

representatives that go far beyond what

is required in statute. Specifically, these

commenters pointed out that the statute

requires that information on the identity

and location of health care providers

need only be provided ‘‘upon the

request’’ of enrollees or potential

enrollees, rather than that it be

6246 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

‘‘provided’’ as specified in proposed

§ 438.10(e)(3). However, there were also

a number of commenters who

applauded HCFA for requiring that

information be ‘‘provided’’ and

suggested that the provision of

additional information on the nature of

managed care arrangements would also

be appropriate.

Response: Section 1932(a)(5) of the

Act spells out information that must be

available to all enrollees and potential

enrollees. The statute, however, only

requires that this information be

available ‘‘upon request.’’ We believe

that the information listed is so basic

and fundamental to an enrollee’s ability

to access services and exercise rights

that it is ‘‘necessary for * * * proper

and efficient operation’’ for this

information to be in the hands of all

enrollees. For example, an enrollee

needs to know about the network of

providers in order to access care and

about appeal rights to exercise these

rights. Therefore, pursuant to our

authority under section 1902(a)(4) of the

Act to specify what is ‘‘necessary for

* * * proper and efficient operation,’’

we have required that information such

as the names, locations, and telephone

numbers of the MCO’s network of

providers be provided to beneficiaries.

We have developed these requirements

in keeping with what we believe to be

the Congress’ general intent that

potential enrollees and actual enrollees

have this important information. Also,

in response to the latter comments that

specifically called for information to be

given to enrollees on a variety of

characteristic features of managed care

(for example, prior authorization of

services and provider networks), we

have added a new type of required

information to include ‘‘Description of

basic features of managed care’’ and

‘‘MCO responsibilities for coordination

of enrollee care.’’ We have also required

the States and MCOs to have in-place

mechanisms to assist potential enrollees

and enrollees in understanding the

managed care system and their benefits.

In the BBA-mandated report to the

Congress on safeguards for individuals

with special health care needs who are

enrolled in Medicaid managed care, we

noted the extensive evidence that exists

on Medicaid, Medicare, and commercial

MCO enrollees that demonstrates their

lack of knowledge of the characteristic

features of managed care and the

implications of their enrollment in an

MCO. Similarly, evidence exists that

there is widespread confusion about

MCO responsibilities for care

coordination. The nature of comments

received support these additional

requirements.

Comment: Commenters believe that

the elements of information that the

MCO (or State) must provide are often

elements that are currently included in

the member handbook that is supplied

by the MCO or by an enrollment broker.

A commenter expressed concern that

too much information could be

overwhelming, causing people to ignore

all of it.

Response: We agree with the

commenter that the information that

must be provided under the September

29, 1998 proposed regulation generally

is already provided to enrollees as a

common practice. To the extent this is

the case, these existing practices could

satisfy the requirements in § 438.10(e)

with respect to enrollees. It is not our

intent that this information be

duplicative of what is currently

provided. Section 438.10 allows States

to continue their current practice of

including information as part of an

enrollee handbook or requiring that the

MCO or (in the case of potential

enrollees) that an enrollment broker

provide the information. Therefore,

HCFA does not believe that the

regulation is duplicative or burdensome.

We have modified the regulation to

specify in § 438.10(d)(1) that the ‘‘State,

or its contracted representative’’ may

provide the information in

§ 438.10(d)(2) to potential enrollees.

Because this information is generally

currently provided, we also do not

believe that the requirements in § 438.10

would result in ‘‘information overload.’’

Comment: Commenters suggested that

information on service authorization

requirements and provision of

transportation to services should be

included as elements of the basic

information about procedures for

obtaining benefits.

Response: Section 438.10(e)(2)(iii)

expressly requires that information

containing the procedures for obtaining

benefits be provided, including any

authorization requirements. This should

include information on transportation to

the extent this is necessary to obtain

benefits.

Provider Directories/Provider

Information (Proposed § 438.10(e)(3).

Comment: Some commenters believe

that information on specialists should

only be provided upon request due to

the volume of information. These

commenters supported this

recommendation. They believe that if

enrollees are provided with information

on specialists, the enrollees may believe

that they do not need a referral for

speciality care. These commenters

believe that this information should

only be provided upon request and that

it is best provided with the assistance by

someone over the phone that has access

to timely data. In contrast, we received

a number of comments from individuals

applauding us for requiring that

information on specialists be included

in the information, citing that a

significant number of Medicaid

beneficiaries have special needs and are

more reliant on the specialists than the

primary care physicians.

Response: Although we acknowledge

that including information on

specialists adds to the volume of

information and further complicates the

process of keeping information current,

we do believe that a significant number

of enrollees rely on this information and

therefore continue to believe that, at a

minimum, information on provider

networks should include information on

primary care physicians, specialists, and

hospitals, as stated in the preamble to

the September 29, 1998 proposed rule.

To clarify this point, we have included

this preamble reference to specialists in

the regulations text at § 438.10(e)(3)(iv).

Comment: A commenter

recommended that homeless enrollees

receive information about which

providers in the network in which they

are enrolled have demonstrated

competency in meeting their complex

health and social needs. Similarly,

commenters indicated that information

should be available about (1) the ability

of providers to treat adolescents and

individuals with HIV; (2) the providers’

language proficiency; and (3) the

accessibility of providers for individuals

with disabilities. One commenter

suggested that this be required as part of

the additional information on education

and board certification status of health

professionals.

Response: We believe that this type of

information should be maintained by

the State, MCO, PHP, or PCCM, or

enrollment broker (as appropriate) and

be available upon request in order to

assist individuals when they have a

question about a particular service,

provider, or location. We have added a

requirement in new § 438.10(f)(3) to

specify that enrollees, and potential

enrollees, are able to obtain any other

information on requirements for

accessing services or other factors

necessary (such as physical

accessibility) that may be needed to

effectively access benefits.

Comment: Many commenters

expressed the view that the requirement

to include identification of those

network providers who are not

accepting new patients is difficult to

keep timely and may be out of date by

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6247

the time it is printed. In contrast, we

also received comments from

individuals indicating that this

information is critical if a beneficiary is

expected to make an informed choice.

Response: We acknowledge that this

information is time sensitive; however,

it is our belief that beneficiaries need

this information to make an informed

selection. Therefore, we encourage

States and their contractors to highlight

to potential enrollees and enrollees that

it is important to verify through a phone

call, or other means, that the

information is still current. We also

expect that States and their contractors

will provide updates to provider

directories within a reasonable time

frame, although the exact time is left to

the State to determine.

Comment: Several commenters

strongly recommended that HCFA

require, and not simply suggest, that

information on ancillary care provider

options be provided. Additionally,

commenters wanted information

provided on Federal or State community

health centers, dialysis centers, and

mental health and substance abuse

treatment centers (in addition to

primary care physicians, specialists, and

hospitals).

Response: As the enrolled population,

and therefore the health needs of the

enrollees, varies from State to State, we

believe that the State is in the best

position to determine what information

needs to be included on ancillary care

providers (including those listed by the

commenters) in order to meet the needs

of their respective beneficiaries. We do

expect that this information will be

available in all cases and that enrollees

and potential enrollees will be notified

about availability of additional

information upon request.

Comment: A commenter

recommended that the requirement for

‘‘name and location’’ of network

providers be expanded to require the

State to provide the name of the clinic

or facility, as well as that of the

provider, because many patients relate

to the clinic and not the provider’s

name.

Response: While we acknowledge the

commenter’s point that an individual

may be more familiar with a clinic name

than a provider name, this is not always

the case. We believe that the State or the

MCO, PHP, or PCCM is in the best

position to know the level of detail

regarding site identification that should

be included in the information a

potential enrollee and enrollee receives.

Comment: A commenter stated that

information regarding the education and

board certification (and recertification)

status of the health care professionals

staffing the emergency departments in

the enrollee’s geographic region should

also be provided. They further believe

that this additional information should

be provided, and not simply made

available upon request, because of the

need for quick decisions in emergency

situations.

Response: Since emergency room

physicians are considered health care

professionals, in a situation in which

there is a direct contractual relationship

with emergency room physicians, they

would be included in the provision at

§ 438.10(f)(2) that requires information

be provided that includes the education

and board certification and

recertification of health professionals.

While it is our belief that some

beneficiaries may be interested in

receiving these elements, and should be

able to obtain them, they are not

elements of information that every

beneficiary typically uses in selecting a

provider. In most cases, in an

emergency situation in which time is of

the essence, an enrollee would not be

‘‘shopping’’ for the best emergency room

doctor but would go to the nearest

emergency room. Therefore, while the

information must be available ‘‘upon

request,’’ we have not changed the

regulation to require that this

information be ‘‘provided.’’ Further, we

note that if there are not direct

contractual relationships with the

emergency room physicians, as often is

the case, there would be no way for an

MCO or State to know this information,

and therefore the enrollee or potential

enrollee could not obtain the

information from the MCO or State.

Comment: A commenter was

concerned that HCFA was silent on how

frequently the provider directory needs

to be updated. The commenter

recommended that we convey that the

intent is not to mandate that the printed

directory be updated more often than

periodically, although the commenter

expressed that we should expect that

current information be available through

the MCO and through other sources.

Response: We agree with the

commenter’s clarification regarding the

frequency of printing provider

directories, but do not believe that a

regulation change is necessary.

Specifically, we expect the provider

directories to be updated periodically,

as defined by the State, but also expect

that current information always be

available to the enrollee or potential

enrollee through the State, MCO, PHP,

or PCCM, or State contracted

representative.

Comment: Several commenters

strongly urged HCFA not to permit the

use of ‘‘subnetworks’’ by MCOs. They

believe it would be unfair to consumers

to join an MCO and then discover that

they could not access all providers

because they had been assigned to a

subnetwork. In addition, commenters

recommended that HCFA require that

plans clearly indicate if a network

listing does not include all clinics and

providers located at the facility.

Response: While we are not in a

position to dictate permissible

contracting entities for MCOs, we do

require under § 438.10(e)(2)(iii) that if

there are restrictions within a network,

the beneficiary be informed of these

restrictions as part of the information

that they receive.

Information on Benefits

Comment: A commenter

recommended that information also

should be provided on which

populations are excluded from

eligibility to enroll, are subject to

mandatory enrollment, or may enroll

voluntarily. Commenters specifically

cited the Native American population.

Response: We revised the regulations

to include a requirement in

§ 438.10(d)(2)(i)(B)(vi) that requires

State to provide information on which

enrollees are excluded from eligibility to

enroll, are subject to mandatory

enrollment, or may enroll voluntarily.

Comment: Several commenters

recommended that information be made

available on drug formularies.

Response: As a requirement of

§ 438.10(e)(2)(i), information must be

provided to enrollees on the benefits

offered, and the amount, duration, and

scope of benefits available under the

contract, with ‘‘sufficient detail to

ensure that enrollees understand the

benefits to which they are entitled,

including pharmaceuticals, and mental

health and substance abuse benefits.’’

(Emphasis added.) In addition, there is

now a requirement in § 438.10(f)(3)

specifying that enrollees and potential

enrollees can request other information

on requirements for accessing services

to which they are entitled under the

contract. Therefore, although we

support the commenter’s goals, we

believe that this is sufficiently

addressed in the regulation.

Comment: A commenter

recommended that this section should

clearly define all Federally mandated

‘‘benefits’’ and ‘‘services’’ to which

Medicaid enrolles are entitled,

including nurse-midwifery services,

consistent with section 1905(a)(17) of

the Act. The commenter and others

recommended the use of both ‘‘benefits’’

and ‘‘services’’ to convey the full range

available under the State Plan.

6248 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

Response: The terms ‘‘benefits’’ and

‘‘services’’ are synonymous. Section

1932(a)(5) of the Act uses the terms

‘‘benefits’’ in the information section,

and therefore ‘‘benefits’’ is the word we

have used throughout this section of the

regulations. The terminology may be

different in other sections if the statute

used the word ‘‘services’’ with a

different meaning in mind; however, the

words are interchangeable.

Comment: A commenter

recommended that information be

provided on those benefits that are

carved out of the program entirely, as

well as those that overlap (for example,

mental health benefits and prescription

coverage).

Response: Information must be

provided on all covered and noncovered

benefits for each MCO and PHP. While

States may determine that this

additional information is necessary, it is

our belief that it is the duty of the State,

MCOs, PHPs, and providers to

coordinate programs and not that of the

enrollees.

Comment: Several commenters urged

that proposed § 438.10(e) be amended to

specifically require that the MCO’s basic

information list include the availability

and scope of EPSDT benefits and family

planning benefits. Another commenter

stated that the information to enrollees

should clearly state that the amount,

duration, and scope of benefits provided

to children under EPSDT are not

limited.

Response: Section 438.10(e)(2)(i)

requires that information be provided

on the benefits offered and the amount,

duration, and scope of benefits available

under the contract. Section

438.10(e)(xii) requires that information

be provided on the benefits that are not

available through the contract but are

covered as part of the State plan.

Finally, § 438.10(e)(2)(vi) requires that

information be provided on the extent to

which an enrollee may obtain benefits

from out-of-network providers. The

preamble specifically cites family

planning benefits (when appropriate) as

an example. HCFA believes that EPSDT

benefits are also benefits that fall within

the purview of this requirement.

Therefore, sufficient information on

EPSDT and family planning benefits

will be provided.

Comment: Many commenters believe

that while providing information on

benefits, as well as those carved out,

seemed reasonable, the requirement to

include information on the amount,

duration, and scope was problematic

and too voluminous to provide.

Response: We expect that States and

MCOs, PHPs, or PCCMs would use

general terms and groupings for benefits

that have no limitations; however,

additional information would be

expected if there was a limitation in a

particular service. We believe that

individuals need sufficient detail to

ensure that they receive the benefits that

they are entitled to receive and therefore

have not modified the regulation as

suggested by the commenters.

Grievance Information (Proposed

§ 438.10(e)(11)

Comment: Proposed 438.10(e)(10)

(recodified at § 438.10(e)(2)(xi)) required

that enrollees and potential enrollees be

provided information about any appeal

rights made available to providers.

Commenters suggested that we remove

that requirement because it is not

directly relevant to enrollees.

Response: This regulation reflects the

requirement under section

1932(a)(5)(B)(iii) of the Act, ‘‘Grievance

and appeal procedures,’’ which refers to

information on procedures available to

an enrollee and a health care provider

seeking to challenge or appeal a failure

to cover a service.

Primary Care Case Manager

Requirements (Proposed § 438.10(h))

Comment: Some commenters

contended that primary care case

managers generally are provided a

minimum case management fee that

would not cover the cost of providing

the information required under

proposed § 438.10(h) (recodified as

§ 438.10(g)). A commenter suggested

that the enrollment broker would be in

a better position to provide this

information. Another commenter

believes that the State should be able to

decide who provides the information

required under proposed § 438.10(h).

Response: Under § 438.10(g), the State

is afforded the flexibility of determining

whether the State, contracted

representative, or primary care case

manager is to provide the information.

However, if an enrollee requests

information about the grievance

procedure from the primary care case

manager, he or she should be able to

obtain it without having to contact the

State. As this information must be

available only ‘‘upon request,’’ we do

not believe that it will be overly

burdensome for the primary care case

manager to provide the information.

Comment: Some commenters were

concerned that a primary care case

manager’s duty to inform consumers

about their grievance rights ‘‘upon

request’’ may be perceived as

supplanting the obligation of MCOs and

States to provide written notice of an

adverse decision, regardless of whether

it is requested. They supported the

requirement that case managers be

aware of the procedures for filing a

grievance and be required to provide

information upon request but wanted a

statement included that this did not

replace the requirement to provide

notification for adverse decisions.

Response: The requirements in

§ 438.10(g) are information

requirements, analogous to the

information requirements for MCOs

under § 438.10(e)(x), and have no effect

on the notice and appeal requirements

in subpart F of part 438. We therefore

do not believe any revisions to the

regulations are warranted in response to

this comment.

Comment: Certain commenters were

displeased that there was no

requirement that MCOs provide

information about their quality

assurance program to enrollees and

potential enrollees in the Medicaid

program. They believe the regulation

should include, as information provided

‘‘upon request,’’ information of the type

provided under § 422.111(c)(2), (4) and

(5) of the June 29, 2000

Medicare+Choice regulations.

Specifically, commenters believe that

Medicaid beneficiaries should also have

access to the following information that

is provided to Medicare+Choice

enrollees under those regulations:

information on utilization control

procures; information on the financial

condition of the MCO; and a summary

of physician compensation

arrangements. They also recommended

that States require MCOs to provide

treatment protocol information to

beneficiaries upon request and provide

information on HEDIS indicators;

results of plan quality studies; external

reviews; compliance audits; and

summarized complaint and grievance

data.

Response: We agree with the

commenters that the cited information

would be useful to beneficiaries and

have revised § 438.10(f) to require that

MCOs provide the same information,

upon request, that Medicare+Choice

organizations are required to provide

under § 422.111(c)(2), (4), and (5). With

respect to the additional information

requested regarding HEDIS indicators

and the results of quality studies and

external reviews, the results of external

reviews under section 1932(c)(2) of the

Act will be made available to enrollees

and potential enrollees, as required

under section 1932(c)(2)(A)(iv) of the

Act. Given the lack of experience in

analyzing HEDIS indicators or quality

results, we are not requiring the

disclosure of this information to

enrollees at this time but would

consider doing so at a future date after

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6249

we have more experience concerning

the reliability and usefulness of these

data.

Comment: Some commenters

supported the requirement in proposed

§ 438.10(i)(2)(iv) (recodified in this final

rule at § 438.10(h)(3)(iv)) that

information on disenrollments be

provided in the case of mandatory

enrollment programs under section

1932(a) of the Act; however, many

believe these reports would not be

meaningful unless they specified the

various types of disenrollment, such as

voluntary disenrollments, emergency

disenrollments, and involuntary

disenrollments that occur, for example,

due to the loss of Medicaid eligibility as

these latter categories of disenrollments

are outside of the MCO’s control. In the

absence of this level of specificity,

commenters stated that the data were

not useful and could be misleading.

Response: We recognize that

disenrollment rates can mean different

things, depending on what is included

in the rate. For this reason,

§ 438.10(h)(3)(iv) refers to disenrollment

rates ‘‘as defined by the State.’’ At a

minimum, by requiring the State to

define ‘‘disenrollment rates,’’ there will

be uniform comparison of

disenrollments among MCOs, PHPs, or

PCCMs. We encourage States to

consider the concerns noted by

commenters when defining

disenrollment rates.

Comment: Commenters observed that

providing comparative information in

chart form as required under proposed

§ 438.10(i)(1)(ii) (recodified at

§ 438.10(h)(1)(ii)) is relatively new and

if done inappropriately could be

misleading. These commenters stressed

that to be effective, the presentation of

comparative information needs to take

into account the characteristics of each

MCE as compared to others, as well as

the relative size of the MCE, which may

make sampling too small for validity.

Response: The actual design and

format of the comparison chart required

under § 438.10(h)(1)(ii) in the case of

mandatory enrollment programs under

section 1932(a) of the Act is left to the

State to design. We suggest that States

note the concerns listed.

Comment: A commenter sought

clarification on how a comparative

chart-like form is to be used for the

proposed information if the MCE is a

primary care case manager under a

PCCM program.

Response: The comparative chart-like

format specified in § 438.10(h)(1)(ii) is

expressly required under section

1932(a)(5)(C) of the Act in the case of a

mandatory enrollment program under

section 1932(a)(1) of the Act. Section

1932(a)(5)(C) of the Act expressly refers

to comparing ‘‘managed care entities

[MCEs] that are (or will be) available

and information (presented in a

comparative, chart-like form) relating

to’’ specified areas. The statute thus

requires the use of these comparative

charts in the case of MCOs, PHPs, or

PCCMs, whether they be MCOs or

primary care case managers. We believe

that this is possible, though we would

not expect information on primary care

case managers to necessarily look

similar to that used for comparing

MCOs. For example, the chart could list

only those primary care case managers

that were different in regard to benefits

covered and cost sharing imposed.

Additionally, § 438.10(h)(3)(ii) requires

that quality indicators be provided to

the extent available.

6. Provider Discrimination (Proposed

§ 438.12)

Proposed § 438.12 would implement

the prohibition on provider

discrimination in section 1932(b)(7) of

the Act. The intent of these

requirements is to ensure that an MCO

does not discriminate against providers,

with respect to participation,

reimbursement, or indemnification,

solely on the basis of their licensure or

certification. The requirements do not

prohibit an MCO from including

providers only to the extent necessary to

meet their needs. Further, the

requirements do not preclude an MCO

from establishing different payment

rates for different specialties and do not

preclude an MCO from establishing

measures designed to maintain the

quality of services and control costs,

consistent with its responsibilities.

Comment: We received several

comments requesting that we clarify our

September 29, 1998 preamble language

in which we indicate that we did not

interpret section 1932(b)(7) of the Act to

be an ‘‘any willing provider’’ provision.

Several commenters specifically

recommended that we reference this

statement in our final rule, while others

recommended that we reiterate this

statement in the preamble to the final

rule. One commenter suggested that we

reconsider this provision so as to

require all willing providers to be

included in an MCO’s network.

Response: As we stated in the

preamble to the September 29, 1998

proposed rule, we believe it is clear that

section 1932(b)(7) of the Act does not

require that MCOs contract with all

licensed providers willing to undertake

the provision of services to the MCO’s

enrollees. To the contrary, section

1932(b)(7) of the Act expressly provides

that it ‘‘shall not be construed’’ to

prohibit an organization from

‘‘including providers only to the extent

necessary to meet the needs of . . .

enrollees.’’ It also makes clear that

restrictions based on maintaining

quality or controlling costs are

permissible. We believe that the

requirements contained in this section

of the regulation were intended only to

ensure that providers are selected in a

fair and reasonable manner and not

discriminated against solely because of

their license or certification. Thus, we

indicated in the September 29, 1998

proposed rule, and we reiterate here,

that this section does not require MCOs

to contract with ‘‘any willing provider.’’

We do not believe it is necessary or

appropriate to amend the regulations to

expressly reflect this fact, since by its

own terms, § 438.12 does not require

contracting with all willing providers.

Comment: One commenter requested

that we clarify how a State will

determine compliance with this

provider discrimination provision.

Response: We expect each State

agency to develop its own mechanism to

ensure that MCOs contract with

providers in a fair and reasonable

manner. Our regulation provides States

sufficient flexibility to determine which

mechanism works best for them. We

plan to work with States to provide

additional guidance on this issue in the

future.

Comment: One commenter

recommended that the final rule include

written notice and appeals procedures

for providers participating in an MCO.

The commenter suggested that the

process for a written notice and appeals

procedure should be based, in part, on

the interim final Medicare+Choice

regulation.

Response: While the

Medicare+Choice regulations do

require, in the last sentence in

§ 422.205(a), that Medicare+Choice

organizations provide written notice to

providers or groups of providers stating

the reasons why they were not accepted

as part of the organization’s provider

network, there is no provision for a right

to ‘‘appeal’’ such a decision. Under

§§ 422.202(a) and 422.204(c), providers

have appeal rights only once they have

been accepted as a member of the

Medicare+Choice organization’s

provider network. We similarly are not

providing for any right to an appeal in

this final rule, though States are free to

do so. We agree with the commenter,

however, that it would be helpful in

enforcing the anti-discrimination

requirement in section 1932(b)(7) of the

Act if MCOs were required to provide

written notice to providers seeking to

contract with them of the reasons why

6250 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

the providers were not included in the

MCO’s network. We therefore have

revised § 448.12(a) to include the same

written notice requirement that applies

to Medicare+Choice organizations under

§ 422.205(a).

Comment: Several commenters

suggested that additional protections be

added to the regulation to further ensure

nondiscrimination of providers. The

commenters recommended that the

regulation expressly prohibit

nondiscrimination of providers who

serve limited English-proficient

populations, high-risk populations, and

persons with HIV and AIDS. One

commenter stressed the importance of

culturally competent providers and

recommended that we add a provision

to require physicians to be added to an

MCO’s network because of the ‘‘value’’

they would add in terms of cultural

competence.

Response: The statutory provision

implemented in § 438.12(a)(1) and (b),

section 1932(b)(7) of the Act, addresses

only discrimination that is based solely

on licensure and not the other types of

discrimination addressed by the

commenters. However, § 438.12(a)(2)

incorporates requirements elsewhere in

part 438 that we believe, along with

other provisions in part 438, address the

commenters’ concerns. Specifically,

§ 438.12(a)(2) requires that providers be

selected in accordance with the

requirements in § 438.214 of subpart D.

Section 438.214(c) in turn requires

States to ensure that MCOs use provider

selection and retention criteria that ‘‘do

not discriminate against particular

providers, including those who serve

high risk populations or specialize in

conditions that require costly

treatment.’’ We believe that this

prohibits the types of discrimination

referenced by the commenters. In

addition, we refer the commenters to

§ 438.206(e)(4), which requires MCOs to

provide services in a culturally

competent manner, including at least

complying with the language

requirements of § 438.10(b).

Comment: One commenter believes

that there was a contradiction between

proposed § 438.12 and proposed

§ 438.306 (recodified at § 438.206 in this

final rule) and that clarification was

needed in order to comply with the

requirements of section 1932(b)(7) of the

Act, as the commenter interpreted them.

Specifically, the commenter referred to

the preamble discussion of proposed

§ 438.306 in which we stated that if

more than one type of provider is

qualified to furnish a particular item or

service, the State agency should ensure

that the MCO’s access standards define

which providers are to be used and

ensure that those standards are

consistent with State laws.

Response: Section 438.12 speaks to

discrimination by MCOs against

providers of services solely on the basis

of licensure. In contrast, § 438.206

requires States to establish standards to

ensure the availability of services by

MCOs. Although the preamble to

proposed § 438.306 referred to ‘‘types’’of

providers to be used, it specifies that the

MCO’s standards for inclusion of

providers must be consistent with State

law. We do not believe that § 438.206

could reasonably be read as inconsistent

with § 438.12 (that is, to permit an MCO

to discriminate against providers solely

based on licensure or certification).

Section 1932(b)(7) of the Act makes

clear that MCOs may limit the number

of providers with which they contract

based on need or to control costs. If

more than one type of provider can

provide a State plan service, and an

MCO already contracts with one such

type of provider, we believe that it

could under section 1932(b)(7) of the

Act and § 438.12 decline to contract

with the other type of provider based on

cost-effectiveness considerations, unless

there is a State plan service that only

that type of provider can furnish. For

example, if the State plan includes

‘‘nurse-midwife’’ services under section

1905(a)(17) of the Act or certified

pediatric nurse practitioner/certified

family nurse practitioner services under

section 1905(a)(21) of the Act, these

services can, by definition, only be

provided by the type of provider in

question.

Comment: One commenter expressed

concern regarding a Medicare

Operational Policy Letter, indicating

that it could be used as a basis for

denying chiropractic services to a

Medicaid beneficiary.

Response: First, we note that

Medicare Operational Policy Letters do

not establish Medicaid policy and are

not a valid basis for denying services to

Medicaid beneficiaries that would

otherwise be covered in accordance

with a Medicaid State Plan. The

Medicare Operational Policy Letter in

question also would not have any

applicability even by analogy, because

of differences between the way

chiropractic services are treated under

Medicare and Medicaid. Under

Medicare, ‘‘chiropractor services’’ are

not listed as a specific covered service

or benefit. Rather, under section

1832(a)(2)(B) of the Act, beneficiaries

with Medicare Part B are entitled to

coverage of ‘‘medical and other health

services,’’ which in turn is defined in

section 1861(s) of the Act as including

‘‘physicians services.’’ While there thus

is a right to coverage of ‘‘physician’s

services,’’ there is no specific coverage

category for the services of a

chiropractor. Instead, under the

definition of physician in section

1861(r) of the Act, a chiropractor can be

considered a physician for purposes of

being eligible to provide Medicare

covered physician services but only to

the extent the chiropractor is performing

a manual manipulation of the spine to

correct a subluxation. This manual

manipulation thus can be reimbursed by

Medicare as a physicians’ service

whether it is performed by a

chiropractor or any other physician,

such as an orthopedist, who performs

this manual manipulation.

In Medicaid, in contrast, section

1905(a)(6) of the Act permits States the

option of covering medical or remedial

care ‘‘furnished by licensed

practitioners within the scope of their

practice as defined by State law.’’ To the

extent a State has decided under section

1905(a)(6) of the Act to cover

chiropractor services under its State

plan, this covered service by definition

could only be provided by a

chiropractor.

Comment: We received several

comments questioning the statutory

basis for § 438.12(b)(2), which permits

the MCO to pay different amounts for

different specialties. Several

commenters suggested that a provider

performing the same service should be

paid the same amount, regardless of the

provider’s specialty. They

recommended that we remove

paragraph (b)(2) or revise it to prohibit

MCOs from paying lesser amounts for

the same service when provided by

different types of practitioners. Other

commenters stated that paragraph (b)(2)

had the practical effect of requiring

MCOs to pay all specialists within the

same specialty the same amount. These

commenters suggested that HCFA

clarify this provision, with one

commenter recommending that we

amend paragraph (b)(2) to not permit

the MCO to use different reimbursement

amounts for different specialties or for

the same specialty.

Response: We disagree that the statute

does not allow an MCO from

establishing different reimbursement

amounts for different specialties.

Section 1932(b)(7) of the Act states that

an MCO ‘‘may establish measures

designed to maintain quality and

control costs consistent with the

responsibilities of the organization.’’ We

believe that paying different amounts to

individuals with different specialties

can clearly be dictated as a ‘‘measure[ ]

* * * to control costs.’’ This is because

we believe that, in order to attract

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6251

highly qualified providers of all types,

and to attract an adequate number of

certain categories of specialists, MCOs

may need to pay a higher amount than

they would need to pay to attract other

types of providers. It would not be costeffective if the MCO was then required

to pay this higher amount to other

providers who would be willing based

on market rates to join the network for

a lower amount. Also, as a quality

measure, MCOs should be free to pay

providers with more training and

experience a higher rate of

reimbursement for the services they

perform. Moreover, we do not want to

preclude MCOs from using incentive

payments to reward providers for

demonstrating quality improvement or

from attracting experienced providers to

its network.

For the reasons stated above, we agree

with commenters that paragraph

§ 438.12(b)(2) should be clarified to also

permit different reimbursement

amounts for the same specialty.

Accordingly, we have amended the final

regulation at § 438.12(b)(2) to state

clearly that an MCO may use different

reimbursement amounts for different

specialties or for the same specialty.

B. State Responsibilities (Subpart B)

Proposed subpart B set forth the State

option to implement mandatory

managed care through a State plan

amendment, as well as State

responsibilities in connection with

managed care, such as ensuring choice

and continuity of care, enforcing

conflict of interest standards and limits

on payment, monitoring, and education.

1. State Plan Requirements: General

Rule (Proposed §§ 438.50 and 438.56(b),

(c), and (d))

Proposed §§ 438.50 and 438.56,

implemented section 1932(a)(1) and (2)

of the Act, which permits mandatory

enrollment of Medicaid beneficiaries in

MCOs or PCCMs on the basis of a State

plan amendment, without a waiver

under section 1915(b) or 1115 of the

Act. Under these regulations, a State

agency can require most Medicaid

beneficiaries to enroll in MCOs or

PCCMs without being out of compliance

with provisions in section 1902 of the

Act on statewideness, comparability, or

freedom of choice. Paragraph (b) and (c)

set forth the requirements for these

programs and the assurances that States

must provide. Proposed § 438.56(b)

identified limitations on populations

that could be mandatorily enrolled.

Paragraphs (c) and (d) set forth

requirements for enrollment priority

and default assignment under these

programs.

Comment: One commenter requested

that we clarify that § 438.50 does not

apply to 1915(b) and 1115 waiver

programs since States can mandate

enrollment in MCOs and PCCMs under

theses waiver authorities without

amending their State plan.

Response: We agree with the

commenter and we have amended the

final rule with comment period to

expressly provide that programs

operating under section 1915(b) or 1115

the waivers are exempt from the

requirements of this section.

Comment: A few commenters

expressed the concern that the Federal

requirements permit certain SPAs to be

effective as early as the first day of the

quarter in which the SPA was submitted

to us and recommended that we

eliminate the retroactive approval of

these SPAs. Two commenters

erroneously believed that the State risk

loss of federal money if the SPA is

disapproved, apparently confusing this

State plan process with the process of

approving contracts under section

1903(m) of the Act. These commenters

also expressed a concern that

beneficiaries may be permanently

adversely affected in the event they are

harmed during the retroactive period.

One commenter remarked that the State

could begin enrolling beneficiaries into

a mandatory managed care system that

does not guarantee access to

reproductive health services prior to the

submission of the SPA. Another

commenter emphasized that the short

timeframes in implementing managed

care have caused problems for the

consumers and providers in the past,

and guidelines from us are needed in

areas of payment, enrollment, network

adequacy and continuity of care, etc.

Response: We do not believe that the

rules governing effective dates for SPAs

which mandate enrollment in managed

care should differ from the rules that

apply to any other amendments to a

State’s plan. By allowing States to

implement a SPA effective the first day

of the quarter in which they submit the

SPA to us for approval, § 438.50 is

consistent with the other SPA effective

date provisions in §§ 430.20 and 447.26.

The retroactive effective date is only

applicable in the case of an approvable

SPA. During the retroactive period, the

increased beneficiary protections such

as grievance procedures, quality

assurance, and disenrollment are

applicable. Also, before the State may

actually enroll beneficiaries into MCOs

under this authority, all contracts

between the State and the MCO must be

approvable and in place and all

statutory and regulatory requirements

must be satisfied.

Comment: Two commenters indicated

that the pre-print form is not sufficiently

descriptive. They recommended that the

form require the States to provide more

detail on family planning, prenatal care,

labor and delivery and other

reproductive health services. In

addition, they would like the States to

specify the type of entities with which

the State will contract in order to assure

access to reproductive health services,

supplies and procedures.

Response: We are in the early stages

of developing this section of the State

plan preprint for amendments under

§ 438.50, and will take these comments

into consideration when designing that

form. However, some States have

already implemented approved

programs under § 438.50 utilizing

existing guidance issued in a December

17, 1997 letter to all State Medicaid

Directors. We believe that the

commenter’s specific concerns are

addressed in § 438.50(b), which requires

States to specify the types of entities

with which they will contract under a

mandatory managed care program, in

combination with § 438.206(c), which

requires that contracts with the MCO

specify the services that the entity is

required to provide, and that States

make arrangements to cover all

Medicaid services available under the

State plan, including any that may not

be in the MCO contract.

Comment: One commenter stated that

while States can assure that contracts

between MCOs and themselves meet all

requirements of the Act, a commitment

that all MCOs and PCCMs will be in

compliance at all times is unrealistic.

This commenter recommended that the

preferable language would be that the

State/local district will take appropriate

action against an MCO or PCCM

whenever it is determined that one of

these entities is not in compliance with

the contract.

Response: We agree that a State

cannot assure in advance that an MCO

or PCCM will always be in compliance

with all requirements, and that all we

can ask is that the State take appropriate

action if it is determined that one of

these entities is out of compliance.

Subpart I below discusses intermediate

sanctions and civil money penalties that

can be imposed when MCOs or PCCMs

are out of compliance, and subpart J

discusses the fact that FFP can be

denied in contracts with MCOs that are

substantially out of compliance.

Proposed § 438.50(b)(4), however, refers

to the State being in compliance with

requirements in this part relating to

MCOs and PCCMs.

Comment: We received one comment

stating that the current regulations allow

6252 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

our Regional Offices (ROs) to approve

SPAs based on policy statements and

precedents previously approved by the

Administrator. Only disapproval of an

amendment must come from the

Administrator’s office. Currently there

are no policy statements or precedents

from the Administrator’s office to

provide guidance to ensure uniform

decision making by the ROs. This

commenter recommended that approval

of the managed care plan amendments

should be the responsibility of our

Administrator with assistance from the

Regional Office until comprehensive

guidelines have been developed and

disseminated to the Regional Office.

Response: Section 430.15(b) gives our

delegated authority to approve the State

plan and plan amendments. The

consults with our Central Office during

the review process to ensure that the

SPA meets the requirements of all

relevant Federal statutes and regulations

as stated in § 430.14. All reviewers in

our Central and Regional Offices

reference the same tools when

reviewing a State plan amendment,

including State Medicaid Director

letters implementing the managed care

provisions in the BBA of 1997

provisions. The delegations of authority

are clear on the review of State plan

amendments, and the collaboration

between the our RO and central office

is a long established process.

Consequently, we are not making any

changes in the approval authority for

these SPAs.

State Plan Assurances (Proposed

§ 438.50(b) and (c))

Comment: A number of commenters

felt that the regulation should require

the States to publicize any plan

amendment for mandatory managed

care, and to solicit public involvement

in all levels of development before the

amendment is approved and

implemented. Suggested methods for

informing and involving the public

included:

• Public hearings and comment

periods;

• Involving the State Medical Care

Advisory Committee in reviewing

amendments and contracts.

• Using our website to notify the

public of the submission and approval

of State plan amendments.

• Publishing a Federal Register

notice when States first submit an

amendment.

• Requiring that the MCO and PCCM

contracts, as well as bids, be designated

public record and be available to the

public.

Response: We agree with the

commenters, and we have amended the

final rule with comment period at

§ 438.50(b)(4) to require state plans to

specify: ‘‘The process the State uses to

involve the public in both design and

initial implementation of the program,

and the methods it uses to ensure

ongoing public involvement once the

State plan has been implemented.’’ This

language is consistent with the public

notice requirements of the State

Children’s Health Insurance Program.

Comment: One commenter

recommended that we establish specific

procedures to closely monitor, track and

evaluate these State plans.

Response: We acknowledge this

concern, and assure the commenter that

we will continue to monitor, track, and

evaluate State plans via review of

provider contracts, site visits, and

reporting requirements such as for

external quality reviews. Amending the

state plan to implement a program of

mandatory managed care may eliminate

the need for a State to apply for waiver

renewals every two years, but does not

eliminate the State’s obligation to

guarantee access to services and provide

quality care to its beneficiaries, nor does

it eliminate necessary monitoring and

evaluation of these programs by us.

Comment: One commenter

recommended that State plans and

contracts with MCOs provide that the

choice of primary care providers for

children must include pediatricians,

and ensure access to pediatric services.

The commenter also recommended a

pediatric definition of medical

necessity. Other recommendations

included that the contracts should

ensure that information and training is

provided to recipients, physicians and

other providers, local agencies and

human health services agencies

regarding various aspects of the

managed care programs. This

commenter requested that we require

States to describe their plans for

conducting performance evaluations.

Response: For reasons discussed in

more detail in section II. D. below, in a

response to comments on proposed

§ 438.306 (now codified at § 438.206),

with some exceptions (such as a

women’s health specialist), we generally

do not believe it is necessary or

appropriate to require that MCOs

contract with specific categories of

providers. However, also as discussed in

that section, we are requiring in

§ 438.206(d) that in establishing an

MCO’s provider network, it must

consider the anticipated enrollment,

with ‘‘particular attention to * * *

children,’’ and ‘‘[t]he numbers and types

(in terms of training and experience) of

providers required to furnish the

contracted services.’’ We believe that

these requirements address the

commenter’s concern about

participation of pediatricians. With

respect to the recommendation for a

‘‘pediatric definition of medical

necessity,’’ also as discussed below in

section II. D, we are requiring in

§ 438.210(a)(4)(ii)(B) that an MCO’s

definition of ‘‘medical necessity’’

address the extent to which it is

responsible for covering services related

to the ability to achieve age-appropriate

growth and development, which is

obviously ‘‘pediatric-related.’’ We have

not required a separate definition. We

believe that the commenter’s suggestion

concerning information requirements

has been addressed in § 438.10(d) and

(e). Finally, with respect to the issue of

‘‘performance evaluations,’’ as

discussed in section II. D. below,

§ 438.240(c)(i) requires that MCOs and

PHPs measure performance, while

§ 438.240(c) requires performance

improvement projects.

Limitations on enrollment (Proposed

§ 438.56(b))

Comment: One commenter correctly

noted that if a State wished to use the

State plan option, yet wished to

mandate managed care enrollment for

elements of the Medicaid population

exempted under that option, the State

must still request a waiver to include

the exempt populations, thereby

negating the benefits of the State plan

option. Another commenter complained

of the continued administrative time,

expense and confusion in the current

waiver renewal process. This

commenter also expressed the view that

if the BBA is designed to allow greater

flexibility for State administration, then

greater allowance should be given to the

State plan option rather than the waiver.

Response: The proposed rule

implements section 1932(a), of the Act

as enacted by the Congress. While it

provides States with an alternative to

the 1915(b) of the Act waiver process

with respect to individuals not

exempted, we acknowledge that the

State plan amendment is not applicable

to all situations, and that the State will

need to submit a 1915(b) of the Act

waiver to enroll exempted population

into mandatory managed care programs.

We have no discretion to change, this

however, because the Congress was

clear in exempting these populations.

Comment: One commenter noted that

nothing in the BBA prohibits States

from exempting populations other than

those specified in the Act for mandatory

enrollment in managed care, and

recommended that language be added to

the regulations to indicate that the State

may exempt other populations. Another

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6253

commented that the regulation only lists

categories of persons who may not be

enrolled in managed care under the

State plan managed care option. The

commenter suggested that this rule

should also allow States using the

waiver option to exempt categories from

mandatory managed care.

Response: We do not agree that it is

necessary to add language to the

regulation indicating that States may

exempt other populations. Section

1932(a)(2), of the Act identifies those

populations which must be exempted

from mandatory enrollment under this

provision. States have had and continue

to have the discretion to exempt other

populations from mandatory enrollment

in managed care.

Comment: Several commenters

expressed concern that beneficiaries

might not be identified or notified of

their exemption from mandatory

enrollment, and run the risk of being

defaulted into MCOs or PCCMs. They

recommended that the State provide a

mechanism to ensure that exempt

populations are not enrolled into MCOs

or PCCMs, and that State be required to

permit exempt individuals to selfidentify.

Response: Section 438.10(d)(2)(B) of

the final rule with comment period has

been modified to require that potential

enrollees be informed of populations

which are exempt from mandatory

enrollment in any such program. We

agree that self-identification would be

an effective tool for individuals who fall

into an exempt category, but are not

identified as such by the State. Once

identified, the State would be obligated

to exempt such individual from

mandatory enrollment, and to disenroll

he or she immediately, if they had been

enrolled by default.

Comment: We received comments

concerning the applicability of the

limitations in section 1932(a)(4) of the

Act on the right to disenroll without

cause to exempted populations. One

commenter urged that the ‘‘12 months

lock-in’’ provided for under section

1932(a)(4) of the Act should be

restricted to individuals whose

enrollment in managed care was

mandated. Two commenters suggested

that the 12 months lock-in should not be

allowed for exempted groups unless a

State can demonstrate in a waiver that

the population’s access to services will

not be diminished due to enrollment in

an MCO or PCCM.

Response: If an exempted individual

voluntarily enrolls in an MCO or PCCM,

the same lock-in and disenrollment

provisions in section 1932(a)(4) of the

Act apply, including the ability to

disenroll without cause during the first

90 days of enrollment. This is because

section 1903(m)(2)(A)(vi) of the Act

incorporates section 1932(a)(4) of the

Act in the case of MCOs, while section

1905(3)(E) of the Act incorporates

section 1932(a)(4) of the Act in the case

of PCCMs. With respect to the last

recommendation concerning

demonstration of access to services,

MCOs must meet the requirements for

access and availability of services as

specified in §§ 438.206 and 438.207 of

the final rule with comment period,

while a PCCM contract must meet the

requirements for access and services

under § 438.6(k).

Comment: Some commenters agreed

with the exempted groups as outlined in

the proposed rule and recommended

that we maintain this provision.

Specifically, two commenters agreed

that foster care children should be

exempted as foster care children move

frequently and they may need to change

providers for geographic reasons. These

commenters also noted that if the child

has a disability and moves often because

of foster care, it may be important to

maintain a single provider to prevent

frequent disruption of complex care.

Another comment indicated that

children under 19 years of age who are

eligible for SSI and eligible for dental

coverage under EPSDT should not be

subject to mandatory enrollment in

managed care.

Others felt certain populations should

not be excluded from managed care

programs, with one commenter

recommending legislative action to

revise the rules to delete all

impediments to enabling managed care

programs for the broadest possible

populations. The commenters cited

positive experiences with exempted

populations in mandatory managed care

programs and felt that the special needs

can best be addressed and coordinated

through a network of providers. The

commenters’ experience has shown that

Medicaid clients believe the service is

better and the more complicated the

care, the more there is a need for

managed care. Two commenters

expressed the concern that by limiting

managed care for certain populations,

the message conveyed is that managed

care does not work for these

populations. They continued to say that

many States have been very successful

in operating managed care for these

exempted populations and it has been

shown to be a strong factor in assuring

access to primary and preventive care

and other needed medical services. One

commenter stated that they have taken

steps to ensure that MCOs identify and

serve children with special health care

needs appropriately, including the

implementation of broad, functional

definitions of Disability and Special

Health Care Needs. This commenter

partnered closely with the advocate

community to develop appropriate

standards for this population. They felt

that we were incorrect to assume that

managed care will not work for these

populations.

Response: Section 1932(a)(2) of the

Act identifies those groups exempted

from mandatory enrollment under this

provision. We do not have the authority

to add groups or delete groups from this

list. The statute does not prevent

voluntary enrollment if a voluntary

contract exists and an individual

believes that his or her needs will be

best met with an MCO or PCCM. If a

State desires to enroll any of these

exempted populations into a managed

care program, it may do so by offering

voluntary enrollment as an alternative

to unrestricted fee-for-service, or it may

mandate enrollment through section

1915(b) of the Act or 1115 of the Act

waiver authority.

Comment: We received many

comments requesting that additional

populations be exempt from mandatory

managed care because of the complexity

of the beneficiaries’ medical needs.

Commenters recommended that the

additional exempted groups should

include—

Children with HIV, but who have not

developed AIDS;

Patients awaiting transplants and organ

transplant recipients;

Patients suffering from cancer;

Patients suffering from arthritis,

osteoporosis, chronic and debilitating

musculoskeletal conditions;

Children and adults with mental

retardation;

Patients with severe and persistent

mental illness (SPMI), brain disorders;

Adults with disabilities;

Homeless persons; and

People for whom English is not their

primary language or people residing

in areas where provider awareness of

cultural diversity is limited.

Several commenters suggested that

the language in § 438.56(b)(3)(v)

(redesignated as § 438.50(d)(3)(v))

narrowly defines children with special

needs in Title V programs who are

exempted from enrollment. These

commenters recommended that this

section should be amended to cover all

children eligible for Title V special

needs as defined by the State’s Title V

agency. Commenters proposed

definitions for foster care or ‘‘otherwise

in an out-of-home placement.’’ A few

commenters recommended the adoption

of the Maternal and Child Health

6254 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

Bureau’s definition of children with

special health care needs.

A couple of commenters

recommended voluntary enrollment for

dual eligibles and for adults with

disabilities. One commenter

recommended that individuals who

have significant, chronic disabilities

should have the option to voluntarily

enroll and not be subject to any State

being eligible to obtain such a waiver

from HCFA.

Response: As indicated above, in

section 1932(a)(2), of the Act the

Congress specified the groups that are

exempt from mandatory managed care

enrollment through the State plan

provision. We do not have the statutory

authority to exclude any other

populations. Because of variations in

States regarding the identification of

individuals receiving services through a

family-oriented, community based,

coordinated care system receiving grant

funds under Section 501(a)(1)(D) of Title

V, of the Act the December 17, 1997

SMD letter offered guidance to States

about developing more detailed

operational definitions of this group.

The State also has the option to define

this group in terms of their special

health care needs and to develop a

process whereby individuals who are

not identified through the initial

exemption process could request

exemption based on special needs as

defined in the State plan.

Although we considered using the

Maternal and Child Health Bureau’s

definition of children with special

health care needs, we believe that the

identification of this specific group by

either program participation or accepted

State definition more closely reflects the

statutory language while being more

administratively feasible.

Enrollment by Default (Proposed

§ 438.56(d)

Proposed section 438.56(d) set forth

the requirements relating to default

enrollment of beneficiaries in SPA

programs who do not make a choice

from among the available MCOs or

PCCMs. (Note: As indicated above, this

section is being moved to § 438.50 in the

final rule with comment period because

it applies only to SPA programs.) This

provision required that the default

enrollment process preserve existing

relationships between beneficiaries and

health care providers, and relationships

with providers that have traditionally

served Medicaid beneficiaries. If this is

not possible, States are required to

distribute the beneficiaries equitably

among the available MCOs or PCCMs

qualified to serve them.

Comment: A number of commenters

pointed out that the proposed rule did

not address what constituted an

acceptable level of default enrollments.

The commenters urge us to encourage

States to keep the rate of default

enrollments as low as possible, and to

use the comment/response section of

the final rule with comment period to

discuss the successful practices of States

like New Jersey and Rhode Island to

keep default enrollments low. The

commenters urged us to require States

to collect and report uniform data on

default enrollments (some commenters

suggested that the data be broken down

by geographic area). Most commenters

identified 25 percent as the threshold at

which further action should be taken,

although one commenter suggested that

default enrollments be halted in cases

where the default rate goes above 10

percent. The commenters had various

suggestions as to what should happen in

cases where the rate of default

enrollments exceeded the threshold—

some said default enrollments should be

halted, some said we should review the

State’s processes, and some said the

State should develop and implement

corrective actions in their outreach and

enrollment processes.

Response: Although the BBA did not

specify an acceptable level of default

enrollments, we agree that this can be

an important measure of the extent to

which beneficiaries make informed

decisions about enrollment. We agree

that States should endeavor to keep

default rates low, and the enrollment

and information provisions of the

regulation are designed to help States

achieve a high rate of enrollee choice.

Default enrollment rates vary widely

because States have greatly different

levels of experience with managed care,

and because of measurement variation.

Although we have decided not to

mandate a single acceptable level of

default enrollments in the final rule

with comment period we will continue

to monitor default enrollments in

Medicaid managed care programs.

Comment: A number of commenters

pointed out that the proposed rule did

not specify the time allowed for

beneficiaries to choose an MCO or

PCCM before default enrollment takes

place. The commenters suggested a

number of minimum timeframes—20,

30, or 60 days. One commenter also

suggested that States be required to offer

a longer time period for persons with

serious and persistent mental illness.

Response: Section 1932(a)(4)(D)(i) of

the Act, as established by the BBA,

refers to ‘‘the enrollment period

specified by the State.’’ Therefore, we

believe the Congress intended for each

State to be able to set its own enrollment

period, depending upon its population

and its own experience with managed

care. To date, States have demonstrated

that a wide variety of time periods can

be effective, depending upon their own

populations and outreach and

educational programs. For example, one

State with a low default enrollment rate

only allows enrollees 10 days to choose

a plan. We have decided not to specify

a minimum time period in the final rule

with comment period.

Comment: We received one comment

urging that default enrollments be

prohibited. A number of other

commenters indicated that some

limitations should be placed upon a

State’s ability to make default

enrollments. A number of limitations

were suggested. One commenter said

default enrollments should be

prohibited in cases of persons with

disabilities. Another indicated that the

enrollment period should be suspended

if the beneficiaries had requested

information and not received it, or had

requested a face-to-face meeting that

could not be scheduled during the

enrollment period. Also, this

commenter said if the recipient or his

guardian could not be reached through

no fault of their own, there should be no

default enrollment. One commenter said

States should be required to assign

beneficiaries to a PCCM instead of

default enrolling them into an MCO.

Response: The Congress spoke clearly

on which groups should be exempt from

mandatory enrollment in SPA programs,

and these groups are similarly not

subject to default enrollments pursuant

to section 1932(a)(4)(D) of the Act. For

those individuals who are not exempt,

the statute requires a default enrollment

process for MCOs and PCCMs generally,

not just primary care case managers.

Specifically, section 1932(a)(4)(D) of the

Act provides that under a mandatory

program under section 1932(a)(1) of the

Act, ‘‘the State shall establish a default

enrollment process * * * under which

any * * * individual who does not

enroll with a managed care entity

during the enrollment period. * * * ’’ In

granting States the discretion to specify

the time period for making an

enrollment, we believe that the statute

gives States the flexibility to provide for

extensions of this time period, or other

accommodations when warranted by the

needs of the population, so long as they

are applied in a uniform manner. We

recommend that States grant extensions

and other accommodations when they

consider it to be appropriate.

Comment: One commenter pointed

out that many persons with disabilities,

who may be subject to mandatory

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6255

enrollment, have a representative payee.

The commenter recommended that we

require States to notify representative

payees when default enrollments are

made.

Response: We agree with the

commenter that there may be situations

when it would be appropriate for the

State to notify someone other than (or,

at State option, in addition to) the

enrollee. However, we believe the final

rule with comment period should

provide for notification of a broader

scope of enrollee representatives than

representative payees. In response, we

have added language to the final rule

with comment period adding references

to an enrollee or his or her ‘‘authorized

representative.’’ This would cover

situations including, but not limited to,

a representative payee situation. (We

have added this language to § 438.56.)

Comment: One commenter said the

final rule with comment period should

address how enrollees are assigned to

PCPs once they have been default

enrolled in an MCO, and recommended

that we require that MCOs consider

geographic, cultural, and linguistic

accessibility when assigning enrollees to

a PCP.

Response: In requiring States to

preserve existing provider-recipient

relationships in the default enrollment

process, the Congress clearly intended

there to be as little disruption as

possible in the provision of medical

care. We encourage States to monitor

this process and to require that MCOs,

to the extent possible, make PCP

assignments that promote recipient

access to care. Additionally, we believe

that the access requirements for MCOs

contained in § 438.206 will assist in this

regard. We do not believe, however, that

it is necessary to insert an additional

regulatory requirement.

Comment: We received a large

number of comments on the default

enrollment methodology. One

commenter expressed general support

for the enrollment by default provisions.

A handful of commenters indicated that

they thought we had placed too many

requirements in the default enrollment

section. The bulk of the commenters,

however, encouraged us to place

additional requirements on States in

developing their default enrollment

procedures. The commenters who

disagreed with our proposed regulations

believed either that States should not

have to take relationships with existing

providers into account, or that the

default enrollment procedures should

not favor traditional providers. Two

commenters felt that favoring traditional

providers may discourage participation

in managed care programs by

commercial MCOs. The commenters

who want us to place additional

requirements on States disagree with the

concept of equitable distribution if it

means States are not permitted or

required to take additional factors into

consideration. Commenters suggested

that the rule should require States to

take the following factors into account

when default enrolling beneficiaries:

Geographic accessibility, especially for

rural residents; cultural and linguistic

competency; experience with special

needs populations; physical

accessibility; and capacity to provide

special care and services appropriate to

the needs of the individual.

Commenters said persons who are

homeless, persons with HIV, and

individuals with special health care

needs or developmental disabilities

should only be assigned to MCOs or

PCCMs with demonstrated competency

serving them. In addition, commenters

said that we should not allow States to

favor MCOs or PHPs in their default

enrollment methodologies just because

they are the lowest cost Entity, and that

no default enrollments should be made

to plans that do not offer the full scope

of basic health care services, including

family planning services. Commenters

said States should be allowed to

consider such factors as success rates in

completing EPSDT screens, price,

quality, and customer satisfaction in

their default enrollment methodology.

Response: The statute clearly

indicates that States must take existing

relationships into account, ‘‘or

relationships with providers that have

traditionally served beneficiaries under

this title.’’ Section 1932(a)(4)(D)(ii)(II) of

the Act goes on to specify that if

maintaining such relationships is not

possible, States must arrange for ‘‘the

equitable distribution of such

individuals among qualified managed

care entities available to enroll such

individuals, consistent with the

enrollment capacities of the entities.

(Emphasis added)’’ We believe that in

using the term ‘‘qualified,’’ the Congress

intended to permit States to consider

such factors as experience with special

needs populations. Additionally, for

rural residents or beneficiaries with

needs for special cultural or linguistic

competencies, States may consider

MCOs or PCCMs that are equipped to

serve them as more qualified. Also, the

statute does not define the term

‘‘enrollment capacity.’’ We believe

States have flexibility to determine that

cultural and linguistic competency and

other similar factors are related to

MCOs’or PCCMs’ capacity to serve

certain individuals, depending upon

their needs. We believe the language as

proposed gives States sufficient

flexibility to consider these factors,

therefore, we have not added new

requirements to the final rule with

comment period.

Comment: Commenters were divided

on the subject of whether members of

the same family should be default

enrolled to the same plan. Four

commenters indicated that family

members should be default enrolled in

the same MCO or PCCM. One

commenter in this group said family

members ‘‘in general’’ should be

enrolled in the same MCO or PCCM;

presumably this indicates there may be

circumstances in which family members

could be enrolled in different MCOs or

PCCMs. Four commenters said there

may be circumstances in which family

members could be better served by

different MCOs or PCCMs. Other

commenters raised the same question

with regard to whether family members

could choose to enroll in different

MCOs or PCCMs, as opposed to being

defaulted into them.

Response: The statute is silent on

whether the default enrollment rules

should require family members to be

enrolled together. Because State

enrollment and eligibility systems may

not permit family members to be

divided up, we do not recommend

placing any requirements on this subject

in the final rule with comment period.

If States have the capacity to allow

family members to choose different

MCOs, they should be permitted to do

so. Likewise, we assume States will

want to default enroll families to the

same MCO, and we believe they should

be permitted to do so as well. This same

policy applies to the question of

whether States wish to permit

individual family members to choose to

enroll in different MCOs or PCCMs.

Comment: A number of commenters

discussed our definition of existing

relationships between enrollees and

providers in the context of making

default enrollments. Opinion was

divided on the extent to which States

should be required to consider existing

relationships between beneficiaries and

providers. The proposed rule defined an

existing relationship as ‘‘one in which

the provider was the main source of

Medicaid services for the recipient

during the previous year’’ and goes on

to say that States may establish this

through fee-for-service or managed care

records, or by contacting the recipient.

Several commenters specified that this

provision would be difficult to

operationalize or even ‘‘unworkable.’’

One indicated that if the recipient’s

previous experience with Medicaid was

6256 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

in a fee-for-service system where it was

difficult to find participating providers,

the existing relationship may not have

been an ideal one. However, a number

of commenters said the language in the

proposed rule did not go far enough.

The majority of these commenters

indicated that we should require States

to examine previous records, and that

the look-back period should be 3 years

instead of 1 year. One commenter also

said States should be required to

examine payment records pertaining to

services from ancillary providers such

as DME suppliers and home health

agencies as well. Some commenters also

said MCOs should be subject to similar

requirements in making enrollee

assignments to PCPs.

Response: Because section

1932(a)(4)(D)(ii)(I) of the Act refers to

considering existing relationships, we

do not have statutory authority to

exempt States from this requirement.

We do, however, have the authority to

define how States meet the requirement.

We believe that the regulation gives

States the flexibility to determine

existing relationships in whatever way

makes sense in the context of their

program. Therefore, we have decided

not to include additional requirements

in the final rule with comment period.

Comment: We received a large

number of comments urging us to

present a more comprehensive

definition of traditional providers than

the one included in the preamble and

proposed rule. The text defined a

traditional provider as a provider who

has ‘‘experience in serving the general

Medicaid population.’’ Many

commenters pointed to what they felt

was confusing language in the preamble:

‘‘Under § 438.56(d)(4) we would define

‘traditional providers’ to be any

provider who has been the main source

of care for a beneficiary within the last

year, and has expertise and experience

in dealing with the Medicaid

population.’’ Commenters felt this

definition either unnecessarily confused

existing relationships with traditional

providers, or indicated that any

provider who had been the main source

of care for any recipient could be

considered a traditional provider. Two

commenters said States should be

permitted to develop their own

definitions of traditional providers.

However, most commenters favored a

HCFA definition that would be much

more specific than the definition

included in the proposed rule.

Examples of what commenters said that

we should include in the definition are:

A certain percentage of Medicaid and

uninsured utilization (either a set

percentage or a percentage at least equal

to the statewide mean); a significant

number of years spent serving Medicaid

patients; DSH hospitals; public

hospitals; FQHCs; CHCs; and Health

Care for the Homeless projects.

Response: Although default

enrollments may be made to MCOs and

not necessarily to individual providers,

the statutory language refers specifically

to providers. Section 1932(a)(4)(D)(ii)(I)

of the Act requires that the default

enrollment process take into

consideration maintaining

‘‘relationships with providers that have

traditionally served beneficiaries under

this Title.’’ Clarification can be found in

the BBA Conference Report, which

states that the default enrollment

process ‘‘must provide for enrollment

with an MCO that maintains existing

provider-individual relationships or has

contracted with providers that have

traditionally served Medicaid

[beneficiaries]’’ (emphasis added).

Therefore, we believe the Congress

intended for States to favor MCOs and

PCCMs that contract with traditional

providers in their default enrollment

process. However, because the statute

does not define traditional provider, we

have the flexibility to either write a

definition or allow States to develop

their own. Because of the volume and

variety of comments, we decided to

allow States to develop their own

definitions that could include, but not

be limited to, DSH hospitals, public

hospitals, FQHCs, CHCs, and Healthcare

for the Homeless projects.

2. Choice of MCOs, PHPs, or PCCMs

(Proposed § 438.52)

Proposed § 438.52 implemented the

requirement in section 1932(a)(3) that

States must permit an individual to

choose from at least two MCOs or

PCCMs, including the exceptions to this

requirement in a case in which a State

elects the option under section

1932(a)(3)(B) to offer a single MCO in a

‘‘rural area,’’ and the exception in

section 1932(a)(3)(C) permitting a State

to offer a single HIO in certain counties.

General Rule

Section 438.52(b) of the proposed rule

required that States allow beneficiaries

to choose from at least two MCOs or

PCCMs.

Comment: We received comments

expressing general support for the

requirement for choice. One commenter,

however, said that merely offering

choice may not provide sufficient

beneficiary protection, and we should

consider alternative ways to provide

consumers with accountability and

responsiveness.

Response: The requirement for choice

of MCO or PCCM appears in the statute,

and is consistent with our longstanding

policy of generally requiring at least two

options in a mandatory managed care

program. However, choice is only one

piece of an overall strategy to ensure

that beneficiaries receive quality

services. This regulation implements

new requirements for quality, access

and availability, and beneficiary

protection. We believe these

requirements address the concern

voiced by the commenter.

Comment: We received a number of

comments disagreeing with our decision

to apply the requirement for choice to

PHPs. The commenters indicated that in

the case of behavioral health carve-outs

and certain long term care programs, it

is not appropriate to require choice.

Commenters indicated that the

requirement for choice in carve-outs

increases administrative costs because

the State would be required to solicit

business from two MCOs which would

utilize the same limited set of providers.

One commenter believed that in the

case of PHPs, States should be allowed

to request waiver authority to limit

choice to one PHP, so long as that PHP

offers beneficiaries a choice of

providers. The commenter stated that

we should clarify this in the final rule.

The commenter also believed that PHPs

should be chosen through a competitive

process except when the State has

decided to utilize a local governmental

organization as a sole source provider.

One commenter recommended that

§ 438.8 be amended to state that the

provisions of subpart B apply to PHPs.

Response: Under this final rule with

comment period, outside the context of

a demonstration project or waiver

program, we believe it is appropriate to

give enrollees a choice of PHPs, along

with the right to disenroll that is

provided under section 1932(a)(4) to

MCO and PCCM enrollees. As in the

case of other PHP requirements, we

have based this rule on the authority in

section 1902(a)(4) of the Act to provide

for methods of administration

determined to be necessary for proper

and efficient operation of the Medicaid

program. Regulations based on

provisions in section 1902, however,

may be waived by the Secretary under

section 1915(b) of the Act or as part of

a demonstration project under section

1115 of the Act. Nothing in this

regulation changes this waiver

authority. Thus, we agree with the

commenter that States should be

allowed to request a waiver to permit a

State to limit enrollees to a single PHP

if the enrollees have a choice of

providers within the PHP. With respect

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6257

to the comment on competitive

procurement, § 434.6(a)(1) requires that

in the case of all Medicaid contracts,

States comply with competitive

procurement requirements in 45 CFR,

part 74. Under these requirements,

States are required to engage in

competitive procurement ‘‘to the

maximum extent practical.’’ Thus, we

agree with the commenter that PHPs

should be chosen through a competitive

process. We do not agree, however, that

the State necessarily should be

exempted from this requirement when it

contracts with a government entity.

While part 74 at one time exempted

such cases from competitive

procurement requirements, there is no

longer such an across the board

exemption. HCFA has, however,

exercised discretion it has under part 74

on a case-by-case basis to permit

government entities to contract as PHPs

without a competitive procurement.

Finally, in response to the last

comment, in the final rule with

comment period, we have amended

§ 438.8 to specify that all subpart B

provisions except § 438.50 apply to

PHPs, because we agree with the

commenter that the reference should be

made more explicit.

Comment: One commenter said we

should clarify our preamble language

pertaining to PCCMs. This commenter

said it appeared that States could satisfy

the requirement for choice with a single

PCCM. This commenter said that was

contrary to the intent of the BBA, and

pointed out that the only exception to

the requirement to choice is for rural

areas and certain HIOs.

Response: The commenter has

confused a PCCM, which we clarify in

this final rule with comment period

refers to a ‘‘primary care case manager’’

as defined in section 1905(t)(2), with a

primary care case management

‘‘system,’’ under which beneficiaries

have the option of enrolling with one of

two or more PCCMs. We recognize that

our use of two terms in proposed § 438.2

that would fit with the acronym

‘‘PCCM’’ may have caused this

confusion. The term ‘‘primary care case

management’’ refers to ‘‘a system under

which a primary care case manager

contracts with the State,’’ while the term

‘‘Primary care case manager’’ is defined

as the contracting individual or entity.

As discussed in section II. A. above, we

have clarified in §§ 400.203 and 438.2 of

this final rule with comment period that

PCCM refers to a primary care case

manager. We agree with the commenter

that unless the rural area exception in

section 1932(a)(3)(B) applies, a State

cannot satisfy the choice requirement

through the use of a single PCCM. It can,

however, do so through a primary care

case management system, under which

a beneficiary has a choice of two or

more PCCMs. We have clarified

§ 438.52(b) to emphasize this

distinction.

Comment: We received a comment

recommending that the final rule

specify that all beneficiaries must have

a choice between two MCOs or PCCM

providers that are qualified and

experienced in HIV/AIDS care.

Response: We agree that for persons

with special needs, including those with

HIV/AIDS, being able to choose from

MCOs or PCCM providers qualified to

meet their needs is essential. Section

438.206 of this final rule with comment

period requires States to develop

standards for access to care, including

attention to special needs populations.

The section requires all MCOs to assure

that they have the adequate capacity

and appropriate services to meet the

needs of the expected enrollment. This

includes being able to serve any special

needs populations that could potentially

be enrolled in the MCO. We also require

MCOs to consider the experience

needed by network providers to serve

the expected needs of their enrollees.

Lastly, we expect States to aggressively

monitor such indicators as grievances,

appeals, fair hearing requests, and

disenrollment requests as indicators that

persons with special needs are not being

adequately served.

Comment: One commenter

recommended that where there is choice

between two MCOs, at least one MCO

must offer the full scope of services,

including family planning services.

Response: Unlike the case of the

Medicare program, the Congress chose

not to require that MCOs agree to

contract to provide particular services.

The text for a comprehensive contract in

section 1903(m)(2)(A) makes clear that

the MCO and the State have the

discretion to decide which Medicaid

services will be covered under the

MCO’s contract. Also, in the case of

family planning services, under section

1902(a)(23), an MCO is not permitted to

restrict an enrollee to using the MCO’s

network providers for family planning

services. This creates an incentive for

MCOs to exclude family planning

services from their contracts, since they

have no control over when and where

such services are obtained. Whether for

this reason, or for reasons of conscience,

some MCOs are likely to not agree to

cover family planning services under

their contracts.

However, § 438.10(d) and (e) of this

final rule with comment period,

enrollees and potential enrollees must

be informed of ‘‘benefits that are

available under the State plan but are

not covered under the contract,

including how and where the enrollee

may obtain those benefits, any cost

sharing, and how transportation is

provided,’’ and in the case of enrollees

‘‘the extent to which, and how,

enrollees may obtain benefits, including

family planning services, from out-ofnetwork providers.’’ We believe that

these provisions ensure that enrollees

have information on the availability of,

and access to, required family planning

services, regardless of whether these

services are included in their MCO’s

contract.

Comment: We received a few

comments recommending that each

MCO offer each beneficiary a choice

between at least two providers who are

geographically, culturally, and

linguistically accessible.

Response: This final rule with

comment period contains requirements

addressing geographic, cultural, and

linguistic accessibility. Section 438.206,

contains a requirement that MCOs

maintain a network of providers

sufficient in number, mix, and

geographic distribution to meet the

needs of the anticipated number of

enrollees. Section 438.206(d)(1)(v)

specifically requires that MCOs consider

the geographic location of beneficiaries

in developing their provider networks.

Section 438.206(e)(2) requires that

MCOs deliver services in a culturally

competent manner, and § 438.10

requires that States and MCOs, PHPs

and PCCMs make information available

in languages in use in the enrollment

area. MCOs, PHPs, and PCCMs are also

required to provide translation services

under § 438.10.

Definition of Rural Area

For the purpose of applying the

exception for ‘‘rural areas’’ in

1932(a)(3)(B) to the choice requirement

in section 1932(3)(A), the notice of

proposed rulemaking proposed three

definitions of a ‘‘rural area.’’ The

choices included (1) any area outside an

‘‘urban area’’ as defined in

§ 412.62(f)(1)(ii), the definition found at

§ 491.5(c), or an alternative State or

HCFA definition. After considering all

comments, in this final rule with

comment period we define a rural area

as any area other than an ‘‘urban area’’

as the latter is defined in

§ 412.62(f)(1)(ii) of the HCFA rules.

Comment: There was no clear

consensus among commenters. A few

commenters said our proposed

provision was overly broad, and

recommended that HCFA make clear in

the final rule with comment period that

the rural exception would be very

6258 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

narrowly construed. Others said there

should be no State or HCFA definition

apart from the two Medicare definitions.

One commenter said we should keep

the choice of three definitions, but if we

are required to choose only one, we

should use the definition found at Part

412 of this chapter. Other commenters

said they agree with our prohibition

against designating an entire State as a

rural area, but one commenter said in

some cases it may be appropriate to

designate an entire State as a rural area.

One commenter said we should choose

a single definition of rural, but indicated

no preference as to which definition we

chose.

We also received a number of

recommendations of alternative

definitions or criteria. One commenter

said any area with at least two qualified

bidders should not be considered rural.

One commenter said we should allow

any medically under served area to be

considered rural, and one commenter

recommended that we use the Office of

Management and Budget definition of

non-metropolitan counties as a proxy

for rural areas. One commenter

recommended that we clarify that any

area that is part of a Metropolitan

Statistical Area could not be considered

rural under a State or HCFA definition.

Response: We have considered all of

the comments and decided to accept the

commenter’s suggestion that a single

definition be adopted, as well as the

suggestion by the commenter that if a

single definition is adopted, we adopt

the first definition incorporating the

definition of ‘‘urban area’’ in part 412.

Exception for Rural Area Residents

Proposed § 438.52(c), outlined the

rural exception to the requirement for

choice. Under the proposed rule, in a

‘‘rural area’’ as defined in § 438.52(a), a

State may limit beneficiaries to one

MCO provided the beneficiary—

• Can choose from at least two

physicians or two case managers; and

• Can obtain services from any other

provider under any of the following

circumstances:

(1) The service or type of provider the

enrollee needs is not available within

the MCO network.

(2) The provider is not part of the

network, but has an existing

relationship with the enrollee.

(3) The only plan or provider

available to the enrollee does not,

because of moral or religious objections,

provide the services sought by the

enrollee.

(4) The State determines that other

circumstances warrant out-of-network

treatment.

In the final rule with comment period,

in response to comments discussed

below, § 438.52(b)(2)(ii)(D) also provides

that enrollees may also go outside the

network for services if he or she needs

related services (for example, a cesarean

section and a tubal ligation) to be

performed at the same time; not all of

the related services are available within

the network; and the enrollee’s primary

care provider or another provider

determines that receiving the services

separately would subject the enrollee to

unnecessary risk. Also in response to

comments, we have revised the

provision permitting a beneficiary to go

out of plan to a provider with ‘‘an

existing relationship with an enrollee’’

to be limited to cases in which the

provider is the ‘‘main source of a

service.’’

Comment: We received a few

comments on the overall issue of

whether a rural exception should exist.

One commenter agreed with the rural

exception, while other commenters

disagreed. One of these commenters

said that in cases where there is only

one MCO, States should be required to

offer higher capitation rates in order to

entice more MCOs to join the market.

Other commenters said that in rural

areas, States should be required to offer

a PCCM option if they cannot get two

MCOs to bid. One of these commenters

also said States should ensure that

primary care providers in rural areas

should receive high enough capitation

rates to cover their costs.

Response: The rural exception is

provided by statute as a State option,

and we thus have no authority to deny

States this option by either requiring a

second managed care entity (a PCCM) or

mandating that payment be increased

enough to attract a second MCO.

Comment: A few commenters said

they do not believe HCFA should allow

plans that do not offer family planning

services to serve as the single MCO in

a rural area. One commenter pointed out

that if the only plan available does not

offer family planning services, and a

pregnant enrollee desires a cesarean

section and a tubal ligation, the enrollee

would be required to have her cesarean

section through the MCO and would

then have to go out of network for the

tubal ligation, thus having a separate

surgical procedure that would subject

her to undue risk. Other commenters

said the final rule with comment period

should specify that when rural enrollees

go out of plan for a service that is not

offered by the MCO, they should also be

able to get ‘‘related services’’ out of

network. The commenters said this

would assist pregnant women who

desire a tubal ligation simultaneously

with a cesarean section delivery.

Response: As discussed above, the

statute allows MCOs to decide which

services they choose to agree to cover

under their contracts. However, in the

case of a single MCO in a rural area,

these decisions could affect the health

of a Medicaid beneficiary in the manner

suggested by the commenter. Thus, as

noted above, in response to these

comments, we have provided in

§ 438.52(b)(2)(ii)(D) that enrollees may

also go outside the network for services

if he or she needs related services (for

example, a cesarean section and a tubal

ligation) to be performed at the same

time; not all of the related services are

available within the network; and the

enrollee’s primary care provider or

another provider determines that

receiving the services separately would

subject the enrollee to unnecessary risk.

Comment: A number of commenters

recommended that we add language to

§ 438.52(b) requiring that rural enrollees

have a choice between two physicians

or case managers. One commenter said

we should require that the two

physicians or case managers are

‘‘qualified to provide the beneficiary

with appropriate and necessary health

care services consistent with the

beneficiary’s initial assessment and

treatment plan.’’ One commenter said

that in the case of enrollees with HIV,

they should have a choice between two

PCPs who are qualified and experienced

in providing HIV/AIDS care. One

commenter said the PCPs should be

within 30 minutes or 30 miles from the

beneficiary, except in frontier areas.

Another commenter said there should

also be a requirement for choice

between two specialists or the ability to

continue existing provider relationships

out of network, and the final commenter

said if the choice is between two PCCM

case managers, they should be affiliated

with separate practices if possible.

Another commenter said rural

beneficiaries in general do not have

enough protection. This commenter

suggested that we add a new subsection

to the final rule with comment period

cross-referencing all other exemptions

and requirements, such as geographic

accessibility, language and cultural

competency, etc.

Response: The comments listed above

all pertain in some way to accessibility

to qualified and experienced providers.

As stated above, this regulation contains

extensive requirements designed to

ensure beneficiary access to services,

and these requirements pertain to rural

as well as non-rural managed care

providers. The relevant requirements

can be found in § 438.6 (Contracting

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6259

requirements), § 438.10 (Information

requirements), § 438.110 (Assurance of

adequate capacity and services), and

§ 438.206 (Availability of services).

Also, under § 438.52(b)(2) (rural

beneficiaries have the ability to

continue existing provider relationships

under this regulation. In light of the

above protections, discussed in detail

elsewhere in this preamble, we do not

agree that it is necessary to add

additional language to § 438.52 in

response to these comments.

Comment: One commenter suggested

that we delete § 438.52(b)(2), which lists

the reasons rural beneficiaries may go

out of network. This commenter

believes these provisions go beyond our

statutory authority and are in some

cases redundant because if a certain

service is not available within the

network, the MCO would be

contractually obligated to pay for it

anyway.

Response: We disagree with the

commenter. Section 1932(a)(3)(B)(ii) of

the Act, provides that rural beneficiaries

can be limited to one MCO, if the MCO

‘‘permits the individual to obtain such

assistance from any other provider in

appropriate circumstances (as

established by the State under

regulations from the Secretary).’’ The

Congress clearly intended for rural

beneficiaries to access out-of-network

services in appropriate circumstances,

and clearly granted HCFA the discretion

to define those circumstances in

regulations. Section 438.52(b)(2) of the

final rule with comment period extends

these rights in a manner that recognizes

both State flexibility and the importance

of protecting enrollees.

Comment: We received one comment

suggesting that the final rule include an

additional reason beneficiaries can

access out of network services. This

commenter said the State should be

required to let beneficiaries go out of

network if treatment or services have

been reduced or eliminated within a

geographic area covered by the MCO.

Response: As discussed in section II.

D. below, § 438.206(d)(5) allows

beneficiaries to seek out-of-network

treatment if the type of service or

provider needed is not available within

the network. We believe this language

responds to the situation outlined by the

commenter.

Comment: Another commenter

suggested that we add a new subsection

to the final rule outlining an additional

reason beneficiaries can go out of

network. This commenter suggested

allowing beneficiaries to go out of

network because ‘‘The only plan or

provider available to the enrollee is not

able, because of prior court-ordered

(involuntary) receipt of services from

that provider, to develop a therapeutic

relationship with the enrollee for the

provision of mental health services.’’

Response: We agree that in cases

where the only available provider had

previously treated the enrollee against

his or her will, it would be difficult to

establish a therapeutic relationship. We

have decided not to add the suggested

language to the final rule with comment

period, however, because we believe the

scenario outlined by the commenter

would be covered by the existing

language, particularly the section

indicating that rural enrollees can go out

of network in ‘‘other circumstances.’’

Comment: One commenter stated we

should add clarifying language to this

section indicating that when rural

enrollees go out of network for services

under the circumstances outlined in the

regulation, they do not incur any

additional cost.

Response: Section 438.106, Liability

for payment, already covers these

circumstances. Section 438.106(c)

specifies that MCOs cannot hold

Medicaid enrollees liable for ‘‘payments

for services furnished under a contract,

referral, or other arrangement, to the

extent that those payments are in excess

of the amount that the enrollee would

owe if the MCO provided the services

directly.’’ We believe enrollees in rural

exception areas going out of network in

the circumstances outlined in this

chapter are protected by this provision.

Therefore, we do not believe it is

necessary to include the suggested

language in § 438.52(b)(2). However, if a

beneficiary chooses to go out of network

for reasons other than those outlined in

the rural provisions, the beneficiary

would be liable for payment for the

service.

Comment: We received a few

comments recommending that the

provisions allowing beneficiaries to go

out of network be rewritten to

specifically address the needs of rural

enrollees with disabilities who have

multiple medical needs. The

commenters are concerned that

enrollees be able to preserve existing

relationships with DME suppliers. In

addition, one commenter said enrollees

should be able to go out of network if

the only provider available does not

have experience with the individual’s

disability, a provider cannot meet the

needs of an enrollee (for example, an

enrollee needs a home health aide in the

morning but the only agency in the

network only has aides available midday), or the enrollee has had ‘‘previous

problems’’ with the provider. In

addition, this commenter said the rural

exception should make clear that in

border areas, the out of network

provider can be in a different State if

that provider is geographically closer.

Response: Regarding the comment

about border areas, the Medicaid

program already accommodates crossing

State lines in circumstances in which

this is consistent with traditional

patterns of care. We do not expect that

this regulation will disrupt or change

this situation. Regarding the other

situations mentioned by commenters, as

we have stated previously, the ability to

go out of network is meant to be

interpreted broadly. We expect that in

cases in which enrollees with

disabilities can make a case that their

needs are not well-served by the MCO,

they would be allowed to go out of

network by the State pursuant to

§ 438.52(b)(2)(A) or (E). However, we

also expect that because of the breadth

of these provisions, MCOs serving rural

beneficiaries will make strong efforts to

have a comprehensive network that

meets the needs of all of their enrollees.

Rural MCOs, like all other MCOs, are

responsible for making sure they have a

network adequate to meet the needs of

their anticipated enrollment, and this

includes individuals with disabilities.

Comment: We received a few

comments recommending that the

provisions allowing enrollees to go out

of network be expanded. Some

commenters said all enrollees in all

mandatory and voluntary managed care

systems should have the same rights to

go out of network. One commenter said

urban beneficiaries should be able to

use FQHC services if they are enrolled

in MCOs that do not offer FQHC

services.

Response: We believe that where

there is a choice between MCOs, it is

not necessary to give beneficiaries the

same rights to go out of network that

exist in rural areas with a single MCO.

Regarding the FQHC comment, FQHC

services are already a mandatory service

under the Medicaid program. FQHC

services must be available through a

State’s managed care program, or be

provided as an out-of-network option.

We expect beneficiaries who have a

choice of MCOs and who wish to use

FQHCs to choose their MCO

accordingly. In addition, beneficiaries

who either choose or are enrolled by

default into an MCO that does not

include an FQHC have 90 days to

disenroll without cause.

Comment: We received a number of

comments stating that the provision

allowing beneficiaries to go out of

network if the service or type of

provider desired is not available within

the MCO network is too broad. One

commenter simply said the provision is

6260 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

inappropriate. Other commenters said

that this should be permitted only if the

MCO does not have other in-network

alternatives.

Response: In providing for a rural

exception to choice, the Congress

clearly intended to protect enrollees by

giving them the right to go out of

network in appropriate circumstances.

We expect States to monitor their

managed care programs, particularly in

rural areas, to ensure that enrollees have

access to appropriate services. We are

not revising § 438.52(b)(2) in response to

these comments.

Comment: We received a number of

comments recommending that we

clarify what is meant by not available

within the network. The commenters

recommended that we define

‘‘available’’ to encompass such factors

as geographic accessibility, cultural and

linguistic competency, appointment

waiting times, and appropriateness of

provider (for example, pediatric verses

adult specialist). One of the commenters

also recommended that we make it clear

that when we refer to providers in this

provision, we are including safety-net

providers and clinics.

Response: We do not agree that it is

necessary to amend the regulation.

Under this final rule with comment

period, rural MCOs must meet many

new requirements addressing

geographic, cultural, and linguistic

accessibility. Section 438.207(b)(2)

requires that MCOs maintain network of

providers sufficient in number, mix, and

geographic distribution to meet the

needs of the anticipated number of

enrollees. Section 438.206(d)(1)(v)

requires that MCOs consider the

geographic location of enrollees in

developing their provider networks.

Section 438.206(e)(2) requires that

MCOs deliver services in a culturally

competent manner, and § 438.10

requires that States and MCOs, PHPs,

and PCCMs make information available

in languages in use in the enrollment

area. In the instance of a service for

which there is no available provider

who meets the above provisions, that

service would not be considered

available, and under § 438.206(d)(5), the

enrollee would be able to obtain the

service out-of-network. Regarding the

comment about appropriateness of

provider, we do expect States and MCOs

to consider this when evaluating

requests to obtain needed services outof-network. In evaluating such requests,

States may consider such factors as age,

medical condition, general medical

practice in the area, and overall

availability of specific providers.

Regarding the clinic and safety-net

services, we have decided not to amend

the regulation in response to this

comment. This provision is meant to

address beneficiary choice, and is not

meant to single out certain types of

providers for guaranteed participation.

Comment: A large number of

commenters disagreed with giving rural

beneficiaries the right to go out-ofnetwork when they have an existing

relationship with a provider who is not

in the MCO network. Some commenters

recommended that HCFA place a time

limit on how long the relationship can

be continued, and a few said the final

rule should define what is meant by an

existing relationship. Other commenters

recommended that various limitations

be placed on this provision, such as

only allowing it when the beneficiary

also meets one of the other criteria for

going out-of-network; only permitting it

when the individual has a chronic or

terminal illness; only permitting it when

the provider is in the MCO’s service

area; and permitting it only when a

change in the provider relationship will

result in an adverse health outcome. In

addition, one commenter said it should

be left to the MCO’s discretion whether

the relationship should be continued,

and one commenter said the provider

should be required to pass the MCO’s

credentialing process. One commenter

said we should clarify that an existing

relationship includes the example of a

pregnant woman who initiated prenatal

care with a provider before enrolling in

the MCO.

Response: The requirement for choice

in managed care programs is an

important right granted to enrollees by

the Congress. Where there is no choice,

such as in rural areas with one MCO,

The Congress intended for beneficiaries

to have the protection of going out-ofnetwork in appropriate circumstances,

and directed the Secretary to publish

regulations to specify the circumstances.

However, we agree with the commenters

who urged us to clarify what is meant

by an existing relationship, and how

long the relationship should be

continued. Therefore, we amended the

regulation to specify that this provision

applies when the provider is the main

source of a service to an enrollee and

that the enrollee may continue to see the

provider as long as the provider

continues to be the main source of the

service. We believe that these provisions

cover a pregnant enrollee who, before

enrolling in the MCO, had initiated

prenatal care with a provider outside

the MCO’s network, and wished to

continue seeing that provider.

Comment: We received a few

comments recommending that we add

to the scope of the provision allowing

rural beneficiaries to go out of plan to

a provider with whom they have an

existing relationship. Some commenters

recommended that the final rule clarify

that this exception applies to specialists

as well as primary care providers. One

commenter said the final rule should

specify the scope of services the out-ofnetwork provider may provide. For

example, this commenter said an

obstetrician caring for a high-risk

pregnant woman should be able to order

tests without any limitation.

Response: In providing for this

exception, and in further clarifying it,

we clearly intend for specialists as well

as PCPs to be included. We do not

believe any further clarification is

necessary. Furthermore, we intend for

the scope of services provided by the

out-of-network provider to be directly

related to the beneficiary’s overall

condition and medical history, and we

expect out-of-network providers and the

MCO to share information regarding the

patient’s care for all treatment, because

the MCO is ultimately responsible for

payment. Again, we do not believe it is

necessary to add language allowing

providers the right to provide unlimited

diagnostic and treatment services.

Comment: We received two comments

recommending that the provision

allowing rural beneficiaries to go out of

network also apply to urban

beneficiaries who want to go out of

network to use Indian Health Service/

Tribal providers/Urban Indian (I/T/U)

providers.

Response: We disagree that it is

necessary to add the suggested language

to the regulation because Indian

enrollees, whether in urban or rural

areas, already have the right to access

I/T/U providers outside of their

networks in programs established under

section 1915(b) or section 1115

authority, and in voluntary programs.

Neither the BBA nor this regulation

removes that authority. Additionally,

Indians are exempt from mandatory

enrollment into an MCO or PCCM under

the new section 1932(a) authority,

except where the MCO or PCCM is an

I/T/U provider.

In responding to this comment, we

have noted that Urban Indian health

programs were inadvertently omitted

from the list of entities into which an

Indian eligible could be mandatorily

enrolled under section 1932(a). In this

Final rule with comment period, we

have modified § 438.50(d)(2) to correct

this omission.

Comment: One commenter

recommended that we increase the State

requirements for quality monitoring in

areas falling under the rural exception.

Response: This regulation implements

strong new quality requirements for

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6261

Medicaid managed care arrangements.

We expect States to aggressively

monitor quality in all managed care

programs, including those covered by

the rural exception. We do not agree

with the commenter that the quality

requirements for rural programs should

be different from the general quality

requirements.

3. Enrollment and Disenrollment:

Requirements and Limitations

(Proposed § 438.56)

Applicability

Section 1932(a)(4) sets forth a number

of requirements relating to enrollment

and disenrollment in Medicaid managed

care programs. Proposed § 438.56(a)(2)

specified that most of the enrollment/

disenrollment provisions apply to all

MCO, PHP, and PCCM contracts,

regardless of whether enrollment is

mandated under a waiver or section

1932, or is voluntary. The only

provisions in this section that apply

only to programs under which

enrollment is mandated under section

1932(a)(1)(A) are the limitations on

enrollment and default enrollment

provisions. (In the final rule with

comment period, these Section 1932

provisions have been moved to

§ 438.50.)

Comment: We received a number of

comments objecting to the proposed

rule’s provisions concerning the

applicability of enrollment

requirements. One commenter

contended that the 90-day right to

disenroll without cause, the

disenrollment for cause provisions, and

the appeals provisions should apply

only to mandatory managed care

programs under section 1932(a)(1)(A) of

the Act. A number of other commenters

did not believe a 12-month lock-in

should be applied in cases of voluntary

enrollment. Two comments appear to be

based upon misunderstanding because

the proposed rule as written already

reflected their suggestions. (One

comment urged us to apply subsections

(e) through (h) of the proposed rule to

PHPs, and one comment says

subsections (b) through (d) should apply

only to section 1932 programs.) The

commenters who indicated we applied

various provisions too broadly would

like HCFA to restrict the applicability of

the provisions to mandatory enrollment

under section 1932 programs.

Response: The BBA amended section

1903(m)(2)(A) of the Act to require, in

a new paragraph (xi), that MCOs and

MCO contracts ‘‘comply with the

applicable requirements of section

1932.’’ The BBA also amended section

1903(m)(2)(A)(vi) to require that

contracts with MCOs permit

‘‘individuals to terminate * * *

enrollment in accordance with section

1932(a)(4),’’ and must provide for

‘‘notification in accordance with [that]

section.’’ (Emphasis added.) These

requirements apply to all MCO

contracts, regardless of whether

enrollment in the contracts is voluntary,

mandated under a waiver, or mandated

under section 1932(a) of the Act. The

enrollment requirements the proposed

rule applies to MCOs all either apply by

their own terms to MCOs, or are

incorporated as set forth above under

section 1903(m)(2)(A)(vi) of the Act.

In the case of primary care case

managers, section 1905(t)(3)(F) similarly

requires that primary care case manager

contracts comply with ‘‘applicable

provisions of section 1932,’’ while

section 1905(t)(3)(F) requires that

enrollees be provided the ‘‘right to

terminate enrollment in accordance

with section 1932(a)(4).’’ Again, this

provision is not limited to cases in

which the primary care case manager is

participating in a mandatory program

under section 1932(a).

The only provisions of section 1932 of

the Act that not are applicable to all

MCO, PHP, and PCCM contracts are

those which include the language ‘‘In

carrying out paragraph (1)(A),’’ which

refers to the statutory authority to

establish mandatory managed care

programs through the State Plan

Amendment process. These are the

provisions we have designated as

applicable to section 1932(a)(1)(A)

programs only. In order to prevent any

future confusion regarding which

provisions apply only to section

1932(a)(1)(A) programs, we are in this

final rule with comment period moving

all such provisions to § 438.50.

With respect to the commenters who

believed that the 12-month lock in

should not apply when enrollment is

voluntary, again, this result is dictated

by the statute. Under section

1903(m)(2)(A)(vi) of the Act, an enrollee

in an MCO has the right to disenroll

only to the extent this is provided for in

section 1932(a)(4) of the Act, which

permits disenrollment without cause

only in the first 90 days and annually

thereafter. Under section 1915(a) of the

Act, where enrollment is voluntary such

an arrangement will not be considered

to violate the general freedom of choice

provision in section 1902(a)(23).

Disenrollment by the Recipient: Timing

Section 438.56(e) of the proposed rule

(recodified at § 438.56(c) in the final

rule with comment period) set forth the

general rules regarding disenrollment

rights. These provisions apply to all

situations in which States choose to

restrict disenrollment. Beneficiaries are

permitted to disenroll for cause at any

time, without cause during their first 90

days of enrollment, and annually

thereafter. In certain circumstances

(rural areas with only one MCO, or areas

in which the statute permits contracting

with only a single county-sponsored

HIO), these rules apply to changes

between individual physicians or

primary care case managers.

Comment: We received one comment

suggesting that the proposed rule did

not go far enough in setting up a

consistent process for disenrollment.

The commenter recommended that

HCFA include a requirement in the final

rule that the disenrollment (and

enrollment) process should be

consistent across all MCOs, and PCCMs

in a State.

Response: We are sensitive to the

concern that to the greatest extent

possible, a State’s program should be

consistent in order to avoid confusion

and misunderstanding on the part of

enrollees. We encourage States to

establish uniform procedures in the area

of enrollment and disenrollment, and

we note that this section sets forth rules

regarding the process that must be

followed in all Medicaid managed care

programs that restrict disenrollment in

any way. We believe the proposed

regulation provided a great degree of

consistency in this process. We also

believe the information requirements in

§ 438.10 and the notice requirements in

§ 438.56 will alleviate any potential

confusion among enrollees. Therefore,

we have decided not to change the final

rule with comment period in response

to this comment.

Comment: Several commenters noted

that the proposed rule did not include

a provision providing for MCO or PCCM

disenrollments of beneficiaries for

cause. Commenters recommended that

HCFA adopt the language in the

Medicare+Choice regulation allowing

MCOs and PCCMs to request

disenrollment of beneficiaries for

uncooperative or disruptive behavior, or

for fraudulent behavior.

Response: The previous regulation (at

§ 434.27) required PHP and HMO

contracts to specify the process by

which they could request that the State

disenroll beneficiaries. It appears that

the omission of this provision in

§ 438.56 was simply an oversight. In

response to this comment, we are

including a provision in this rule

allowing MCOs, PHPs, and PCCMs to

request disenrollment of enrollees.

Section 438.56(b) of the final rule with

comment period requires that MCO,

PHP, and PCCM contracts specify the

6262 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

reasons for which an MCO, PHP, or

PCCM may request disenrollment of an

enrollee. This section also prohibits

MCOs, PHPs, and PCCMs from

requesting disenrollment on the basis of

the enrollee’s adverse changes in health

status, diminished mental capacity,

utilization of medical services, or

uncooperative or disruptive behavior

resulting from an enrollee’s special

needs. The only exception to this rule

is where the beneficiary’s continued

enrollment in the MCO, PHP, or PCCM

seriously impairs the entity’s ability to

furnish services to either this enrollee or

other enrollees in the entity.

Contracts must also specify how the

MCO, PHP, or PCCM will assure the

State agency that it will not request

disenrollment for reasons other than

those permitted under the contract. As

suggested by the commenter, these

changes reflect the provisions contained

in the Medicare+Choice regulations.

Comment: We received comments

regarding the special circumstances of

persons who are homeless, particularly

related to their transience and special

needs in obtaining information critical

in choosing an MCO or PCCM.

Response: We agree that persons who

are homeless present a unique situation.

Due to the lack of a mailing address and

general transience, it is likely that they

may not receive information about

choice of MCOs or PCCMs or the fact

they have been enrolled in an MCO or

PCCM until they attempt to receive care.

As a protection for this population, we

are revising the regulation to include, as

a cause for disenrollment, (under

paragraph (d)(2) of the section) the fact

that a person was homeless (as defined

by the State) or a migrant worker at the

time of an enrollment by default. This

is in addition to all other disenrollment

rights offered to all enrollees.

Comment: We received many

comments asserting that cause is not

adequately defined. Commenters urged

HCFA to publish a broad definition of

cause. Comments suggesting what

would constitute cause included—

inadequacy of an MCO’s medical

personnel in treating HIV; inability to

access primary and preventive care;

inability to access family planning

services; the MCO’s failure to offer

family planning services; geographic,

cultural, and linguistic barriers; an

enrollee’s PCP has left the MCO; lack of

access to pediatric and pediatric subspecialty services; the need for the

enrollee to access local Indian health

care services that are not available in the

MCO; inability to obtain information in

an accessible format; and inability to

receive services appropriate to the

medical condition. In addition, one

commenter suggested that States be

required to ‘‘look behind’’ HIV-related

disenrollment requests to determine

whether there are systemic problems in

serving individuals with HIV.

Response: We agree that cause should

be more specifically defined, and have

revised § 438.56(d)(2) to provide

examples that will be deemed to

constitute cause. These reasons for

disenrollment are similar to the grounds

for going out of plan where the rural

area exception applies. Specifically,

under § 438.56(d)(2), an enrollee may

disenroll for cause if (1) the enrollee

was homeless (as defined by the State)

or a migrant worker at the time of

enrollment and was enrolled in the

MCO, PHP or PCCM by default, (2) the

MCO or PCCM does not, because of

moral or religious objections, cover

services the enrollee seeks, (3) the

enrollee needs related services (for

example a cesarean section and a tubal

ligation) to be performed at the same

time; not all related services are

available within the network; and the

enrollee’s primary care provider or

another provider determines that

receiving the services separately would

subject the enrollee to unnecessary risk,

and (4) other reasons, including but not

limited to, poor quality of care, lack of

access to services covered under the

contract, or lack of access to providers

experienced in dealing with the

enrollee’s health care needs.

Further regarding the related services

provision, we recognize that enrollees in

this situation who are otherwise

satisfied in their MCO or PHP may not

want to disenroll in order to receive the

related services together. We note that

§ 438.206 specifies that if the network

cannot provide the necessary services

covered under the contract (including

related services) needed by the enrollee,

these services must be adequately and

timely covered out-of-network for as

long as the MCO or PHP is unable to

provide them. Under this provision, the

enrollee would be able to avoid the need

to disenroll from his or her current MCO

or PHP but could still receive the related

services concurrently.

Comment: One commenter pointed

out that while a later section of the

proposed rule speaks to the effective

date of for-cause disenrollments, it does

not address the effective date for

without-cause disenrollments. The

commenter recommended that there be

a required effective date, and that it be

no later than the timeframe provided for

in the for-cause section, that is the

beginning of the second calendar month

following the month in which the

request for disenrollment was made.

Response: We realize that the heading

of § 438.56(f) in the proposed rule,

‘‘Procedures for Disenrollment for

Cause,’’ suggests that we intended to

limit these requirements to

disenrollment for cause. However,

HCFA did not intend that States be

required or encouraged to set up a

different process based upon whether or

not the disenrollment request is for

cause. Therefore, we have retitled the

two paragraphs which now contain the

same provisions (§ 438.56(d) and (e)) as

‘‘Procedures for Disenrollment’’ and

‘‘Time-frame for disenrollment

determination’’

Comment: We received a number of

comments disagreeing with giving

enrollees the right to disenroll without

cause for 90 days after enrolling in (or

being default enrolled into) an MCO,

PHP or PCCM. Several commenters

believed that the 90-day period was too

lengthy, but one commenter stated that

‘‘[t]he removal of the right to disenroll

at any time troubles us.’’ The

commenters opposing the 90-day period

did not offer suggestions of a shorter

time period. One commenter

recommended that there should only be

one 90-day period, and not a new

opportunity to disenroll without cause

every time a recipient enters a new

MCO, PHP, or PCCM.

Response: The requirement to allow

beneficiaries to disenroll without cause

for 90 days appears in section

1932(a)(4), so we do not have authority

to remove or alter this right, or the

length of the 90 day time period. As for

the question of whether there is a new

90-day period with each new MCO,

PHP, or PCCM enrollment, the statute

refers to enrollment with the MCO or

PCCM and not initial enrollment in the

managed care program. Therefore, there

is no room for interpretation of that

provision as just allowing for a single

90-day disenrollment period without

regard to whether the beneficiary enrolls

in a new MCO or PCCM.

Comment: A number of commenters

disagreed with our interpretation that

the right to disenroll for 90 days without

cause only applies the first time a

recipient is enrolled in a particular

MCO, PHP, or PCCM. The commenters

recommended that the final rule provide

for a right to disenroll for 90 days each

time a recipient enters an MCO, PHP, or

PCCM, even if he or she has been

enrolled in that MCO. PHP, or PCCM

previously. Commenters indicated that

this is justified on the basis that there

could have been substantial changes in

an MCO, PHP, or PCCM since the

recipient’s previous enrollment.

Response: The statute does not make

clear whether the 90 day period

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6263

following notice of enrollment with an

MCO or PCCM applies only once, when

the individual is initially enrolled with

the MCO or PCCM, or each time the

individual enrolls with an MCO or

PCCM, even if he or she has been

enrolled in the MCO or PCCM before.

We believe that the purpose of the

extended 90 day disenrollment period is

to allow the beneficiary to become

familiar with an MCO or PCCM before

deciding whether to remain enrolled.

Once a beneficiary has been an enrollee

of an MCO or PCCM this rationale no

longer applies. While it is true that an

MCO, PHP, or PCCM might change in

the interim, this is equally true of an

MCO, PHP, or PCCM that the enrollee

might remain enrolled with. A

beneficiary would still have an annual

opportunity to disenroll in both cases.

We believe that the interpretation the

commenter has suggested would create

a potential for abuse by providing an

incentive for frequent changes in

enrollment that could result in multiple

90 day periods for the same MCO, PHP,

or PCCM.

Comment: The proposed rule

specifies that the 90-day clock for

enrollees to disenroll without cause

begins upon the actual date of

enrollment, and further provides that if

notice of enrollment is delayed, the

State may extend the 90-day period. All

comments we received on this issue

urged HCFA to adopt what they

consider to be stronger language. The

commenters suggested that HCFA

provide that the 90-day disenrollment

period begins when notice of enrollment

is actually received. Furthermore, they

contended that States should be

required, rather than permitted, to

extend the 90-day period in the event

that notice to the enrollee is delayed. A

couple of commenters also believed that

States and MCOs, PHPs, and PCCMs

should be required to guarantee that the

notice is actually received; and in the

case of homeless individuals, that the

notice is received prior to the initial

assessment by the MCO, PHP, or PCCM.

Response: By providing for the 90-day

period to begin when the enrollment

takes effect, HCFA was attempting an

interpretation of the statute that would

offer maximum protection to enrollees.

That is because in many States, notice

of enrollment may be sent to the

recipient up to 60 days before the

effective date of the enrollment.

However, because there is such a high

level of concern that beneficiaries will

be harmed in cases when notice of

enrollment is mailed after the effective

date, we are adding regulation text

providing that the 90 day period begins

upon the enrollment, or the date the

notice is sent, whichever is later.

Regarding the request that States and

MCOs, PHPs, and PCCMs be required to

guarantee that notices are actually

received, we do not believe it is

appropriate to require such a guarantee

when there are certain factors beyond

the control of the State or MCO, PHP,

or PCCM. However, it is in a State’s best

interest to make the maximum effort

possible to ensure that notices are

received, and we encourage States to

take measures to ensure this to the best

of their ability.

Comment: We received one question

about whether States should be able to

differentiate between different types of

MCOs, PHPs, and PCCMs in the 12-

month lock-in provision. The

commenter recommended that States be

allowed to have different lock-in

periods depending upon whether the

enrollee was locked into a PCCM or an

MCO.

Response: Section 1932(a)(4), which

applies to both MCOs and PCCMs,

requires that enrollees be allowed to

disenroll for cause at any time, and

without cause during the initial 90 days,

and ‘‘at least every 12 months

thereafter.’’ As long as no enrollee is

locked-in for a period of more than 12

months, there is no prohibition against

States implementing different lock-ins

for MCOs, PHPs, and PCCMs.

Comment: A number of commenters

said they believe the provision for an

annual disenrollment opportunity may

create confusion. The commenters

suggested that States be required to hold

an annual open enrollment period.

Response: The statute requires States

to permit enrollees to disenroll from an

MCO or PCCM for a 90-day period at the

beginning of enrollment, and ‘‘at least

every 12 months thereafter.’’ As long as

the State meets the requirement to

inform beneficiaries of their right to

terminate or change enrollment at least

60 days in advance, the State may

structure the annual opportunity in

whatever way it sees fit. This may

involve holding an annual open

enrollment period as the commenters

suggested, or individually offering each

recipient an opportunity to change

enrollment upon his or her enrollment

anniversary.

Comment: Section 438.56(e)(2) of the

proposed rule (moved to § 438.52(c) in

the final rule) provided that in rural

areas with only one MCO, States may

meet the disenrollment requirements by

allowing enrollees to change physicians

or case managers within the MCO. A

commenter contended that PCCM

enrollees in rural areas should be

allowed to disenroll and transfer to feefor-service Medicaid if only a single

PCCM is available, since section

1905(t)(3)(E) of the Act requires that a

beneficiary have a choice.

Response: Section 1905(t)(3)(E) of the

Act requires that primary care case

manager contracts permit disenrollment

in accordance with section 1932(a)(4) of

the Act. As defined in § 438.2, a primary

care case manager may be an individual

physician or a group of physicians.

Therefore, a State arguably would be

complying with the requirement in

section 1932(a)(4) of the Act if it allows

enrollees to change primary care case

managers since (to the extent these

individual managers are each

considered managed care entities.) More

importantly, however, we believe that

section 1932(a)(3)(B) provides an

exception not only to the rule set forth

in section 1932(a)(3)(A) of the Act that

an enrollee have a choice of more than

one MCO, but as an implicit exception

to the requirement in section

1932(a)(4)(A) of the Act that a

beneficiary be able to disenroll from an

MCO. Thus, even if the State has only

a single MCO contract in a rural area

pursuant to section 1932(a)(3)(B) of the

Act, we believe that the requirements in

section 1932(a)(4) of the Act would be

satisfied by permitting disenrollment

from an individual primary care

physician. The authority in section

1932(a)(3)(B) of Act to permit the choice

of entity requirement in section

1932(a)(3)(A) of the Act to be fulfilled

by providing a choice of individual

physicians would be meaningless if

section 1932(a)(4) of the Act were

nonetheless construed to permit an

individual to disenroll from an MCO, as

opposed to changing individual

physicians. Thus, where the conditions

in section 1932(a)(3)(B) have been

satisfied, the requirement in section

1932(a)(4), as made applicable by

section 1905(t)(3)(E), is satisfied by

permitting beneficiaries to disenroll

from their primary care physician.

Procedures for Disenrollment

Section 438.56(f) of the notice of

proposed rulemaking set forth the

required procedures for processing

disenrollment requests. (We note here

that the proposed rule referred to

‘‘Procedures for disenrollment for

cause,’’ but as noted above, in response

to comments, we have renamed the two

paragraphs containing material from

proposed § 438.56(f) ‘‘Procedures for

disenrollment’’ and ‘‘Timeframe for

Disenrollment Decisions.’’) In

§ 438.56(f), we proposed that enrollees

be required to submit written requests

for disenrollment to the State agency or

to the MCO, PHP, or PCCM. MCOs,

PHPs, and PCCMs are required to

6264 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

submit copies of disenrollment requests

to the State agency. Proposed § 438.56(f)

provided that while MCOs, PHPs, and

PCCMs may approve disenrollment

requests, only the State agency may

deny such requests.

In cases where the State agency

receives the request, under proposed

§ 438.56(f) it could either approve the

request or deny it. Requests for

disenrollment had to be processed in

time for the disenrollment to take effect

no later than the first day of the second

month following the month in which

the enrollee made the request. Proposed

§ 438.56(f) further provided that if the

State or MCO, PHP, or PCCM does not

act within the specified timeframe, the

request was considered approved.

Response: This comment is quoting

language from proposed § 438.56(e)(1),

which is retained in the final rule with

comment period in § 438.56(c). This

language states that if the State chooses

to limit or restrict enrollment, it must

permit enrollment without cause in the

first 90 days an individual is enrolled in

an MCO, PHP, or PCCM, and annually

thereafter. This rule would be irrelevant

if a State chose not to limit

disenrollment at all. To clarify our

position in response to the commenter,

if a State wishes to permit disenrollment

at any time, or more frequently than the

minimum disenrollment rights required

under § 438.56(c), the same rules on

notice and effective date apply as apply

when a State ‘‘chooses to restrict

disenrollment.’’

Comment: Several comments felt that

the final rule should specify that

disenrollment requests may be

submitted by either the enrollee or his

or her representative. In addition, others

felt that we should delete the reference

to 20 CFR part 404, subpart R in the

definition of authorized representative.

The commenters believed that these

rules, which generally govern

representative payees for Social Security

programs, have little, if any, relevance

to the Medicaid program and that these

requirements would limit assistance to

beneficiaries in the Medicaid managed

care enrollment process. They indicated

that current rules recognize that

beneficiaries may require assistance in a

variety of circumstances and provide

that applicants and recipients may

obtain that assistance from a variety of

sources. For example, commenters

pointed out that in formal proceedings

such as fair hearings, Medicaid

beneficiaries enjoy the right to

‘‘represent themselves, use legal

counsel, a relative, friend or other

spokesman.’’ (42 CFR 431.206). If the

applicant is incompetent or

incapacitated, anyone acting

responsibly for the applicant can make

application on the applicant’s behalf (42

CFR 435.907). People with disabilities

who are incompetent or incapacitated

can currently be represented by anyone

acting responsibly on their behalf.

Commenters indicated that State law is

available, and is used to step in when

a person cannot make medical decisions

on his or her behalf.

Response: We concur with the

commenters and have modified

§ 438.56(d) to add ‘‘his or her

representative’’ to enrollee. In addition,

we have deleted the reference to 20 CFR

Part 404. We have also deleted the

reference to ‘‘authorized’’, using only

the term representative to allow for a

broad range of representatives,

consistent with existing policies and

practices. The definition, which has

been moved to § 430.5, now reads

‘‘Representative has the meaning given

the term by each State consistent with

its laws, regulations, and policies.’’

We agree with the commenters that

the appropriateness of a representative

depends on the significance of the

activity for which they are acting as

representative, so that States should

have the flexibility to determine who

may represent the beneficiary in various

activities. The State may establish

various criteria depending upon the

situation (for example, disenrollment

requests, choice of health plans,

receiving notices, filing grievance and

appeals (including requests for

expedited review, being included as a

party to the appeal and the State fair

hearing, receiving marketing materials,

being provided opportunity to review

records, etc.) In determining who may

represent beneficiaries, we anticipate

that States will provide special

consideration for individuals with

cognitive impairments, who are unable

to appoint their own representatives,

but who may be especially vulnerable

and require assistance in accessing the

protections offered in these regulations.

Comment: A number of commenters

disagreed with the requirement that

disenrollment requests be submitted in

writing, contending that this may

present a barrier to some enrollees, and

that the process should be as barrier-free

as possible.

Response: We agree and are interested

in reducing or eliminating barriers

wherever possible. Therefore,

§ 438.56(d) has been amended to specify

that disenrollment requests may be

written or oral. Further, we note that

States cannot impose a requirement that

beneficiaries appear in person to request

disenrollment.

Comment: We received a number of

comments relating to the time allowed

for processing disenrollment requests.

The only references to a timeframe

appeared in the proposed rule at

§ 438.56(f)(2)(ii) and § 438.56(f)(4)(i).

(These sections are redesignated as

§ 438.56(d)(3)(ii) and § 438.56(e)(1) in

the final rule.) Disenrollment requests, if

approved, must take effect no later than

‘‘the first day of the second month after

the enrollee makes the request.’’ (This is

re-wording of previous statutory

language, formerly found at section

1903(m)(2)(A)(vi) of the Act, which

required disenrollment requests to be

effective at the ‘‘beginning of the first

calendar month following a full

calendar month after the request is

made for such termination.’’ This

specific language was removed by BBA

and was not replaced with any

alternative timeframe.) Commenters

urged HCFA to spell out a more specific

list of requirements relating to

processing of requests. Although not all

comments suggested a specific

timeframe, most urged an ‘‘expedited’’

process for urgent or emergency

situations. Commenters who did specify

a timeframe for urgent or emergency

situations indicated that requests should

be required to be processed within 3 or

5 days. One commenter said

disenrollment requests on behalf of

children with special health care needs

should be processed within 72 hours. It

is important to note that the comments

addressed ‘‘processing’’ of

disenrollment requests, and not the

effective dates. It is safe to assume,

however, that the commenters would

support an expedited effective date as

well as expedited processing.

Response: Because of the removal of

the effective date requirement in section

1903(m)(2)(A)(vi) of the Act, the statute

is silent on how long the disenrollment

process should take.

In response to the above comments,

we believe that other beneficiary

protections within this final rule with

comment period, for example

§ 438.206(d)(5), provide adequate

protection and access to necessary

medical services covered under the

contract out-of-network for as long as

the MCO pro PHP is unable to provide

them.

Comment: One commenter

recommended that HCFA require States

to establish an Ombudsman program to

intervene in the disenrollment process.

Response: We are sensitive to the

need for enrollees to have adequate

protection in the enrollment and

disenrollment process. This is

particularly a concern for those who

may have limited experience with

managed care systems. We believe we

have built numerous protections into

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6265

§ 438.56, including a provision for an

appeals process when disenrollment

requests are denied. In addition, it is

important to note that many States use

enrollment brokers, who act as

independent third parties and assist

enrollees in making their choice of

managed care organizations. We believe

that it is not necessary to require States

to establish Ombudsman programs,

although we would encourage them to

do so.

Comment: One commenter believed

the provision describing how MCOs,

PHPs, and PCCMs should process

disenrollment requests was too

prescriptive. The commenter felt we

should allow States to individually

develop the process for MCO, PHP, and

PCCM handling of disenrollment

requests. However, other commenters

felt this provision was too flexible, and

recommended that MCOs, PHPs, and

PCCMs not be permitted to process

disenrollment requests. These

commenters recommended that only the

State or an independent third party,

such as an enrollment broker, be

permitted to handle disenrollment

requests.

Response: Disenrollment is an

important right granted to beneficiaries

by the Congress, especially in an

environment in which States can now

require a lock-in period of up to 12

months. The consistent process required

under this regulation is intended to

guarantee that beneficiaries will be able

to exercise this right as intended by the

Congress. However, the statute is silent

on certain aspect of disenrollment,

including who should process such

requests. Allowing MCOs, PHPs, and

PCCMs to process requests is

longstanding policy, and is based upon

the principle of State flexibility, because

States are closest to the situation and

should be aware of whether such a

policy would be beneficial to enrollees.

Further, we understand the concern

that MCOs, PHPs, and PCCMs may have

an incentive to discourage beneficiaries

from disenrolling, or to disenroll more

costly beneficiaries, but we believe

adequate safeguards have been built into

the process to protect enrollees. For

example, MCOs, PHPs, and PCCMs may

approve disenrollment requests, but

they may not disapprove them. If an

MCO, PHP, or PCCM does not take

action to approve a request, it must refer

the request to the State agency for a

decision. States are also required to give

enrollees who disagree with

disenrollment decisions access to the

State fair hearing system. It is important

to note, also, that involving the MCO,

PHP, or PCCM in the process may

benefit enrollees. In many instances, the

MCO, PHP, or PCCM may be able to

resolve the problem that led the enrollee

to request disenrollment, thus meeting

the beneficiary’s needs while preventing

the necessity to disenroll. In addition,

we expect that MCOs would track

reasons for these requests as part of their

quality improvement programs.

In this rule we believe we have taken

the interests of beneficiaries and States

into account and balanced the need for

beneficiary protection with the need for

flexibility in program administration.

We therefore disagree with the

commenters, and have decided not to

change this provision in the final rule

with comment period.

Comment: A number of commenters

asked for clarification of the

requirement that MCOs, PHP, and

PCCMs to notify the State if they do not

take action on a request for

disenrollment. Commenters

recommended that the final rule be

revised to provide that MCOs, PHPs,

and PCCMs are required to notify the

State when they disapprove requests, as

well as when they do not take action. In

addition, one commenter proposed that

HCFA require the State to aggressively

monitor MCO, PHP, and PCCM denials

of disenrollment requests. These

commenters apparently did not

understand that MCOs, PHPs and

PCCMs would not be permitted to

disapprove disenrollment requests.

Response: We disagreed with the

commenters who argued the provision

(re-designated as § 438.56(d)(5) in the

final rule with comment period) should

be deleted. We have decided to retain

the provision for two reasons. First, the

internal grievance process can eliminate

the need to disenroll by resolving the

issue that led to the disenrollment

request. We consider this to be

beneficial from a continuity of care

standpoint, as well as a quality

standpoint. Secondly, we believe that

States should have flexibility to decide

whether the internal grievance process

is helpful in the context of

disenrollment requests. States are in the

best position to make this determination

based upon their programs and

beneficiaries. We do agree, however,

that there are cases where requiring the

use of the internal grievance process

may not be appropriate, therefore, we

have specified that in cases expedited

disenrollment, this provision does not

apply.

Comment: Proposed § 438.56(f)(3)

provided that States may require

beneficiaries to use the internal MCO

grievance process before making a

determination on a request for

disenrollment if a delay would not pose

jeopardy to the enrollee’s health. Some

commenters disagreed with this

provision, while another recommended

that enrollees be required to use the

internal grievance process. Other

commenters said enrollees should be

allowed to go straight to the State’s fair

hearing process for disenrollment

requests. Still other commenters

commented proposed that HCFA clarify

that the exception for jeopardy to health

should apply in cases in which the

harm to an enrollee’s health may not

become apparent until later. Also, the

commenter recommended that we

include language indicating that in the

case of pregnant women, jeopardy to the

health of the fetus also be considered.

Another commenter recommended that

in the case of children, the delays that

would jeopardize development be

addressed.

Response: We disagreed with the

commenters who argued the provision

(redesignated as § 438.56(d)(5) in the

final rule) should be deleted. We have

decided to retain the provision for two

reasons. First, the internal grievance

process can eliminate the need to

disenroll by resolving the issue that led

to the disenrollment request. We

consider this to be beneficial from a

continuity of care standpoint, as well as

a quality standpoint. Secondly, we

believe that States should have the

flexibility to decide whether the internal

grievance process is helpful in the

context of disenrollment requests. States

are in the best position to make this

determination based upon their

knowledge of their programs and

beneficiaries.

Comment: The proposed rule requires

disenrollment requests, if approved, to

take effect no later than the first day of

the second month following the month

in which the enrollee makes the request.

A number of commenters were

dissatisfied with this provision and said

it should be made more specific. One

commenter recommended that the

timeframes specified in the Subpart F

(Grievance System) be applied to the

disenrollment process. A number of

commenters recommended that the

timeframe be made more specific, with

a number of recommendations that

requests be processed within five days.

Response: As stated elsewhere, the

required timeframe for processing

disenrollments is meant to be a

maximum, not a minimum. However,

the regulation is also designed to be

workable in all States, and States have

very different systems capabilities to

accommodate changes in managed care

enrollment. As noted above, the

timeframes we have adopted were in

place for many years under section

1903(m) before the BBA. Because

6266 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

capitation payments are made on a

monthly basis, most States may want to

make disenrollments effective on the

first day of a month. However, there is

no prohibition against a State adopting

a process that calls for timeframes that

mirror those contained in Subpart F, as

the commenter recommended.

Comment: Proposed § 438.56(f)(4)(ii)

provided that if the State agency fails to

make a determination on a

disenrollment request within the

specified timeframe, the request is

deemed approved. Commenters

recommended that HCFA make clear

that the ‘‘deemed approved’’ language

applies whether the State or the MCO,

PHP, or PCCM is processing the

disenrollment request.

Response: We agree that in cases

where MCOs, PHPs, and PCCMs are

permitted by the State to process

disenrollment requests, the same

timeframes should apply. Section

438.56(e)(3) of the final rule with

comment period makes this clear.

Notice and Appeals

Section 438.56(g) of the proposed rule

(§ 438.56(f) in the final rule with

comment period) specified that States

restricting disenrollment in Medicaid

managed care programs must require

MCOs and PCCMs to notify

beneficiaries of their disenrollment

rights at least 60 days before the start of

each enrollment period and at least once

a year. The paragraph further required

that the State establish an appeal

process for any enrollee dissatisfied

with a State agency determination that

there is not good cause for

disenrollment.

Comment: Some commenters

disagreed with our approach of

providing for MCOs and PCCMs to

provide disenrollment rights notices,

while others agreed with this general

approach, but said we should impose

additional requirements on States. In

addition, some commenters believed

that the provision is too prescriptive.

The commenters who disagreed with

permitting MCOs and PCCMs to provide

disenrollment rights notices said the

final rule should provide that only the

State or an enrollment broker should

notify enrollees of their disenrollment

rights. In addition, these commenters

proposed that States be required to

develop a model from which would be

translated into all languages in use in

the State, and field tested before being

used in the Medicaid program.

Commenters who supported

additional requirements said the

regulation should require such notice to

be provided upon initial enrollment,

and that we should add language

requiring that the notice be

understandable to beneficiaries,

consistent with the provisions of

regulations that apply to the Medicare +

Choice program.

The commenters who said the

provision was too prescriptive

recommended that we mirror the

statutory language requiring one annual

notice 60 days before the beginning of

the enrollment period, and that the final

rule should reflect that the enrollee

handbook constitutes sufficient notice

regarding disenrollment rights. One

commenter suggested that we require

‘‘adequate notice’’ at a time specified by

the State.

Response: Section 1932(a)(4) requires

an annual notice at least 60 days before

the beginning of an individual’s annual

opportunity to disenroll, but does not

specify whether the MCO, PHP, PCCM

or the State should send the notice. In

response to the concerns raised by the

commenters, and in recognition of the

fact that some States may want to send

the notices themselves (or employ an

enrollment broker to perform this

function), the final rule with comment

period (at § 438.56(f)) requires the State

to provide that enrollees are given

written notice and ensure access to State

fair hearing for those dissatisfied with a

denial based on lack of good cause.

Regarding the model form comment,

this seems to be a reasonable approach

and it is one we believe many States

will employ, but we do not believe it is

necessary or prudent to make this a

regulatory requirement. Regarding the

comment about mirroring the

Medicare+Choice regulation, we believe

that the statutory requirements provide

sufficient protections to beneficiaries in

this case. We also believe the

information requirements found at

§ 438.10 provide a great degree to

specificity in terms of how States will

inform enrollees of their rights and

responsibilities.

Comment: One commenter said we

should require that the notice of

disenrollment rights be sent to a

representative payee, if one exists.

Response: The concerns of this

commenter have been addressed by our

decision to revise the final rule with

comment period to provide that notice

be provided to an enrollee or his or her

representative. We note that a

representative payee would not

necessarily be authorized by the

enrollee, or under State law, to

represent the enrollee for purposes other

than handling the benefits check. The

final rule with comment period

provides for notice to the representative.

Comment: Two commenters said that

in addition to laying out notification

requirements, the final rule should

speak to the form used to request

disenrollment. One commenter

suggested that HCFA develop a model

form, while the other suggested that

HCFA require States to develop a single

form for use throughout their program.

Response: We agree that in many

cases, use of a standard form for

disenrollments (both annual and forcause) can aid in program

administration. Many States will

probably choose this approach, which

they are free to do under this final rule

with comment period as long as they

also permit oral disenrollment requests

as required under § 438.56(d). Because

we believe that States may have

legitimate reasons for choosing other

approaches, however, and in light of our

decision in response to comments to

permit oral disenrollment requests, we

have decided not to make this a

regulatory requirement.

Comment: We received a number of

comments on the requirement for States

to establish an appeals process for

enrollees who disagree with denials of

disenrollment requests. The

commenters said that when enrollees

disagree with a State denial of a

disenrollment request, they should be

able to proceed directly to the fair

hearings process without going through

a separate appeals process.

Response: The cited provision was

not intended to require States to

establish a process separate from the fair

hearing system. As noted above,

§ 438.56(f)(2) of the final rule with

comment period requires that State fair

hearings be made available.

Automatic Re-enrollment

Proposed § 438.56(h) reflected the

provision in section 1903(m)(2)(H) of

the Act specifying that if the State plan

so provides, MCO and PCCM contracts

must provide for automatic reenrollment of individuals who are

disenrolled only because they lose

Medicaid eligibility for a period of two

months or less.

Comment: One commenter pointed

out that the proposed language did not

specify how the enrollment/

disenrollment provisions (such as

timeframes for changing MCOs and

PCCMs) in this rule apply in cases of

automatic re-enrollment.

Response: Section 438.56(h) reflects a

statutory provision that was enacted in

1990, and is simply being incorporated

into regulation. The commenter is

correct that the proposed rule did not

address how to apply the enrollment/

disenrollment provisions to enrollees

who have a temporary loss of Medicaid

eligibility. We have decided to add

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6267

clarifying language to the final rule with

comment period in § 438.56(c)(2)(iii)

indicating that if a temporary loss of

eligibility causes a recipient to miss the

annual right to disenroll without cause,

that right will be given upon reenrollment. The enrollee would not,

however, be entitled to a new 90 day

period.

Comment: Two commenters pointed

out that the preamble and regulations

text of the proposed rule were in

conflict regarding the re-enrollment

timeframe. (The preamble indicated a

window of up to four months.) The

commenters indicated their preference

for the four-month window. One

commenter said they favor State

flexibility and indicated they currently

use a window of 90 days in their

program. Two other commenters

suggested a three-month window.

Response: Section 1903(m)(2)(H)

provides a re-enrollment window of two

months, therefore, the reference to four

months in the preamble to the proposed

rule was an error. States may use a

shorter timeframe, but not a longer one.

4. Conflict of Interest Safeguards

(§ 438.58)

Proposed § 438.58 required as a

condition for contracting with MCOs

that States establish conflict of interest

safeguards at least as effective as those

specified in section 27 of the Office of

Federal Procurement Policy Act.

Comment: One commenter supported

the provision as written requiring that

there be conflict of interest safeguards

on the part of State and local officers

and employees and agents of the State

who have responsibilities relating to

MCO contracts or default enrollments.

Response: The final rule with

comment period makes no change in the

proposed language, other than to reflect

the applicability of this provision, like

other provisions in subpart B, to PHPs

(see section 2. above).

Comment: Two commenters suggested

that the safeguards be applied to all

MCOs, PHPs and PCCMs, not just

MCOs.

Response: Section 438.58 implements

section 1932(d)(3), which specifies only

contracts under section 1903(m) (i.e,

contracts with MCOs). For this reason,

we referenced only MCOs in proposed

§ 438.58. However, while the conflict of

interest standards in § 438.58 are

triggered by MCOs, in the sense that the

State cannot enter into MCO contracts

unless they are in place, they apply to

anyone with responsibilities ‘‘relating

to’’ MCOs or to the ‘‘default enrollment

process specified in § 438.56,’’ which

would also include responsibilities for

PCCMs. In addition, as discussed in

section 2. above, we have made all

provisions in subpart B except for

§ 438.50, applicable to PHPs.

Comment: One commenter agreed that

these safeguards regarding conflicts of

interest for State and local officials were

necessary and welcome; however, it

envisioned additional protections for

any entity engaged in ‘‘determining or

providing managed health care to

Medicaid-eligible beneficiaries [should]

have policy-making bodies that consist

of at least 60 percent’’ of beneficiaries

who will be served by the program.

Response: We do not believe that the

regulation should be amended. Ensuring

60% Medicaid beneficiary

representation on any board involved in

determining how managed care will be

provided to Medicaid eligibles is not

feasible, given resource constraints at

the State level. Furthermore, we have no

statutory basis for requiring such

representation.

5. Limit on Payment to Other Providers

(§ 438.60)

Proposed section 438.60 prohibited

payment for services which were

covered under a contract between an

MCO and the State, except for

emergency and post-stabilization

services in accordance with section

438.114(c) and (d).

Comment: All commenters

maintained that the language in § 438.60

is too restrictive: the only exempted

service are emergency services and poststabilization services. Additional

‘‘exceptions’’ proposed were—family

planning, school-based services,

immunizations by local health agencies,

certified nurse midwife services, tribal

health provider services, and EPSDT

services.

Response: We believe that the

commenters have misunderstood this

provision and that the exemption for

emergency and post stabilization

services in the proposed rule may have

helped create this confusion. The intent

of section 438.60 is to prohibit duplicate

payments (once through capitation,

once through FFS) for services for

which the State had contracted with an

MCO to provide. We believe that the

exemption for emergency and post

stabilization services was incorrect,

since the MCO is obligated to cover and

pay for these services for its enrollees.

Thus, any payment by the State would

be a duplicate payment. We are deleting

this exemption from the final rule with

comment period.

A State has in effect already paid for

services that are included in an MCO’s

contract, and does not have an

obligation to pay for them a second

time, if a beneficiary obtains the

services outside of the MCO’s network.

In instances where out-of-network

services may be authorized, e.g., the

rural exception to the choice

requirement, family planning, schoolbased services, immunizations, CMN or

tribal services either the MCO or the

state has the financial obligation to pay

for the services. The State may pay for

the services that were under the contract

only if there is an adjustment or

reconciliation made to the amounts paid

the MCO in its capitation payments. In

this situation, the services were not

considered ultimately to be covered

under the MCO contract. In situations

where any of these services are carved

out of the contracts (and the capitation

rates paid the MCO) this is not an issue.

State option to allow beneficiaries to go

out-of-network for these services is not

hindered by this section.

In addition, this provision precludes

States from making additional payments

directly to providers for services

provided under a contract with an MCO

or PHP, except when these payments are

required by statute or regulation, such

as with DSH or FQHC payments. We

have clarified this provision accordingly

in the final rule.

Comment: One commenter wanted

HCFA to clarify what ‘‘service

availability’’ actually means.

Response: For purposes of this

provision, ‘‘available’’ would refer to

services covered under the contract. A

State is held accountable (§ 438.306) for

ensuring that all covered services are

available and accessible to enrollees—

both services under the contract and

those State plan services not included in

the contract with the MCO.

6. Continued Service to Recipients

(§ 438.62)

Proposed § 438.62 required States to

arrange for continued services to

beneficiaries who were enrolled in an

MCO whose contract was terminated or

beneficiaries who were disenrolled for

any reason other than a loss of Medicaid

eligibility.

Comment: We received a series of

general comments that, overall, § 438.62

did not address the continuation of an

enrollee’s ongoing treatment when

transitioning to managed care.

Specifically, the commenters expressed

concern that the proposed regulation

did not highlight the need for

identification and continuation of an

enrollee’s treatment when transitioning

from FFS into managed care or from one

managed care organization to another.

Several commenters stated that the

interruption of treatment for only a

short period of time could have serious

6268 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

and possibly irreversible consequences

on an individual’s health. Other

commenters suggested that ongoing

treatment without interruption was

especially critical for persons suffering

from mental illness, substance abuse,

and chronic conditions such as HIV/

AIDS.

Response: Section 438.308 addresses

continuity and coordination of care

requirements on MCOs, and comments

on this provision generally are

discussed in more detail in section II. D.

below, discussing comments on

proposed subpart E. We believe,

however, that some comments on

perceived inadequacies in § 438.308,

specifically those expressing concerns

about continued access to services as

beneficiaries are transitioned from FFS

into managed care, could be addressed

in part by amending proposed § 438.62.

Proposed § 438.62 represented a

recodification of a longstanding

requirement in part 434, at § 434.59,

which required that provision be made

for continued services when enrollment

in an MCO or a PHP is terminated. This

requirement was imposed under our

authority in section 1902(a)(4) to specify

methods necessary for proper and

efficient administration. In response to

the above comments, we believe it is

appropriate to extend the requirement

in § 438.62 (previously in § 434.59) to

situations other than the transition out

of an MCO or PHP.

We believe that most States already

have mechanisms in place to transition

enrollees into managed care from feefor-service and from one MCO to

another. However, we acknowledge the

commenters’ concerns that our

proposed regulation does not address an

enrollee’s potential disruption of

services, even for a short period of time,

from the period of initial enrollment

until the time of assessment by the new

primary care physician or specialist in

the receiving MCO or PHP.

In response to the large number of

comments received on this issue, we are

in this final rule with comment period,

again under our authority in section

1902(a)(4), expanding the scope of

§ 438.62. The commenters referred to

‘‘managed care’’ generally, in asking that

our regulations address ‘‘transitioning

from FFS into managed care.’’ We

therefore are extending § 438.62 to

enrollees in PCCMs, as well as MCOs

and PHPs. The language of the proposed

version of § 438.62 becomes paragraph

(a) in the final rule with comment

period, except with reference to MCOs,

PHPs, and PCCMs rather than only

MCOs, to afford enrollees of PHPs and

PCCMs the same protections. The added

paragraph (b) requires States to have

mechanisms to ensure continued access

to services when an enrollee with ongoing health care needs is transitioned

from fee-for-service to an MCO, PHP, or

PCCM, from one MCO, PHP, or PCCM

to another, or from an MCO, PHP, or

PCCM to fee-for-service.

We wish to emphasize that we are not

mandating any specific mechanism that

States must implement, nor are we

mandating a specific list of services or

equipment that must be covered during

the transition period. However, we are

requiring that the mechanism apply to

at least the following categories of

enrollees: (1) Children and adults

receiving SSI; (2) children in Title IV–

E foster care; (3) recipients aged 65 or

older; (4) pregnant women; (5) any other

recipient whose care is paid for under

State-established, risk-adjusted, highcost payment categories; and (5) any

other category of recipients identified by

HCFA. We also specify that the State

must notify the enrollee that a transition

mechanism exists, and provide

instructions on how to access the

mechanism. Further, the State must

ensure that the enrollee’s ongoing health

care needs are met during the transition

period by establishing procedures to

ensure that, at a minimum, the enrollee

has access to services consistent with

the State plan, and is referred to

appropriate health care providers; new

providers are able to obtain copies of

appropriate records consistent with

applicable Federal and State law; and

any other necessary procedures are in

effect.

Comment: One commenter believes

that it is unclear what level of effort by

the State is sufficient to comply with the

requirement. In an FFS environment,

referral services are less comprehensive

and ‘‘delays’’ might be defined

differently.

Response: We believe that both terms,

‘‘without delay’’ and ‘‘delay’’ represent

straightforward guidance and that no

further changes are needed.

7. Monitoring Procedures (§ 438.66)

Proposed section 438.66 states that a

State must have in place procedures for

monitoring MCO practices and

procedures with regard to enrollment/

termination, implementation of

grievance procedures, violations subject

to intermediate sanctions (such as

failing to provide services for which it

has contracted), and violations for the

conditions for FFP (such as conditions

of FFP for enrollment broker services).

As noted above, we have made this and

most other provisions applicable to

PHPs in response to comments. We

therefore in this final rule with

comment period have added ‘‘to the

extent applicable, for PHPs,’’ since not

all of these provisions apply to PHPs.

Comment: One commenter noted that

with regard to enrollment and

termination practices, HCFA did not

specify ‘‘beneficiaries’’ or ‘‘providers,’’

but assumes we meant beneficiaries

only.

Response: This section of the

regulation does not implement a BBA

requirement, and was incorporated from

existing regulations without substantive

changes. We did not intend to modify or

expand its meaning. That said, we agree

that paragraph (a) needs clarification,

and in response to this comment, the

final rule with comment period

specifies that it applies to ‘‘recipient

enrollment and disenrollment,’’ and

adds a paragraph (e) ‘‘All other

provisions of the contract, as

appropriate.’’

Comment: Another commenter states

that the regulation should specify

timeframes, and suggests annual

monitoring for grievance procedures,

and quarterly monitoring for

enrollment/termination. This

commenter furthermore notes that we

have required the latter in some 1915(b)

waivers and 1115 demonstrations.

Response: Given our desire to

maximize States’ flexibility in

administering their State plans, we do

not specify for each item how often the

monitoring must be done, merely that it

is a requirement to do so. Our

experience with States’ monitoring of

MCOs in section 1115 demonstrations

and in 1915(b) program waivers suggests

to us that States implementing these

procedures will do so on an annual or

quarterly basis—if not more often than

that.

Comment: One commenter suggested

that HCFA require States to have

procedures to monitor specialty referral

services.

Response: With respect to the

suggestion of monitoring procedures for

specialty referral services, we note that

438.10 already requires MCOs to make

available information to beneficiaries on

how to access services, including those

(such as referrals) that may require

authorization. If these procedures are

not being followed, we believe that the

complaints and grievances data (which

the State is required under this

subsection to monitor) will demonstrate

whether the MCO is following its own

(State-approved, see § 438.700)

procedures. Furthermore, we have

clarified with new paragraph (e) what

has always been our expectation;

namely, that States monitor compliance

with all aspects of the contract. Such a

requirement implicitly includes the

monitoring of special referral services.

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6269

Comment: One commenter believed

that HCFA should require States to have

procedures in place to monitor the

degree of enrollment of pediatricians/

other providers, the provision and

access to services not covered under the

contract, and EPSDT services.

Response: We believe that it would be

unnecessarily onerous to add

requirements regarding monitoring the

participation of pediatricians and other

providers and EPSDT services. The

MCOs have already agreed to provide all

medically necessary services in their

contract (including EPSDT, if included

in a particular contract) and therefore

have strong incentives to have adequate

provider and specialist network

capacity, especially because if it they do

not, the State can impose intermediate

sanctions or terminate the contract

before it would otherwise expire (see

§ 438.718). Furthermore, it is a contract

requirement that MCOs provide for

arrangements with, or referrals to,

‘‘sufficient numbers of physicians and

other practitioners to ensure that

services under the contract’’ are

furnished (see § 438.6). Furthermore,

again, we have clarified in paragraph (e)

that States monitor contract compliance.

Such a requirement implicitly includes

the monitoring of number of

pediatricians and other providers.

Moreover, States are required at § 441.56

to meet certain EPSDT targets, whether

or not they are contracted services. With

regard to ‘‘wraparound services,’’ we

note that § 438.206(c) makes clear that it

is the responsibility of the State to

ensure that services not covered by the

contract are provided to Medicaid

beneficiaries. If such services are not

being provided, a State’s monitoring of

trends in its Fair Hearings process

should reveal any problem with respect

to access to ‘‘wraparound’’ services.

Comment: One commenter believed

that HCFA should require the State to

have procedures for monitoring training

(of both beneficiaries and providers).

Response: We believe the fact that

under § 438.218, the information

requirements in § 438.10 are part of the

State’s quality assurance program

provides assurance that the State will

have to monitor the training and

education of beneficiaries with respect

to their enrollment and participation in

MCOs or PCCMs. Furthermore we have

clarified with (e) what has always been

our expectation; namely that States

monitor contract compliance. Such a

requirement implicitly includes the

monitoring of beneficiary education. We

believe that with respect to provider

training, it is the responsibility of the

State to ensure that MCOs, PHPs, or

their subcontractors have the requisite

training and information for program

participation.

Comment: One commenter requests

that States be required to monitor

samples of all notices sent to the

enrollee by the MCO, PHP, or PCCM,

and by all subcontractors.

Response: HCFA believes that the

requirement at 438.700, which makes a

plan’s or subcontractor’s distribution of

materials that are not State-approved

subject to sanctions addresses the

concern raised by this commenter. Such

a requirement implicitly includes the

State’s monitoring of materials sent to

beneficiaries by the MCOs, PHPs or

PCCMs. This also would be the subject

of monitoring under § 438.66(e).

Comment: We received a number of

general comments on the need for

greater understanding of persons with

special health care needs by MCOs and

their providers. Specifically, in the area

of coverage and authorization, a

commenter contended that the managed

care industry has very little knowledge

of the needs of persons with disabilities.

commenters further argued that the

importance of certain services is often

overlooked by the managed care

industry. Another commenter argued

that we should require MCOs to make

every effort to provide training and

education for their practitioners on the

diagnosis of certain conditions such as

HIV and AIDS. We also received

comments on the need for MCO

providers to have appropriate

knowledge and skills to treat adults and

children with special health care needs,

including recipients with mental illness,

substance abuse problems,

developmental disabilities, functional

disabilities, and complex problems

involving multiple medical and social

needs. One commenter specifically

recognized the need for MCO

recognition of the unique needs of the

homeless population.

Response: Based on comments

described here and other general

comments requesting additional

consumer protections for persons with

specific conditions or disabilities, we

are persuaded that additional

requirements are necessary to ensure

appropriate education of all managed

care entities and providers on the

unique care needs of special needs

populations. Accordingly, the final rule

with comment period contains a new

§ 438.68 Education of MCOs, PHPs, and

PCCMs. This section requires that the

State agency have in effect procedures

for educating the MCO, PHP, and PCCM

and any subcontracting providers about

the clinical and non-clinical service

needs of enrollees with special health

care needs.

C. Subpart C (Enrollee Protections)

Proposed subpart C set forth a variety

of enrollee protections including the

following: (1) requiring information on

benefits be specified (proposed

§ 438.100); (2) rights concerning

provider communications with

enrollees (proposed § 438.102); (3)

limits on marketing activities (proposed

§ 438.104); (4) limits on enrollee

liability for payment (proposed

§ 438.106) and cost-sharing (proposed

§ 438.108); (4) an obligation for MCOs

and PHPs to provide assurances of

adequate capacity (proposed § 438.110);

(5) rights in connection with emergency

and post-stabilization services

(proposed § 438.114); and (6) MCO

solvency standards (proposed

§ 438.116).

1. Benefits (§ 438.100)

As proposed, § 438.100 required that

Medicaid contracts between States and

MCOs specify the benefits the MCO is

responsible for providing or making

available to Medicaid enrollees. The

proposed section also required States to

make arrangements for furnishing those

State plan services that MCOs were not

responsible to provide under the

contract, and to give written information

to enrollees on how and where they may

obtain these additional services. Many

commenters were confused by this

section because it duplicated provisions

in other sections. To eliminate

duplication, the requirements in

proposed § 438.100 have been

incorporated into other sections, notably

§ 438.10, Information requirements;

§ 438.206 Availability of services; and

§ 438.210 Coverage and authorization of

services. The requirement in proposed

§ 438.100(a) that contracts specify the

services the entity is required to provide

to Medicaid enrollees is now set forth in

§ 438.210(a)(1). The requirement in

proposed § 438.100(b) concerning the

State’s obligations to services not

covered under the contract is now set

forth in § 438.206(c), while the

requirement to provide information to

enrollees and potential enrollees is in

§ 438.10(d)(2)(ii)(E), § 438.10(e)(2)(vii),

and § 438.10(g).

We have moved the requirements

relating to enrollee rights from proposed

§ 438.320 to § 438.100. Throughout the

preamble, we have responded to

comments according to their numerical

sequence in the proposed rule. This

section only addresses responses to

comments regarding proposed § 438.100

(Benefits). Comments and responses

relating to the enrollee rights are now in

§ 438.100 but were in the proposed

§ 438.320 are discussed in section II. D.

6270 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

below in the discussion of comments on

the subpart in which these enrollee

rights appeared in the proposed rule. In

this final rule with comment period the

content of proposed subpart E has been

redesignated as subpart D with sections

redesignated from the 300 series to the

200 series.

Comment: One commenter believed

that we went beyond the authority in

the statute by requiring the contract to

specify the services the MCO, PHP, or

PCCM is required to provide.

Response: We believe that the

commenter apparently read the

proposed rule to preclude States from

incorporating the description of the

benefits covered under the contract by

referencing a separate document

describing the benefits (for example, a

provider agreement). However, the

proposed rule was not intended to

prohibit accepted methods of

incorporating substantive contract

provisions by cross-referencing separate

documents. The reference documents

must be sufficiently detailed to make

clear to all parties the types and scope

of the services for which the MCO is

responsible.

Comment: Several commenters urged

that we require States to include

specific contract language holding

MCOs responsible for the early

prevention, screening, diagnosis and

treatment (EPSDT) of eligible enrollees

through the full scope of EPSDT benefits

required under States’ Medicaid plans.

Commenters also expressed the view

that States must make arrangements for

providing at no cost to enrollees EPSDT

services and benefits that are not

covered or are not provided by the

entities in accordance with the contract.

Response: These issues are addressed

in section II. D. below in responses to

similar questions raised with respect to

§ 438.210 Coverage and authorization of

services and § 438.206(c) Availability of

services.

Comment: Commenters strongly

recommended that we clarify that

contract language must address MCO,

PHP, or PCCM and State agencies’ roles

for case management when covered

services overlap with services that are

not the responsibility of the MCO, PHP

or PCCM to provide or to make

available. Some of the commenters

noted that mental health services for

chronic conditions are frequently not

included under MCO, PHP, or PCCM

contracts. Without clear delineation of

responsibility between the mental

health services provided by the entity

and those covered outside the MCO,

PHP, or PCCM, enrollees may not

receive the services they are entitled to

receive under the State plan.

Response: We agree that coordination

of care is an important component of

managed care and that coordination

may be challenging because an MCO

may not cover all of the services

included in the State plan. To ensure

that care is appropriately coordinated,

§ 438.208(h)(7) of this final rule with

comment period requires that each MCO

and PHP implement a program to

coordinate the services it furnishes to

the enrollee with the services the

enrollee receives from any other MCOs

or PHPs. In section 438.10(d)(2)(i)(C),

we also require that the information

furnished to potential enrollees include

general information about MCO

responsibilities for coordination of care.

Comment: One commenter

recommended that a mechanism be

established to assist enrollees with

obtaining the services they are entitled

to under the State plan, but that are not

covered by the MCO, PHP, or PCCM.

Proposed § 438.100 required States to

give enrollees written instructions on

how to obtain those services, but it did

not specify how enrollees would know

to contact the State for instructions.

Response: Proposed § 438.100(b) set

forth the State’s obligation to make

services under the States plan available

and give enrollees instructions on how

to obtain them, but did not specifically

address the general provision of

information to beneficiaries on this

obligation as required under section

1932(a)(5)(D) of the Act, Information on

Benefits not Covered. As noted above, in

§ 438.10(d)(2)(ii)(E), § 438.10(e)(2)(vii),

and § 438.10(g) of this final rule with

comment period, we address the

information requirements relating to

availability of services, and specify that

this information include information

about benefits that are available under

the State plan but not covered under the

contract, including how and where the

enrollee may obtain these benefits, any

cost sharing, and how transportation is

provided.

Comment: Several commenters urged

that MCO, PHP, or PCCM contracts

specify the services that the entity is to

provide to Medicaid enrollees. For those

Medicaid services that are not included

in the MCO, PHP, or PCCM contract, the

commenters believed that the State

should make arrangements for providing

those services and give enrollees written

instruction on how to obtain them.

Another commenter found the meaning

of the term ‘‘arrangement’’ in proposed

§ 438.100(b) unclear.

Response: Proposed § 438.100(a)

required that MCO contracts (and

§ 438.8(d) PHP contracts) specify the

services that have to be provided to

Medicaid enrollees. In this final rule

with comment period, this requirement

is in § 438.210(a). In proposed

§ 438.100(a), we did not require that

PCCM contracts specify this

information, this was an error, since

section 1932(b)(1) of the Act requires

that PCCM contracts ‘‘specify the

benefits the provision (or arrangement)

for which the PCCM is responsible.’’

Section 1932(a)(5)(D) of the Act sets

forth the obligation to inform enrollees

in an entity of services ‘‘not made

available to the enrollee through the

entity,’’ and of ‘‘where and how

enrollees may access’’ benefits, applies

to ‘‘managed care entities,’’ or ‘‘MCEs’’

(a term that includes both MCOs and

PCCMs). We therefore are including

PCCMs in § 438.210(a)(1) (which

contains the requirement that contracts

specify covered services that was in

proposed § 438.100(a)) and § 438.206(c)

(which contains the State obligation

formerly in proposed § 438.100(b)).

With respect to the requirement that

information be provided on what State

plan services are not covered by the

contract, and how and where enrollees

may obtain services, proposed

§ 438.10(g) already extended this

requirement to PCCMs. This is retained

in § 438.10(g) of this final rule with

comment period.

Proposed § 438.100(b) provided that

States must make ‘‘arrangements’’ for

furnishing services not covered under

the contract with the MCO. We agree

with the last commenter that the term is

unclear. Therefore, in § 438.206(c), we

provide that if an MCO contract does

not cover all of the services under the

State plan, the State must make

available those services from other

sources and provide to enrollees

information on where and how to obtain

them, including how transportation is

provided. We interpret the phrase

‘‘make available from other sources’’ to

mean that the State must directly pay

for the service through a fee-for-service

contract or contract with another

organization to provide the service.

Comment: One commenter

recommended that the representative

payee or other responsible person be

included in dissemination of

information advising enrollees on how

and where to access these additional

benefits.

Response: We did not adopt the exact

language recommended. The

information requirements in § 438.10

provide for informing authorized

representatives.

2. Enrollee-Provider Communications

(§ 438.102)

Medicaid beneficiaries are entitled to

receive from their health care providers

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6271

the full range of medical advice and

counseling that is appropriate for their

condition. Section 1932(b)(3) of the Act

added by the BBA clarifies and expands

on this basic right by precluding an

MCO from establishing restrictions that

interfere with enrollee-provider

communications. In § 438.102 of the

proposed rule, we provided a definition

of the term ‘‘practitioner’’ and outlined

the general rule prohibiting interference

with provider-enrollee communications.

We also specified that this general rule

would not require the MCO to cover,

furnish or pay for a particular

counseling or referral service if the MCO

objects to the provision of that service

on moral or religious grounds, and

provides information to the State,

prospective enrollees, and to current

enrollees within 90 days after adopting

the policy with respect to any particular

service.

Comment: Several commenters found

the definition of ‘‘practitioner’’ at

§ 438.102(a) too restrictive and felt that

it needed to be expanded to include

professionals as: dental hygienists;

marriage, substance abuse, and family

counselors; interns; licensed psychiatric

technicians; and pharmacists. One

commenter pointed out that the

proposed definition referred to a limited

number of providers and excluded

several of those referenced in the

statute. Commenters recommended

either adding those professions

referenced in the statute or specifying

that those listed in the regulations

served as examples only. Another

commenter suggested adding

‘‘including, but not limited to’’

language.

Response: Section 1932(b)(3)(C) of the

Act provides an exact list of professions

that are covered under this provision. In

the proposed rule, we erroneously

omitted several classes of professionals

that were included in the statute.

Therefore, we have revised § 438.102(a)

to mirror the list contained in the

statute. We have also replaced the term

‘‘practitioner’’ with ‘‘health care

professional’’ in order to be consistent

with the statute.

Comment: One commenter expressed

concern that proposed § 438.102(b) did

not require that State contracts with

MCO or MCO contracts with providers

be made available for public viewing.

Response: In this final rule with

comment period, we do not require that

contracts be made available to the

public because doing so may deter

MCOs from bidding on Medicaid

contracts and may result in States not

getting the best price. However, in

§ 438.10(f)(5), we have required that

States and MCOs make available, upon

request, information relating to the type

of compensation arrangements that

physicians have with MCOs and States.

Comment: Several commenters

preferred the language included in the

Medicare+Choice regulation

implementing statutory authority for

protecting provider-enrollee

communications that is similar to that

in the BBA for Medicaid. The

commenters believed that the

Medicare+Choice provisions in

§ 422.206 are more encompassing than

those in proposed § 438.102 because

they also bar Medicare+Choice

organizations from—(1) restricting

providers from advocating on the

patient’s behalf; (2) prohibiting

providers from sharing information

regarding alternative treatment; and (3)

prohibiting providers from discussing

the risks, benefits, and consequences of

treatment or lack of treatment, and the

opportunity for the enrollee to refuse

treatment or express preferences for

future treatment. The commenters also

state that violations are subject to

Federal sanctions. Two commenters

stressed that providers must be free of

all restrictions on communicating with

enrollees and be able to provide

complete information on all treatment

options.

Response: We agree with the

commenters who favor the approach

taken in the Medicare+Choice

regulations and have revised

§ 438.102(b) to parallel the requirements

in § 422.206. We note that since the

intermediate sanctions in subpart I

apply only to MCOs, the new paragraph

referring to sanctions applies only to

MCOs.

Comment: Some commenters

suggested that we reinforce the fact that

a health care professional cannot be

prevented from furnishing needed

information to patients during the

course of routine primary and

preventive care visits or other treatment.

These commenters expressed concern

about language in the preamble to the

proposed rule which states that, ‘‘ an

MCO may not limit a provider’s ability

to counsel or advise an enrollee on

treatment options that may be

appropriate for the enrollee’s condition

or disease, unless the terms of

§ 438.102(c) apply and are satisfied.’’

Specifically, the commenters requested

that we remove reference to

§ 438.102(c).

Response: We agree with the

commenters that the preamble language

was misleading in implying that

§ 438.102(c) would permit an MCO to

actually prevent a provider from

providing counseling. We have revised

§ 438.102 in this final rule with

comment period so that it is clear that

§ 438.102(c) only relieves an MCO from

being required to provide, arrange, or

pay for counseling or referrals as the

result of the prohibition in

§ 438.102(b)(1), but does not give the

MCO the right to prevent a physician

from giving counseling if the physician

is willing to forego any payment that

may be associated.

Comment: One commenter

recommended allowing an enrollee to

terminate or change enrollment at any

time after they receive notification that

an MCO will exercise its right under

§ 438.102(c) not to provide, reimburse,

or provide coverage of a counseling or

referral service that is provided as the

result of the requirement in

§ 438.102(b).

Response: We agree with the

commenter. Section 438.56(d)(2)(ii) of

this final rule with comment period

provides that if an MCO does not

provide a service because of moral or

religious objections (whether pursuant

to § 438.102(c), or otherwise) the

enrollee may disenroll for cause. It is

important to note that regardless of

whether the MCO covers a certain

service that is included in the State

plan, the enrollee will have access to

that service. If an MCO contract does

not cover all of the services under the

State plan (regardless of the reason) the

State must make available those services

from other sources. In addition, the

Medicaid statute guarantees freedom of

choice for family planning services so

an enrollee may always seek services

out-of-network. Therefore, we permit

enrollees to disenroll if services are not

covered because of moral or religious

objections. We emphasize that

disenrollment is not necessary in order

to access the services.

Comment: Most commenters

supported the conscience clause

provision at proposed § 438.102(b)(2)

which provides that, subject to certain

information requirements, an MCO is

not required to provide, reimburse for,

or provide coverage of a counseling or

referral services furnished as the result

of the rule in § 438.102(b)(1) if the MCO

objects on moral or religious grounds.

However, several commenters objected

to the policy that MCOs may elect not

to provide coverage for some services

that are included in the State plan. They

stated that if the MCO objects to a

Medicaid-covered service on moral or

religious grounds, it is their

responsibility to arrange for coverage

through subcontracts or by providing

access to the service out-of-network.

Others stated that to allow MCOs to pick

and choose what services they will be

responsible for runs counter to how

6272 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

managed care contracts are designed

and bid out. This provision would in

these commenters’ view complicate bid

pricing and evaluation, increase

administrative costs to the State (to

make separate arrangements for these

services and provide notice to

beneficiaries), and could be confusing to

beneficiaries.

One commenter believed that the

proposed rule creates an undue burden

for enrollees who are seeking family

planning services and disrupts their

continuity of care, and that these

disruptions could result in lower quality

of family planning care for women.

Commenters recommend either

removing the conscience protection

provisions or changing the regulation to

allow States to require MCOs that have

moral objections to providing certain

services to obtain them through

subcontracts or out-of-network

arrangements.

Response: We do not have the

authority to delete the conscience

protection provision because it is

required by section 1932(b)(3)(B) of the

Act. However, this conscience provision

alone would not by itself permit an

MCO to avoid providing a State plan

service that it has contracted to provide.

As noted in the preamble to this final

rule with comment period, the

conscience protection in section

1932(b)(3)(B) of the Act only protects an

MCO from being required to pay for

something as the result of the rule in

section 1932(b)(3)(A) of the Act. Section

1932(b)(3)(B) of the Act begins with the

words ‘‘Subparagraph (A) shall not be

construed as requiring a Medicaid

managed care organization to provide,

reimburse for, or provide coverage of, a

counseling or referral service’’, if the

MCO objects and gives the required

notice. This is an exception to the

obligations under paragraph (A), not a

‘‘blanket’’ authority to decline to cover

services the MCO would otherwise be

obligated to provide. As noted in section

II. B above, however, unlike a

Medicare+Choice organization, that

must contract to provide Medicare

services, a Medicaid contracting MCO is

free to negotiate with the State over

which services it will provide. Clearly,

section 1932(a)(5)(D) of the Act

(requiring that certain arrangements be

made with respect to State plan services

not furnished through an MCO or

PCCM) contemplates an MCO’s right to

decide which State plan services to

agree to include in its contract. An MCO

that objects to covering a State plan

service would not agree in the contract

to provide that service. In such a case,

the State is clearly obligated to ensure

the availability of the service out of

plan. If the MCO did agree to provide

a State plan service under its contract,

it could not attempt to ‘‘change its

mind’’ by relying on the ‘‘conscience

protection’’ in section 1932(a)(3)(B) of

the Act, since its obligation to provide

the State plan service would be

pursuant to its contract, not section

1932(a)(3)(A) of the Act. It is important

to note that under existing regulations,

MCOs may not restrict an enrollee’s

freedom of choice with respect to family

planning services. In other words,

enrollees may always seek family

planning services out-of-network.

Comment: Commenters expressed

concern about how enrollees will

receive notice of an MCO change in

policy. One commenter recommended

linking this requirement with the

information requirements in § 438.10(c),

which requires plans to use easily

understood language and format and

take into consideration the special

needs of those, for example, are visually

impaired or have limited reading

proficiency. Others recommended that

we explain how an MCO should provide

notice to ensure enrollees are

adequately informed.

Response: We agree with the

commenters that the information

furnished to enrollees and potential

enrollees under this section should be

governed by the same rules as the

information furnished under § 438.10.

Therefore, we have revised § 438.102(c)

to require that the information furnished

under this section be ‘‘consistent with

the provisions of § 438.10.’’

We believe that it is critical that

enrollees and potential enrollees have

sufficient information to understand

how and where to obtain a service that

is not covered by the MCO. This

responsibility is shared by the MCO and

the State. As discussed in section II. A.

above under § 438.10(e)(1)(ii), an MCO

or PHP must inform potential enrollees

of any ‘‘significant’’ change in the

information in § 438.10(e)(2) at least 30

days prior to the change. Section

438.10(e)(2) includes a description of

what services the MCO or PHP covers.

This advance notice requirement would

ordinarily apply to a change in what the

MCO or PHP would cover. While

section 1932(a)(3)(B) of the Act requires

only that notice be provided within 90

days after a decision was made not to

cover something under its provisions,

and meeting this condition would

permit an MCO to qualify for the

exception in section 1932(a)(3)(B) of the

Act. We believe that the general rule in

§ 438.10(e)(1)(ii) should continue to

apply, and are revising

§ 438.102(b)(1)(B) to clarify this fact.

Comment: Commenters were

concerned that public entities may want

to exercise the conscience protection

exception at § 438.102(c), which the

commenters believe could violate the

Constitution (presumably because the

first amendment ‘‘establishment clause’’

would prevent a public entity from

citing a ‘‘religious’’ objection to covering

a service). These commenters

recommended that we state that public

entities that sponsor or operate MCOs

cannot assert moral or religious

objections, and thus decline to provide,

reimburse for, or provide coverage of

any counseling or referral service.

Response: We have not incorporated

the commenters suggestion because

section 1932(b), (3)(B) of the Act and

§ 438.102(c) are not limited to an

objection on ‘‘religious’’ grounds, but

also on ‘‘moral’’ grounds, and there is

nothing to preclude a governmental

entity from expressing a moral

objection. However, there is no basis in

the BBA for making a distinction

between public and private MCOs in

this area.

Comment: One commenter was

concerned that subcontractors may not

be required to adhere to the provisions

of § 438.102 regarding enrollee-provider

communications. The commenter

suggested that subcontractors should

expressly be covered as they were in

proposed § 438.310(b)(1), which

explicitly sets forth requirements for

‘‘the MCO and its subcontractors.’’

Response: In § 438.6(l) of this final

rule with comment period, we state that

all subcontracts must fulfill the

requirements of this part that are

appropriate to the service or activity

delegated under the subcontract. In

addition, § 438.230 provides that for all

1903(m) contracts, ‘‘the State must

ensure that each MCO oversees and is

accountable for any functions and

responsibilities that it delegates to any

subcontractor * * *’’. We believe that

the combination of these two provisions

satisfies the commenter’s concerns and

that additional subcontractor language

is not needed in § 438.102.

Comment: One commenter indicated

that § 438.102 does not address

enforcement mechanisms nor remedies

for providers that believe they were

penalized or terminated by the plan for

providing information to an enrollee.

The commenter suggest that we provide

these enforcement mechanisms.

Response: If providers believe that an

MCO has violated the requirements of

section 1932(b)(3)(A) of the Act and

§ 438.102(b), they should bring this to

the attention of the State Medicaid

agency, which could then investigate

the situation and determine whether to

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6273

impose sanctions under § 438.102(e)

and § 438.700(d). We believe that this

sanction authority provides a sufficient

enforcement mechanism.

3. Marketing (§ 438.104)

In accordance with section 1932(d)(2)

of the Act, proposed § 438.104 set forth

requirements for, and restrictions on,

marketing activities by MCO, PHP and

PCCMs. (The regulations text referred to

‘‘MCEs,’’ includes MCOs and PCCMs

and proposed § 438.8(d) made the

requirements applicable to PHPs.).

Proposed § 438.104 included definitions

of ‘‘choice counseling’’, ‘‘cold-call

marketing’’, ‘‘enrollment activities’’,

‘‘enrollment broker’’, ‘‘marketing

materials’’, and ‘‘recipient and potential

recipient.’’ The definitions related to

enrollment broker functions (‘‘choice

counseling,’’ ‘‘enrollment activities,’’

and ‘‘enrollment broker’’) were included

in error and have in this final rule with

comment period been moved to

§ 438.810, Expenditures for Enrollment

Broker Services. We also proposed

requirements and prohibitions for MCO,

PHP, or PCCM contracts. Specifically,

§ 438.104(b)(1) proposed that the

contract must specify the methods by

which the entity assures the State

agency that the marketing plans and

materials are accurate and do not

mislead, confuse, or defraud the

recipients or State agency. Section

438.104(b)(2) proposed restrictions on

MCO, PHP, or PCCM contracts, which

are discussed in detail below. Section

§ 438.104(c) proposed to require the

State to consult with a MCAC or an

advisory committee with similar

membership in reviewing marketing

materials. Comments we received on

these issues and our responses follow.

a. General Comments

Comment: Proposed § 438.8(d)

provided that the error of subpart C,

including § 438.104 applies to PHPs to

the same extent that the sections apply

to MCOs. Section 438.104 only includes

references to managed care entities

(MCEs) which appears to mean the

section is not applicable to PHPs.

Response: The marketing rules set

forth in § 438.104 apply to MCOs,

PCCMs and, as specified in § 438.8(d),

to PHPs as well. Given the confusion

reflected in this comment, throughout

this final rule with comment period, we

have revised the regulation text to

indicate in each requirement whether it

applies to PHPs, while also retaining

§ 438.8.

Comment: One commenter believed

that we should establish specific and

significant monetary fines for coercive

or unethical marketing practices.

Response: Many States have already

determined what marketing violations

are punishable and have set significant

fines or sanctions. In addition, § 438.700

requires States that contract with MCOs

to establish intermediate sanctions and

includes as reasons for imposing these

sanctions: (1) discrimination among

enrollees based on health status or need

for services; (2) misrepresenting or

falsifying information furnished to

either the State, enrollees, potential

enrollees, health care providers or us;

and (3) distributing marketing materials

that have not been approved by the

State, or that contain false or materially

misleading information. States have the

flexibility to impose sanctions or

restrictions as they find appropriate. In

addition, § 438.730 allows us to impose

a sanction either based upon a State

agency’s recommendation, or directly.

Comment: Several commenters urged

HCFA to prohibit other types of

marketing, and require more strict

oversight of MCOs’’, PHPs’’, and

PCCMs’ activities.

Response: Some degree of flexibility

is needed if MCOs, PHPs, and PCCMs

are to continue offering Medicaid

products in a competitive environment.

Section 438.104(b)(2)1)(i) requires States

to review and approve all marketing

materials prior to distribution, and

§ 438.104(b)(2) requires assurances that

marketing materials do not confuse,

mislead or defraud. Section

438.104(b)(1)(v) prohibits specific

marketing practices, such as door to

door, telephone, or other ‘‘cold call’’

marketing. It is not clear what ‘‘other

types of marketing’’ would warrant a

prohibition. Therefore, we do not

believe that additional regulatory

requirements are necessary.

Comment: Commenters suggested that

we revise the preamble to indicate that

the marketing limitations apply to

homeless shelters as well as other

institutional settings. The commenters

believe that it is not appropriate to

approach homeless people, and that

strong Federal protection is needed.

Response: The general prohibition on

‘‘cold call’’ marketing would prohibit

‘‘approaching’’ homeless people in a

shelter (or elsewhere) or other

institutionalized individuals. We agree

with the commenters, and are stating

here that all limitations on marketing

apply equally in these settings.

Comment: One commenter indicated

that it makes little sense to mandate

choice of an MCO when under the

proposed regulation, MCOs may not use

marketing to effectively differentiate

their Medicaid products and compete

for greater enrollment.

Response: We do not believe that

these marketing rules unfairly restrict an

MCO, PHP, or PCCM’s ability to

compete in the marketplace. We do not

prohibit all types of marketing activity.

States may permit MCO, PHP, and

PCCMs to—(1) participate in health fairs

and community presentations; (2) use

various forms of ‘‘broadcast’’

advertising; (3) send mailings to

potential enrollees; (4) respond to

individual requests for information; and

(5) engage in other activities as long as

they are approved and subject to

sufficient oversight. Even where MCOs,

PHPs, and PCCMs have similar

structures and networks, it is possible

for them to offer additional benefits, for

example, child care to differentiate one

MCO, PHP, or PCCM from another. In

addition, MCOs, PHPs and PCCMs can

provide results of enrollee satisfaction

surveys, report cards, or other types of

information on quality of care to

potential enrollees.

b. Cold-Call Marketing

Proposed § 438.104(a) defined coldcall marketing as any unsolicited

personal contact by the MCO, PHP, or

PCCM with a potential enrollee for the

purpose of influencing the individual to

enroll in that particular MCO, PHP, or

PCCM. Cold-call marketing includes

door-to-door, telephone or other related

marketing activities performed by

MCOs, PHPs, or PCCMs and their

employees (that is, direct marketing) or

by agents, affiliated providers, or

contractors (that is, indirect marketing).

In the preamble to the proposed rule, we

noted that cold-call marketing includes

activities as a physician or other

members of the medical staff, or a

salesperson, or other MCO, PHP, or

PCCM employee or independent

contractor approaching a beneficiary in

order to influence a beneficiaries

decision to enroll with a particular

MCO, PHP, or PCCM. In proposed

§ 438.104(b)(2)(v), we expressly

prohibited MCO, PHP, or PCCMs from

directly or indirectly engaging in doorto-door, telephone, or other cold-call

marketing activities.

Comment: One commenter felt that

the definition of ‘‘cold-call marketing’’

could inadvertently prohibit appropriate

marketing activities, for example, direct

contact at health fairs and communitybased organization offices.

Response: The prohibition on coldcall marketing only applies to

‘‘unsolicited’’ contact by the MCO, PHP,

or PCCM. For example, if a beneficiary

attends a health fair or similar event, the

beneficiary would be seeking

information about health care and,

therefore, the contact between the MCO,

6274 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

PHP, or PCCM and the beneficiary

would not be considered ‘‘unsolicited.’’

We note, however, that MCO, PHP, or

PCCM participation in health fairs and

other community activities is

considered marketing and, therefore,

must have the State’s approval.

Comment: Commenters suggested that

we return to the statutory language

defining cold-call marketing. The

commenters’ rationale was that because

the regulations apply to voluntary as

well as mandatory programs, the

prohibited activities would preclude

viable enrollment numbers.

Another commenter contended that

the proposed definition of ‘‘direct

marketing’’ went beyond the statutory

prohibition of ‘‘cold-call’’ marketing.

Another commenter believed that the

restriction against providers attempting

to influence patients’ choice could

severely limit opportunities for MCOs,

PHPs, and PCCMs to attract members

and might unintentionally create an

unlevel playing field because this sort of

marketing is currently conducted by

PSOs, hospital systems, and providers

with a particular interest in one health

plan.

Response: Section 1932(d)(2)(E) of the

Act prohibits direct or indirect door-todoor, telephonic, or other ‘‘cold-call’’

marketing of enrollment. These

provisions were added to the Act by

section 4707 of the BBA, Protections

Against Fraud and Abuse. Our

interpretation of the Congress’ intent is

that the statutory language was meant to

minimize the potential for abusive

marketing practices in both voluntary

and mandatory programs. Specifically,

we interpreted the term ‘‘direct

marketing’’ to mean marketing by an

MCO, PHP or PCCM or its employees;

the term ‘‘indirect marketing’’ to mean

marketing by an MCO, PHP, or PCCM,

or its agents, affiliated providers, or

contractors. The terms ‘‘door-to-door’’

and ‘‘telephonic’’ marketing are selfexplanatory. We interpreted the term

‘‘other cold-call marketing’’ as other

unsolicited contacts. If the Congress

intended to prohibit only unsolicited

door-to-door or telephone contacts, the

‘‘other’’ forms would not have been

included in the prohibition. There are

several other types of marketing that are

permitted under this regulation. For

example, States may permit the use of

billboards, newspaper, television, and

other media to advertise MCOs, PHPs,

MCOs, or PHPs. Mailings are also

permitted as long as they are distributed

to the MCO’s, PHP’s, or PCCM’s entire

service area covered by the contact.

States may also provide marketing

materials on behalf of MCOs, PHPs, and

PCCMs.

Comment: Several commenters, while

indicating support for the ban on doorto-door, telephonic and other cold call

marketing, expressed concern over the

inclusion of physician activities

including approaching a beneficiary to

influence a decision to enroll with a

certain plan. The commenters

considered it inappropriate to place any

limits on information provided to a

beneficiary within the context of a

doctor-patient relationship. Another

commenter stated that the prohibition

on contact by affiliated physicians and

medical staff seems to conflict with the

need to preserve continuity of care

between patients and providers. The

commenters observed that, although

these providers may have incentives to

recruit patients, these incentives must

be balanced against the desire of many

Medicaid patients to continue seeing

providers with whom they have

established a relationship.

Response: There is no prohibition

against a physician responding to a

patient’s request for advice in the

context of the doctor-patient

relationship, or identifying all MCOs,

PHPs, or PCCMs with which the

physician has a contract. The intent of

§ 438.104(b)(1)(v) is to prohibit

unsolicited marketing activities.

Medical advice given as part of a doctorpatient relationship is not considered

marketing. Our definition of cold-call

marketing as ‘‘unsolicited’’ leaves

patients free to seek out the advice of

their providers. However, the cold call

prohibition would prevent providers or

their staff from approaching a patient

about choosing an MCO, PHP, or PCCM.

Providers are often members of several

MCOs, PHPs, and PCCMs and

permitting them to approach a member

about any particular MCO, PHP, or

PCCM could give the appearance of

influence by factors not necessarily in

the best interests of the patient.

Comment: One commenter called the

cold-call provision ‘‘overly restrictive’’

and felt that it presented serious

problems for MCOs, PHPs, and PCCMs

that use clinic-based community

providers. The commenter also felt that

the regulation contradicted the

proposed default assignment process

because States are expected to assign

individuals to existing providers and

these providers would be restricted from

giving information to assist in the

process. The commenter recommended

that participating physicians be

permitted to provide approved

informational materials about plans in

which they participate to patients in

their offices in an unbiased, nonthreatening manner, and that the State

monitor to ensure compliance.

Response: The default assignment

process is considered a State’s last resort

for matching a non-responding

individual with a provider. The fact that

an individual is in a physician’s office

inquiring about what MCOs, PHPs, or

PCCMs the provider participates in,

indicates that default assignment is not

likely to be necessary. However, if the

individual does not make a selection,

the office visit may facilitate the default

assignment process because, under

§ 438.50(f), the State’s default

enrollment process must seek to

preserve existing provider-beneficiary

relationships. In addition, a State may

choose to permit providers to display

approved materials about all plans in

which they participate. The regulation

only prohibits unsolicited personal

contact by any person or entity

representing a particular MCO, PHP, or

PCCM.

Comment: A commenter pointed out

that safety net providers often perform

outreach to uninsured individuals who

may be eligible for Medicaid. The

commenter believes that the marketing

prohibition could discourage providers

from promoting Medicaid enrollment. It

was suggested that a discussion on the

subject of maintaining an existing

provider relationship could be

interpreted as cold-call marketing. A

safety-net provider indicated that they

allow their physicians and medical staff

to discuss options and provide literature

supplied by MCOs, PHP, or PCCMs.

They felt that a patient’s physician often

provides the best assistance and

information for making an informed

decision.

Response: We encourage outreach to

those individuals who may be eligible

for Medicaid. However, outreach which

relates to establishing Medicaid

eligibility should be distinct from

marketing, which is considered to have

a bias in favor of one MCO, PHP, or

PCCM or provider option over another.

Medical staff will be assumed to be

acting in the best interest of the

beneficiary’s health when discussing or

encouraging a Medicaid application.

This activity would not be considered

marketing unless it also includes a

distinct attempt to encourage selection

of a particular MCO, PHP, or PCCM. If,

in the course of a discussion, a

beneficiary inquires about how to

continue seeing a particular provider,

there is no prohibition on providing

information on the MCOs, PHPs, or

PCCMs in which that provider

participates. On the other hand, contact

with an enrollee or potential enrollee by

any other person or entity on behalf of

a particular MCO, PHP or PCCM (prior

to establishing Medicaid eligibility or

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6275

selecting an MCO, PHP, or PCCM

option) will be considered marketing

and will be subject to State and Federal

scrutiny.

Comment: A commenter called the

restriction on physicians advising their

patients ‘‘an unnecessary gag rule’’ and

indicated that it would prevent a

physician from steering a severe

asthmatic to an MCO, PHP, or PCCM

that excels in managing asthma care.

The commenter also pointed out that

the rule would not prevent physicians

from ‘‘trashing’’ other MCOs, PHPs, or

PCCMs.

Response: A distinction should be

made between patient counseling based

on a patient’s request done by medical

staff on the basis of medical factors, and

steering, which may be based on

inappropriate factors such as

administrative or fiscal issues. Providers

are free to advise their patients, as

specified in § 438.102, and they may

respond to questions about the

availability of specific services from

MCOs, PHPs, or PCCMs with which

they are affiliated. States should keep in

mind, however, that medical staff

providing patient counseling may not

necessarily be aware of other factors,

such as health conditions of other

family members required to join an

MCO, PHP, or PHP or of areas in which

other MCOS, PHPS, or PCCMs may

excel.

We agree with the commenter that

negative marketing activities

(‘‘trashing’’) should also be addressed in

this regulation, and we have done so

through a new definition of ‘‘marketing’’

in § 438.104(a). Under this definition,

any communication by an MCO, PHP, or

PCCM (or any of its agents or

independent contractors) with an

enrollee or potential enrollee that can

reasonably be interpreted as intended to

influence that individual to decide to

enroll or re-enroll in that particular

Medicaid product, or either not to enroll

in or to disenroll from another MCO’s,

PHP’s, or PCCM’s Medicaid product

would be considered marketing and,

therefore, would be covered by this

regulation. We also have revised the

definitions of ‘‘marketing materials’’ and

‘‘cold call marketing to incorporate the

new marketing definition.

Comment: One commenter contended

that the language of the regulation was

inconsistent with the language in the

preamble because the regulation merely

prohibits unsolicited personal contact

by the MCO, PHP, or PCCM with a

potential enrollee for the purpose of

influencing the individual to enroll. The

commenter noted that the preamble

describes cold-call marketing as

unsolicited contact by an employee,

affiliated provider or contractor of the

entity. The commenter stated that the

language of the regulation was clear and

concise and did not require the

explanation in the preamble.

Response: In § 438.104(a), we state

that any reference to MCO, PHP, or

PCCM and entity includes ‘‘any of the

entity’s employees, affiliated providers,

agents, or contractors.’’ Therefore, the

regulatory language is consistent with

the preamble.

Comment: Commenters agreed with

the prohibition against providers

attempting to influence patients to join

a particular MCO, PHP, or PCCM.

However, the commenters pointed out

that it is difficult for States to detect this

type of activity.

Response: As systems have become

more sophisticated, new and more

effective methods of oversight continue

to evolve. The difficulty in detecting

certain inappropriate activities does not

relieve MCOs, PHPS, and PCCMs or

States from the obligation to protect the

interests of the beneficiary. Many

standard methods of monitoring

marketing, such as reviewing grievances

and appeals from beneficiaries and

providers, tracking enrollment and

disenrollment trends, and conducting

beneficiary surveys will help detect

patterns of aggressive or unfair

marketing practices.

Comment: A commenter expressed

concern that this provision unduly

restricts the ability of MCOs to educate

enrollees or potential enrollees about

managed care and does not focus on

group settings for example, schools, day

care centers, and churches, where MCOs

could target larger groups of Medicaid

enrollees. The commenter asked HCFA

to broaden the provision by giving

additional examples of State approved

activities.

Response: This regulation does not

prohibit educational activities on the

part of MCOs. However, any contacts

other than patient counseling by any

MCO, PHP, or PCCM staff or

representative would be considered

marketing, subject to State oversight.

The regulation does not prohibit States

from permitting MCOs, PHPs, or PCCMs

to market to groups, for example,

schools, churches, and day care centers.

States are responsible for approving and

monitoring these types of presentations

and ensuring that beneficiaries attend

voluntarily with knowledge that they

are attending a marketing presentation.

Comment: Another commenter

indicated that the definition of ‘‘coldcall marketing’’ might be too broadly

defined and should not apply to public

places where MCOs are engaging in

marketing practices approved by the

State.

Response: States may permit and

establish rules for marketing in public

places. However, States may not permit

uninvited personal solicitations in

public places, for example, eligibility

offices and supermarkets. Some States

allow representatives of available

MCOs, PHPs, and PCCMs to be in

eligibility offices or other locations on

certain days, or on a rotating basis to

answer questions and provide

information to beneficiaries. In these

situations, there should be provisions to

monitor contacts to ensure that

unbiased information is available about

all options and that beneficiaries are not

coerced. However, marketing or other

MCO, PHP, or PCCM representatives

who approach beneficiaries as they

enter or exit eligibility offices or other

public places, call at residences

uninvited, are considered cold-call

contacts and are not permitted.

Comment: One commenter expressed

concern that the regulation narrows

marketing options by restricting the role

of MCOs in community-based efforts.

Response: We believe the statute gives

States broad authority to determine

what marketing activities are permitted

with the exception of unsolicited

personal contacts by MCOs, PHPs, and

PCCMs or their representatives. States

are free to use MCOs in communitybased efforts. However, those efforts are

considered marketing, therefore the

materials (for example, activities and

presentations) are subject to State

review and approval.

Definition of Marketing Materials

In the NPRM, we proposed to define

marketing materials as materials that—

(1) are produced in any medium, by or

on behalf of an MCO, PHP, or PCCM; (

2) are used by the MCO, PHP, or PCCM

to communicate with individuals who

are not its enrollees; and (3) can

reasonably be interpreted as intended to

influence the individuals to enroll or reenroll in that particular MCO, PHP, or

PCCM.

Comment: Some commenters said that

the definition of marketing materials

should not include communication

intended to serve the needs of existing

enrollees and suggested that the

regulation be revised to clarify that

marketing materials are those materials

intended to influence non-enrollees to

join a particular MCO, PHP, or PCCM.

One commenter thought the definition

of marketing materials was incomplete

and should be changed to read ‘‘can

reasonably be interpreted as intended to

influence the individual to enroll or reenroll in that particular MCO, PHP, or

6276 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

PCCM.’’ Another commenter indicated

that the combination of requirements at

proposed § 438.104(a) (definition of

marketing materials) and proposed

§ 438.104(b)(2)(1) (prohibition on the

distribution of marketing material

without State approval) required States

to approve all marketing materials prior

to distribution, whether or not they are

targeted to Medicaid beneficiaries. It

was pointed out that this would be

administratively impossible and could

raise constitutional issues.

Response: We disagree with the first

commenters who favored limiting

marketing materials to those directed at

individuals who are not enrollees

(which was the position taken in the

NPRM), and agree with the second

commenter who endorsed the language

in the definition referring to influencing

individuals to ‘‘re-enroll.’’ In such a

case, the individual already is enrolled

and the portion of the definition

referring to ‘‘individuals not enrolled’’

conflicts with the language favored by

the commenter. We therefore have

removed the portion of the definition

limiting its applicability so that it is

clear that marketing materials include

those intended to influence both

enrollees and potential enrollees. States

retain the authority to interpret the term

and are responsible for evaluating

whether certain materials satisfy the

definition. States may interpret this

term broadly and determine that all

materials are subject to review, but we

assume that many States will determine

that routine correspondence (such as

appointment reminders) do not fall

within the definition of ‘‘marketing

materials’’ and therefore are not subject

to review.

We have incorporated the new

definition of marketing into the

definition of ‘‘marketing materials.’’

Comment: Commenters supported our

broad definition of marketing materials

and our efforts to ensure the accuracy

and truthfulness of the materials.

However, some commenters felt that an

absence of a clear definition of

marketing could mean that many

activities, for example, hiring

community residents to talk about the

benefits of belonging to a particular plan

or persuading neighbors to join a plan,

might not be covered. The commenters

indicated that a common usage

understanding of the term ‘‘materials’’

would not appear to include a

spokesperson or representative. They

also stated that it was unclear whether

paying neighbors to say nice things

about a plan would constitute cold call

marketing. They suggested that we

include a broad definition of marketing

and include examples of marketing, and

of false and misleading marketing. One

commenter suggested that the following

language, ‘‘inaccurate, false, or

misleading statements include, but are

not limited to, any assertion or

statement (whether written or oral)

that—(1) the beneficiary must enroll in

the MCO, PHP, or PCCM in order to

obtain benefits or in order not to lose

benefits; or (2) the MCO, PHP, or PCCM

is endorsed by the Federal government,

State government or us.’’ Another

commenter recommended that we

expand the regulation by requiring

States to review marketing materials to

ensure that MCOs do not imply that all

persons are required to enroll in

managed care in order to continue

receiving Medicaid benefits.

Response: The comments

recommending a ‘‘definition of

marketing’’ have been addressed by our

inclusion of a separate definition of

marketing in this final rule with

comment period. As noted above, we

have defined ‘‘marketing’’ as ‘‘any

communication, from an MCO, PHP, or

PCCM to an enrollee or potential

enrollee that can reasonably be

interpreted as intended to influence the

recipient to enroll or re-enroll in that

particular MCO’s, PHP’s, or PCCM’s

Medicaid product, or either not to

enroll, or to disenroll from another

MCO’s, PHP’s, or PCCM’s Medicaid

product.’’ We also agree that language

suggested by the commenter would be

helpful, and provide in § 438.104(b)(2)

that inaccurate, false, or misleading

statements include, but not limited to

any assertion or statement (whether

written or oral) that the beneficiary must

enroll in the MCO, PHP, or PCCM in

order to obtain benefits, not to lose

benefits, or that the MCO, PHP, or

PCCM, is endorsed by either the Federal

government, State government, similar

entities or us.

States are required to review and

approve all marketing materials under

§ 438.104(b)(1)(i). We expect this review

to include screening for misleading

information including any implication

that individuals who are not required to

enroll will lose their benefits if they do

not enroll. In addition, the revised

information provision at

§ 438.10(d)(2)(i)(B) requires that

beneficiaries must be informed prior to

selection of an MCO about which

populations are excluded from

enrollment, subject to mandatory

enrollment, or free to enroll voluntarily.

Comment: One commenter believed

that the definition of marketing

materials was too narrow because it did

not address materials developed by

State agencies (for example, the Office

of Mental Hygiene and the Office of

Developmental Disabilities) that

participate in informing and

encouraging potential enrollees about

managed care. The commenter

recommended that other parties have

the authority to refer materials being

used for marketing purposes to the

MCAC or similar reviewing body to

review and determine if the materials

are unbiased.

Response: Section 438.104 addresses

marketing materials that are produced

by or on behalf of an MCO, PHP, or

PCCM. To the extent that a State agency

such as those mentioned by the

commenter is acting as a PHP (for

example, as a provider of behavioral

health services under a ‘‘carve-out’’),

any materials it generates would be

subject to the requirements in § 438.104.

If, however, the agency has no stake in

where an individual enrolls, and is

essentially acting on behalf of the State

Medicaid agency, it is not clear what

‘‘bias’’ the agency would have that

would be detected by review. We

therefore do not believe that review of

such materials pursuant to § 438.104 is

necessary or appropriate.

We note that § 438.10 requires that all

information for enrollees and potential

enrollees meet language and format

requirements to facilitate understanding

and take into consideration special

needs. This applies to information

furnished by any State or local agencies.

States may choose to require the review

of materials other than those subject to

review as marketing materials under

§ 438.104.

Comment: A commenter suggested

that we require that marketing material

be distributed to the entire geographic

area at least 90 days prior to enrollment,

and only after the material is approved.

Response: The length of time needed

for distribution of marketing materials

may vary from State to State depending

on factors, for example, Medicaid

managed care penetration. Therefore,

we do not mandate specific time frames

for marketing activity. We encourage

States to carefully consider the timing of

the distribution of any marketing or

other materials to maximize informed

choice. The information provision at

§ 438.10(d)(1)(iii) requires that basic

information be provided within a time

frame that enables potential enrollees to

use the information in choosing among

available MCOs. With respect to

mandatory managed care programs, we

require States to establish standards and

time requirements for fully informing

and providing sufficient time to make

an informed choice.

In response to the last part of the

commenter’s concerns, the regulation

does require that all marketing materials

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6277

be reviewed and approved by the State

prior to distribution. Failure by an

MCO, PHP, or PCCM to submit

materials for review may result in

sanctions by the State in accordance

with § 438.700(c).

Comment: Several commenters asked

that we clarify requirements related to

reproductive health services. The

commenters believe that we should

require marketing materials to contain

clear and prominent information about

any reproductive health services not

covered by the plan. Commenters

recommended that marketing materials

specify any Medicaid-covered

reproductive health benefits that are not

provided by the plan and state that all

Medicaid beneficiaries have the right to

obtain family planning services and

supplies from any Medicaid

participating provider. They also

recommended that materials clearly

indicate which subcontracting entities,

for example, hospitals, medical groups,

or subnetworks restrict access to

reproductive health services.

Response: We agree with the

commenters that Medicaid beneficiaries

should have clear and complete

information on the availability of family

planning services. We have not,

however, included specific

requirements relating to family planning

services in this section. In § 438.10, we

require that the information furnished to

enrollees and potential enrollees specify

any benefits that are available under the

State plan but are not covered under the

contract, including how and where the

enrollee may obtain those benefits, any

cost-sharing, and how transportation is

provided. We have also revised the

information requirements to require that

the information furnished to enrollees

identify the extent to which, and how,

enrollees may obtain benefits, including

family planning services, from out-ofnetwork providers. We refer the

commenters to the comments and

responses for proposed § 438.10.

Comment: A commenter asserted that

the requirement that the State approve

marketing materials prior to distribution

would be difficult to implement because

of time constraints. The commenter

speculated that documents would have

to be provided at least 30 days in

advance and the State would incur

additional administrative burden and

costs. The commenter recommended

that legislative action be taken to delete

this requirement. Another commenter

stated that the regulations did not

specify that all health plan information

and marketing materials must be

approved by the State agency. The

commenter suggested that we mandate

strict requirements for accuracy and

disclosure and require State review of

all health plan information.

Response: The commenter is correct

that legislative action would be required

to eliminate the requirement for State

review and approval of marketing

materials under section 1932(d)(2)(A) of

the Act. We note that many States

already required prior approval of

marketing materials prior to enactment

of this requirement in the BBA. One

State commented that these provisions

posed no problem because its contracts

and marketing manual already

contained provisions that comply with

or exceed these requirements. We

believe that State review and approval

is extremely important and that any

burden should be offset by the

additional protections afforded

Medicaid beneficiaries. Marketing

materials for MCOs contracting with

Medicare undergo similar review prior

to distribution, so this provision aligns

Medicaid more closely with the

Medicare rules.

Comment: A commenter suggested

that marketing materials be made

available in formats other than Braille

for the visually impaired. The

commenter believes that States and

MCOs, PHPs, or PCCMs need flexibility

in determining the appropriate formats,

such as large print, audiotape or other

formats in addition to Braille.

Response: There is no requirement in

the regulations that marketing materials

be in Braille for the visually impaired.

The discussion of § 438.10 in the

preamble of the proposed rule stated

that all materials take into account

specific needs of enrollees and potential

enrollees, including furnishing

information in alternative formats for

the ‘‘visually impaired (through other

media for example, large print, Braille,

or audio tapes) * * *’’ (63 FR 52029).

Section 438.10(c)(2) requires that

materials be available in alternative

formats that take into consideration, for

example, the special needs of those who

are visually impaired or have limited

reading proficiency. States have the

flexibility to decide which formats are

most appropriate.

c. Requirements and Prohibitions

Proposed § 438.104(b) provided that

MCO, PHP, and PCCM contracts must

specify the methods by which the entity

assures the State agency that marketing

plans and materials are accurate and do

not mislead, confuse, or defraud

beneficiaries or the State. The proposed

rule also stated that MCO, PHP, and

PCCM contracts must provide that the

entity distribute materials to the entire

service area—(1) does not distribute

marketing materials without prior

approval; (2) complies with the

information requirements in § 438.10;

(3) does not seek to influence

enrollment with the sale of other

insurance; and (4) does not engage in

cold-call marketing.

Comment: Several commenters

believed that the language in proposed

§ 438.104 was vague, merely repeated

the statutory language, and provided

little concrete guidance to States or

MCOs, PHPs, and PCCMs. Commenters

suggested that we establish a detailed

review guide with specific criteria

developed with input from Medicaid

beneficiaries and their advocates and

that we review all MCO contracts for

their marketing plans.

Response: We currently have

marketing guidelines that will be

updated to reflect the requirements of

this final rule with comment period. In

developing these guidelines, we often

rely on prior implementation

experience, including input from

affected parties. We regularly use these

types of guidelines, as we review and

approve MCO, PHP, and PCCM

contracts.

Comment: One commenter argued

that it was unnecessary to require that

MCO, PHP, and PCCM contracts specify

the methods by which they will assure

that marketing materials do not mislead

or confuse. The commenter stated that

the requirement that marketing

materials be submitted to the State prior

to use would be sufficient to ensure the

desired outcome.

Response: We believe that both prior

approval and contract review provide

important beneficiary protections and

both are specifically required by the

law. Section 1932(d)(2)(A)(i) of the Act

specifically requires prior approval of

marketing materials by the State and

that the materials do not contain false or

misleading information. The

requirement that the contract contain

such assurances has been in § 434.36

since 1988, based on a provision of the

Act which the BBA did not remove.

States and MCOs should be used to

complying with this provision.

d. Service Area

Proposed § 438.104(b)(2)(ii) required

that marketing materials be distributed

to the entire service area.

Comment: One commenter applauded

this requirement stating that without it

health plans might attempt to engage in

preferential selection of enrollees by

excluding geographic areas where

Medicaid beneficiaries have higher

costs. The commenter believes that we

should expand this requirement to

ensure that MCOs, PHPs, and PCCMs do

not attempt similar preferential

6278 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

practices through other means, for

example, refusing to provide marketing

materials in certain languages,

developing marketing materials that are

difficult to understand, or by

distributing materials in ways or in

places that exclude people with

disabilities. The commenter

recommended that we state explicitly in

regulations that discrimination on any

of these bases is not permissible.

Another commenter suggested that

MCOs’, PHPs’, and PCCMs’ marketing

activities not be permitted to ‘‘red-line’’

certain areas of the community or

certain groups of people because

vulnerable populations, such as those

with mental retardation are often targets

for marketing ‘‘scams.’’

Response: We believe that the

commenters’ concerns are addressed in

other sections of the regulation. Section

438.10 specifies general requirements

that apply to all information furnished

to enrollees including requirements

relating to language and format. Section

438.6(d)(3) requires that MCO, PHP, and

PCCM contracts provide that the MCO,

PHP, or PCCM will not, on the basis of

health status or need for health services

discriminate against individuals eligible

to enroll. In addition, MCO, PHP, and

PCCM contracts must specify that the

MCO, PHP, or PCCM will not

discriminate against individuals eligible

to enroll on the basis of race, color, or

national origin, and will not use any

policy or practice that has the effect of

discriminating on the basis of race,

color, or national origin. In

§ 438.206(d)(7), we require the State to

ensure that an MCO ensure that its

providers do not discriminate against

Medicaid enrollees. We specifically

provided in § 438.100(d) that the State

must ensure that each MCO, PHP, and

PCCM complies with applicable Federal

and State laws, (for example, Title VI of

the Civil Rights Act of 1964, The Age

Discrimination Act of 1975, The

Rehabilitation Act of 1973, and Titles II

and III of the Americans with

Disabilities Act). We believe that these

sections sufficiently protect the

beneficiary against the discriminatory

practices identified by the commenter,

and therefore we have not incorporated

any additional changes into § 438.104.

Comment: Several commenters

believed that the service area

requirement in proposed

§ 438.104(b)(2)(ii) could impede an

MCO’s, PHP’s, or PCCM’s ability to

reach targeted populations with unique

needs or characteristics within service

areas. Commenters provided examples

such as mailings to certain zip codes

informing members of activities at a

hospital in their neighborhood and

mailings to specified non-English

speaking populations in the service

area. One commenter asserted that the

proposed policy makes distribution

problematic because services must be

provided in a culturally competent

manner but a marketing plan cannot be

varied to target specific populations. In

addition, a commenter explained that

States often allow new MCOs to begin

rolling out a program in certain counties

within the service area. The commenter

asserted that the proposed rule would

prohibit MCOs from mailing to just

those portions of the service area in

which they are allowed to enroll. Some

commenters believed that the proposed

requirement was unnecessary, unduly

burdensome and costly. One commenter

contended that because the proposed

definition of marketing materials

included billboards and media

advertisements, the ‘‘service area’’

requirement was unrealistic. One

commenter felt that the provision would

also inappropriately prohibit activities

such as health fairs if material

disseminated during these activities has

not been distributed to the entire service

area. Another commenter suggested that

MCOs, PHPs, and PCCMs be encouraged

to distribute materials where they have

current capacity to serve more members

and should be permitted to conduct

local advertising, such as that carried

out in collaboration with a particular

clinic or group practice where

appropriate. Another commenter

acknowledged the need to ensure that

MCOs, PHPs and PCCMs do not engage

in risk pool segmentation, but felt that

the regulation needed to be more

flexible to accommodate circumstances

where MCOs, PHPs, and PCCMs may

wish to communicate information about

locally available services to those

residing in subareas of the overall

service area.

One commenter recommended that

we require MCOs, PHPs and PCCMs to

distribute materials to all eligible

enrollees in a specified county or region

to avoid confusion to those in a

particular sector in which the marketing

materials do not apply. Some

commenters indicated that MCOs, PHPs,

and PCCMs, should have the ability to

tailor the form and style of marketing to

communicate effectively with

demographic subgroups of a service

area. Others suggested that the service

area-wide distribution requirement

apply just to MCO, PHP, and PCCM

mailings of marketing materials and that

those currently enrolled in the MCO,

PHP, or PCCM be excluded from the

requirement. One commenter thought it

reasonable to require that materials be

sent only to those who are eligible or

potentially eligible for Medicaid in a

given service area.

Response: Section 1932(d)(2)(B) of the

Act requires that marketing materials be

distributed to the entire service area.

The intent of this provision is to

prohibit marketing practices that favor

certain geographic areas over those

thought to produce more costly

enrollees. However, the regulation

might not allow for diversity and

cultural sensitivity. In response to the

commenters’ concerns, we have revised

proposed § 438.104(b)(2)(ii)

(redesignated as § 438.104(b)(1)(ii) in

this final rule with comment period) to

require that each MCO, PHP, and PCCM

contract must provide that the entity

‘‘distributes the materials to its entire

service area as indicated in the

contract.’’ The phrase ‘‘as indicated in

the contract’’ is intended to provide

States and MCOs, PHPs, and PCCMs

with some flexibility in designing and

implementing marketing plans and in

developing marketing materials. We

expect that when States review MCO,

PHP, PCCM, or marketing and informing

practices, they will not only consider

accuracy of information, but also factors

such as language, reading level,

understandability, cultural sensitivity,

and diversity. In addition, the State

review should ensure that MCOs, PHPs,

and PCCMs do not target or avoid

populations based on their perceived

health status, cost, or for other

discriminatory reasons. For example, a

State may permit distribution of

materials customized for an Hispanic

population group as long as the

materials are comparable to those

distributed to the English speaking

population. While the presentation and

formats of the information may be

varied based on the culture and distinct

needs of the population, the information

conveyed should be the same in

accordance with § 438.10. In the above

example, the materials for the Hispanic

population group must be distributed to

all those Medicaid eligibles or enrollees

who require or request Hispanic-related

materials. Materials would not need to

be distributed to every individual in a

given service area, but they would need

to be distributed to all known Medicaid

eligibles or enrollees in an area. States

that use this flexibility to allow selective

marketing may permit distribution by

zip code, county or other criteria within

a service area if the information to be

distributed pertains to a local event

such as a health fair, a provider,

hospital or clinic. However, States must

ensure that health fairs are not held in

areas only known to have or perceived

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6279

as having a more desirable population.

We have chosen not to limit the

distribution requirement only to

mailings because broadcast advertising

and other marketing activities can also

be done selectively. All marketing

activities should be conducted in a

manner that provides for equitable

distribution of materials and without

bias toward or against any group.

Comment: Some commenters asked

whether marketing materials must be

distributed to the entire service area all

at once. Because materials may generate

significant interest and phone calls to

the MCO, PHP, or PCCM, and

distributing materials to the entire

service area at one time could be

overwhelming. The commenters asked

that staggered mailings be allowed so

that responses to potential member

inquiries can be timely. They also

wanted flexibility to distribute

marketing materials by zip code.

Response: States that permit

marketing may oversee incremental

distribution of marketing materials as

long as the service area wide

distribution requirements are observed.

Comment: Some commenters believe

that States should ensure that when

MCOs, PHPs, and PCCMs distribute

marketing materials to the entire service

area, the materials are in the languages

spoken in that area, and proportional to

the number of beneficiaries in the area

with limited English proficiency. The

commenters asserted that it is critical

that the enrollment activities and the

enrollment staff be capable of

communicating effectively with those

who have limited English proficiency

and that there be adequate supplies of

marketing materials in the appropriate

languages. Several commenters

contended that the regulation was too

vague in this area, and should provide

more concrete guidance.

Several comments, although not

specifically addressing the service area

distribution requirement, emphasized

that MCOs, PHPs, and PCCMs (and their

enrollment staff and written materials)

be tailored to the needs of those with

limited English proficiency. They also

recommended that materials be

appropriately translated throughout the

service area. The recommendation was

that this be required, and that guidelines

be established for appropriate marketing

to non-English and limited Englishspeaking individuals. One commenter

observed that there are no cultural and

linguistic requirements for marketers in

the regulation and suggested that we

require assurances of cultural and

linguistic competency of marketers.

Response: We agree with the

commenters that it is important for

potential enrollees and enrollees with

limited English proficiency have access

to information in the appropriate

language. Section 483.10(b) provides

specific guidance regarding the language

requirements applicable to information

furnished to potential enrollees and

enrollees. These requirements apply to

all information, including marketing

material, therefore, we do not believe

that further guidance is needed in this

section of the regulation.

Comment: One commenter urged that

providers who contract with an MCO,

PHP, or PCCM be able to market their

program and services to other managed

care entities inside and outside of their

geographic area in order to fill

vacancies. The commenter believed that

the marketing restrictions might allow

MCOs, PHPS, and PCCMs to

unreasonably restrict the ability of

providers to contract with other entities.

The commenter recommended that the

marketing restrictions not be applicable

to marketing materials developed by a

provider who contracts with an MCO,

PHP, or PCCM to solicit services and fill

vacancies.

Response: The marketing restrictions

contained in this regulation apply to

MCO, PHP, or PCCM marketing directly

or indirectly to Medicaid enrollees and

potential enrollees. The provision does

not apply to certain providers or

facilities marketing their services to

MCOs, PHPs, or PCCMs.

Sale of Other Insurance

Proposed § 438.104(b)(2)(iv) required

MCO, PHP, and PCCM contracts to

assure that the entity does not seek to

influence enrollment in conjunction

with the sale of any other insurance. We

stated in the preamble that we

interpreted this provision to mean that

MCOs, PHPs, and PCCMs may not

entice a potential enrollee to join the

MCO, PHP, or PCCM by offering the sale

of any other type of insurance as a

bonus for enrollment. However, we

invited comment on this provision

because we did not have any legislative

history to consider when developing our

interpretation.

Comment: Several commenters

believed that language in this section

was vague and needed clarification.

Others expressed support for our

interpretation prohibiting the offering

for the sale of any other type of

insurance as a bonus for enrollment and

felt that the choice of an MCO, PHP, or

PCCM must be unaffected by extraneous

and conflicting incentives.

Some commenters encouraged us to

prohibit other types of bonuses or gifts

as inducements to enroll. These

commenters noted that in the past, gifts

have been offered to induce individuals

to sign forms that they did not realize

would change how they access their

health care. Commenters recommended

that, if we allow MCOs, PHPs and

PCCMs to offer additional health care

benefits for which they are not at risk,

we should require minimum time

periods during which the benefits must

be offered, and require advance notice

to members and an opportunity to

change MCOs, PHPs, or PCCMs for

cause if the benefits are discontinued.

For example, commenters stated that

some MCOs, PHPs, or PCCMs have

offered extra benefits (eyeglasses) to

induce enrollment and then

discontinued these benefits after the

initial enrollment period ended.

Commenters indicated that Federal

regulation was necessary in order to

reduce the adverse impact of practices

without entirely discouraging the

provision of the extra benefits.

One commenter observed that

inducements are generally ineffective,

except when plans are essentially

indistinguishable to beneficiaries. The

commenter suggested that MCOs, PHPs,

and PCCMs be encouraged to pursue

market differentiation by offering better

information about their quality and

other attributes.

Response: In the past, we have

provided guidance to States concerning

incentives to enroll and the marketing of

these incentives. However, we do not

consider the expansion of the list of

prohibited incentives to be within the

purview of this regulation. States may

permit MCOs, PHPs, and PCCMs to offer

nominal incentives, similar to those

commonly offered to commercial

populations, or may choose to prohibit

this practice entirely. States may also

choose to set standards governing the

offering of additional benefits. MCOs,

PHPs, and PCCMs should be aware that

practices such as offering additional

benefits and the discontinuation of

these benefits may, under certain

circumstances, be considered deceptive,

misleading or fraudulent activity and,

therefore, could subject them to

penalties. In response to commenters

requesting clarification, we have revised

the language to include situations where

additional insurance is offered even if it

is not offered for sale. This would

include situations where, for example,

an MCO offers a free burial insurance

policy as an incentive to join that MCO.

State Agency Review

Proposed § 438.104(c) provided that,

in reviewing the marketing materials

submitted by MCOs, PHPs, and PCCMs,

the State must consult with its MCAC or

an advisory committee with similar

6280 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

membership. In § 431.12 of our existing

rules, we established the requirements

for an MCAC. The MCAC must include

Board-certified physicians and other

representatives of the health professions

who are familiar with the medical needs

of low income populations and with the

resources available and required for

their care. The MCAC must also include

the Director of the Public Welfare

Department or the Public Health

Department, whichever does not head

the Medicaid agency, as well as

members of consumer groups including

Medicaid beneficiaries and consumer

organizations such as labor unions,

cooperatives, and consumer-sponsored

prepaid group practice plans.

Comment: A commenter requested

clarification as to whether, when neither

the Director of the Public Welfare

Department, nor the Director of the

Public Health Department was not the

head of the Medicaid agency, if both

were required to serve on the MCAC.

This commenter also asked if the

director(s) could designate a staff

member to serve on the MCAC.

Response: We recognize that in some

States neither the Director of the Public

Welfare Department nor the Director of

the Public Health Department is the

head of the Medicaid agency. In this

case, the State has the flexibility to

decide if only one of these departments

is represented on the MCAC or both are

included. We also believe that, as long

as the basic requirements at § 431.12 are

satisfied, the specific rules governing

the administration of the MCAC are

properly left to the State’s discretion.

For example, States may permit the

Director of the Public Health

Department or the Public Welfare

Department to delegate their

representation to other qualified

individuals representing their

Department.

Comment: Commenters suggested that

the composition of the MCAC should be

revised to include at least one MCO,

PHP, or PCCM that provides services to

beneficiaries. One commenter suggested

that beneficiaries with disabilities be

represented on the MCAC. Another

commenter suggested that the MCAC

membership and role be clearly stated

and public.

Response: The State may always add

to the current MCAC composition

requirements to include representatives

of any affected groups or entities, such

as MCOs, PHPs, or PCCMs. We

encourage States to have an MCAC

membership that is diverse and

represents groups served by the State’s

program, for example, minorities and

individuals with special needs. With

respect to the final comment, we note

that § 431.12 requires that the State plan

must ‘‘provide for a MCAC meeting the

requirements of this section’’ and that

the State plan is a public document. We

would encourage States to ensure that

the public is clearly and completely

informed about the role and

membership of the MCAC or any similar

committee.

Comment: One commenter felt that

HCFA went beyond the requirements of

section 1932(d)(2)(A)(ii) of the Act in

requiring consultation with a committee

with specific composition since the

statute refers only to a ‘‘MCAC.’’

Response: We believe that in using

the term ‘‘MCAC’’ the Congress

intended to refer to the requirements in

§ 431.12 governing MCACs. We

recognize, however, that consultation

regarding marketing materials is a new

and distinct function, and that the State

may wish to designate a separate

committee to perform this function

rather than require the existing MCAC

to assume it. We want to afford States

the flexibility to develop a second

committee, but we require that any

committee charged with this

responsibility also comply with the

existing MCAC requirements in

§ 431.12.

Comment: Some commenters believed

that it was not appropriate to include

Medicaid consumers on a MCAC

charged with reviewing proposed

marketing materials from competing

HMOs.

Response: The requirement for

consumer participation in the MCAC

has been in the regulations for many

years. When the Congress specifically

identified a ‘‘medical care advisory

committee’’ as a consultant in the

review and approval of marketing

materials, we believe that they intended

to incorporate by reference the current

composition requirements of the

required advisory body with this name.

We continue to believe that consumers

are extremely helpful in this advisory

capacity because they are the intended

audience of marketing materials and can

provide important feedback on the

review and approval of materials.

Comment: Many commenters

contended that the use of a MCAC to

review and approve specific pieces of

marketing material was impractical,

burdensome, unrealistic, and an

example of micro-management. Many

States’ MCACs meet monthly, bimonthly, or quarterly. Several

commenters believe that it would be

difficult, if not impossible, to provide

the quick turnaround, in some cases ten

days or less, necessary for approval of

marketing materials. Some States

require that marketing materials be

submitted sixty days prior to intended

use and some commenters believed that

adding another level of review would

slow down the process. The regulation

was also called, by one commenter

‘‘unnecessary and bureaucratic’’ and not

in keeping with the guiding principles

cited in the preamble.

Many commenters who objected to

MCAC review of marketing materials

suggested that the MCAC or similar

body review generic marketing materials

or approve guidelines instead of

reviewing each individual MCO’s,

PHP’s, or PCCM’s materials. Some

commenters stated that the committee

could establish review standards and

then State or local staff trained in those

standards could perform the actual

review. They indicated that the

committee’s role should be consultative

and not decision making. Others

suggested that marketing materials be

reviewed retroactively.

Response: We do not intend to require

that the committee itself review and

approve marketing materials. Rather, we

intend to reflect section 1932(d)(2)(A)(ii)

of the Act, which requires the State to

consult with the committee during the

State’s own process of review and

approval. The State is not required to

obtain the committee’s approval or

consensus on the materials. The State

has tremendous flexibility in

determining how to consult with the

committee. A State may elect to require

the committee to review the actual

marketing materials. If so, then in order

to expedite the total review time, the

State could permit the committee

members to conduct their review

concurrently with the State’s review.

States may also consult with the

committee in the development of

standardized guidelines or protocols

that are intended to facilitate State

review. States may consult with the

committee to develop suggested

language and deem approval of an

MCO’s, PHP’s, or PCCM’s materials if

that language is used. MCOs, PHPs, and

PCCMs could also use some of the

suggested language and then identify

areas where different language has been

used, and States could then limit the

review or consultation to that particular

portion of the materials. In response to

the last comment, we believe that the

statutory language (‘‘in the process of

reviewing and approving’’ marketing

materials) precludes consulting with the

committee retroactively.

Comment: One commenter suggested

that the composition requirements of

the MCAC could result in a conflict of

interest between members and MCOs,

PCCMs, and PHPs. Another commenter

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6281

suggested that the MCAC be held to

confidentiality standards.

Response: The MCAC composition

requirements have been in the

regulations for over twenty years, and

have always involved the potential for

conflict between providers and

beneficiaries who are served by the

providers. We do not believe that this

regulation raises any new concerns

regarding conflicts of interest.

Therefore, we are not revising the

composition requirements in this final

rule with comment period. We would

not anticipate that the MCAC or any

similar advisory body would have a

need to review or have access to

individually identifiable information

about Medicaid beneficiaries, but if they

did, then they would be governed by the

same confidentiality standards that

apply to the State Medicaid agency

(Subpart F, Part 431).

Comment: Many commenters

expressed strong support for requiring

that marketing materials be reviewed by

a committee to ensure that the materials

are not false or misleading and to ensure

that the information is understandable.

One commenter stated that using

established MCACs would not provide a

level of consumer and advocate

involvement sufficient to identify and

resolve problems or develop appropriate

policies. This commenter recommended

that States be required to actively work

with consumers on contract

development, client protections, quality

assurance, and problem resolutions.

Response: We appreciate the

commenters’ support. This provision,

however, is intended to be limited to

requiring consultation with a committee

that includes consumer representation

on the subject of the review and

approval of marketing materials. This

provision does not speak to the need for

consumer participation in the

development of the entire managed care

system. We do require consumer

involvement in other sections of this

final regulation; for example, in

§ 438.202(c) we require the State to

provide for the input of beneficiaries

and other stake-holders in the

development of the quality strategy,

which must include making the strategy

available for public comment before

adopting the quality strategy. We

encourage involvement by stakeholders

during all phases of managed care

implementation.

Comment: Commenters pointed out

that neither the nature of the

consultation nor its expected outcome

was specified in the proposed rule.

Response: The legislative history do

not indicates that the Congress intended

for the consultation to be of any specific

nature or have any specific outcome.

Instead, it prescribe a Federal standard.

We believe it is more appropriate to

permit States to define the specific role

of the committee.

Comment: A commenter pointed out

that States that have adopted model

legislation developed by the National

Association of Insurance Commissioners

(NAIC) have regulatory processes in

place for the review of marketing

materials and that MCAC involvement

could lead to conflicts between the

MCAC and the regulatory body.

Response: The NAIC’s

‘‘Advertisements of Accident and

Sickness Insurance Model Regulation’’

sets forth minimum criteria to ensure

proper and accurate description of

products and to protect prospective

enrollees. The criteria are similar to the

criteria for advertisements of Medicare

supplemental insurance. States are free

to use all or part of this model to craft

their marketing standards and contract

language. A State’s use of NAIC or

similar standards should neither

conflict with nor complicate

consultation with the MCAC or similar

committee because the committee

should be following standards adopted

by the State.

4. Liability for Payment (§ 438.106)

Proposed § 438.106, consistent with

section 1932(b)(6) of the Act, required

MCOs to provide that their Medicaid

enrollees will not be held liable for—(1)

the debts of the MCO in the event of

insolvency; (2) services provided to the

enrollee for which the State does not

pay the MCO or the MCO does not pay

the individual or provider that furnishes

the services under a contractual,

referral, or other arrangement; or (3)

payments for services furnished under a

contract, referral, or other arrangement,

to the extent that those payments are in

excess of the amount that the enrollee

would owe if the MCO provided the

services directly.

Comment: We received several

comments in response to our request for

public guidance on § 438.106(c) that

refers to beneficiary liability for

payments to a provider ‘‘in excess of the

amount the enrollee would owe if the

MCO provided the services directly’’.

Most commenters agreed with our

position that Medicaid managed care

enrollees should not be responsible for

more than nominal charges for cost

sharing. One commenter sought

clarification of when the situation

described in § 438.106(c) would apply,

and another suggested that the amount

owed by the Medicaid beneficiary

should be any cost sharing required by

the contract. Another commenter

suggested that the provision may have

been intended to address a recent trend

in the managed care industry of

establishing coverage options that allow

enrollees to go out of network for

services in exchange for higher

premiums or co-pays (that is, ‘‘point-ofservice’’ options), as there may have

been concern that this type of coverage

could be interpreted by MCOs as a nonMedicaid benefit for which they could

charge.

Response: As we stated in the

preamble to the proposed rule,

Medicaid beneficiaries should not

‘‘owe’’ an MCO any payment amounts

beyond nominal cost sharing. Section

1916 of the Act specifically prohibits

States and plans from imposing

additional cost sharing. We agree with

the comment that § 438.106(c) would

prohibit MCOs from offering a point-ofservice option. This paragraph states

that an enrollee may not be held liable

for payment (for services furnished

under a contract, referral, or other

arrangement) in excess of the amount

that the enrollee would owe if the MCO

provided the services directly. In other

words the enrollee may only be held

liable for nominal cost sharing.

Under this regulation, enrollees may

obtain out-of-network services under the

following circumstances:

• Enrollees may always obtain family

planning services out-of-network, as

provided in our current regulations at

§ 431.51;

• Enrollees who reside in rural areas

and are mandatorily enrolled in a single

MCO, PHP, or PCCM may obtain out-ofnetwork services as provided in

§ 438.52(b);

• Enrollees may obtain emergency

and post-stabilization services from outof-network providers as specified in

§ 438.114;

• Enrollees may obtain services outof-network if the network is unable to

meet an enrollee’s medical needs as

specified in § 438.206(d)(5).

The protection in § 438.106(c) would

apply under all of these circumstances,

therefore, the enrollee could not be held

liable for costs in excess of the amount

that the enrollee would owe if the MCO

provided the services directly.

Comment: Several commenters were

concerned that § 438.106 could be

interpreted to require an MCO to pay its

network providers for services that are

not covered under the Medicaid State

plan or are furnished by its network

providers not in accordance with the

provider’s contract terms with the MCO.

They suggested that we add language to

clarify that the MCO’s obligations are

limited to those services that are

covered under the contract between the

6282 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

State agency and the MCO, as well as to

those services covered under the

contract between the MCO and the

provider.

Response: In this section, we intend

to protect beneficiaries against liability

for payment of covered services. We

agree with commenters that the

proposed language could be interpreted

as prohibiting enrollee liability for noncovered services or non-emergency or

urgently needed services provided out

of network, although this is not the

intent. We therefore provide in this final

rule with comment period at

§ 438.106(b) and (c) that enrollees

cannot be held liable for ‘‘covered’’

services. ‘‘Covered’’ services would

include any service that the State covers

through its managed care program,

whether it is a service that is covered

under the contract between the State

and the MCO (including additional or

alternative services to traditional State

plan services), or a service that is carved

out of the capitation rate and paid fee

for service, as long as the service is

obtained appropriately. This provision

does not preclude enrollee liability for

non-covered services, or for covered

services that are obtained

inappropriately (for example, services

obtained without a referral when one

was required) unless, on appeal, it is

determined that the services are

covered.

Comment: One commenter requested

that we add language that incorporates

the ‘‘hold harmless’’ concept developed

by the NAIC. Specifically, the

commenter suggested that we revise the

regulations to provide that beneficiaries

should be ‘‘held harmless’’ for the cost

of covered services except for applicable

cost sharing.

Response: We believe that the

provisions of § 438.106, as written,

sufficiently convey that enrollees may

not be held liable for the cost of covered

services except for nominal cost sharing.

We do not believe it is necessary to add

additional language referencing the

NAIC’s ‘‘hold harmless’’ concept.

Comment: Several commenters

suggested that we clarify that

beneficiaries should not be held liable

for family planning services covered

under the Medicaid program, nor

should they be held liable for

reproductive services that are not

provided by the health plan or its

subcontracting providers or that are not

reasonably accessible within the health

plan.

Response: As stated above, we have

revised § 438.106 to reflect that

enrollees may not be held liable for

‘‘covered’’ services, which include

family planning services. Section

431.51(a)(4), (5), and (6) provide that

Medicaid beneficiaries enrolled in an

MCO, PHP, or PCCM may not be denied

freedom of choice for family planning

services. This means that even family

planning services that an enrollee

obtains out of network are ‘‘covered’’

services for which the beneficiary may

not be held liable. In addition,

§ 447.53(b)(5) states that cost sharing

cannot be imposed for family planning

services and supplies. Therefore, we do

not believe it is necessary to specifically

address family planning services in

§ 438.106.

5. Cost Sharing (§ 438.108)

Prior to the enactment of the BBA,

MCOs were prohibited from imposing

cost sharing on enrollees. The BBA

eliminated this prohibition, and

provided that copayments for services

furnished by MCOs may be imposed in

the same manner as they are under feefor-service. In § 438.108 of the NPRM,

we proposed that the contract must

provide that any cost sharing imposed

on Medicaid enrollees is in accordance

with § 447.50 through § 447.58 of

existing regulations.

Comment: One commenter

recommended that we specify in

§ 438.108 that family planning services

and supplies are excluded from cost

sharing.

Response: This section specifies that

any cost sharing imposed for services

provided by an MCO must be in

accordance with § 447.50 through

§ 447.58 of our rules. Because

§ 447.53(b)(5) states that cost sharing

cannot be imposed for family planning

services and supplies, we do not believe

it is necessary to refer to this exclusion

again under § 438.108.

Comment: Several commenters

believed that it was important that

contracts make clear that any cost

sharing imposed under the contract

must be nominal. Commenters also

expressed concern that cost sharing

could become a barrier to care, and that

cost sharing requirements could be

particularly problematic for enrollees

who regularly use the health care

system. The commenters believe that

even nominal copayments, if

consistently collected by MCOs, could

deter enrollees from obtaining needed

care.

Response: The regulation clearly

requires that any cost sharing imposed

for services delivered either by an MCO

or under fee-for-service be nominal. We

agree with the commenters that cost

sharing may act as a deterrent to

obtaining care. Therefore, in § 447.53,

we are adding a new paragraph (e) that

states: ‘‘No provider may deny care or

services to an individual eligible for the

care or services on account of the

individual’s inability to pay the cost

sharing.’’ This language closely tracks

the statutory language in section 1916(e)

of the Act. This provision applies to

services furnished either by an MCO or

under fee-for-service.

Comment: One commenter suggested

that we exclude enrollees receiving

home and community-based waiver

services from cost sharing.

Response: The BBA did not identify

any new groups of enrollees to be

excluded from cost sharing. The law

only provided that cost sharing for MCO

services may be permitted in the same

manner as it is permitted under fee-forservice. Enrollees receiving home and

community-based waiver services are

not excluded under our current fee-forservice program and therefore, we are

not excluding them from cost sharing

for services furnished by an MCO. We

note that States may always elect not to

impose cost sharing on all enrollees or

on specific groups of enrollees.

Comment: A few commenters stated

that cost sharing creates a barrier to

American Indian and Alaskan Native

(AI/AN) participation in Medicaid

programs, because they can access the

Indian Health Service (IHS) and triballyoperated programs without paying for

services. Further, the commenters noted

that IHS and tribal providers are not

authorized by the Congress to impose

cost sharing for services provided to

American Indians. These commenters

recommend that we exercise the Federal

trust responsibility to provide health

care for AI/AN populations by

exempting them from any cost sharing

in Medicaid programs. Since the Federal

government pays 100 percent FMAP for

services delivered by tribally operated

facilities, the commenters believe there

should be a provision explicitly

prohibiting States from imposing cost

sharing on AI/AN Medicaid

beneficiaries.

Response: The Congress has been very

specific in section 1916 of the Act in

specifying which categories of

individuals or services are exempt from

cost-sharing, and we believe that it

would be inconsistent with

Congressional intent to exempt

additional groups. We note that under

§ 447.53(b)(1), all children (including

AI/AN children) are exempted from cost

sharing.

Comment: One commenter

recommended that we eliminate the

application of § 447.57 to cost sharing

for services furnished by MCOs. The

commenter stated that § 447.57

prohibits States from reimbursing

providers for unpaid copayments. The

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6283

State Medicaid plan must specify that

the State agency does not increase the

payment it makes to any provider to

offset uncollected amounts for

deductibles, co-insurance, copayments,

or similar charges that the provider has

waived or are uncollectible. The

commenter expressed concern that this

provision inappropriately places the

economic burden of unpaid copayments

on health care providers, such as

community pharmacies. The commenter

stated that requiring pharmacies to

absorb the cost of unpaid copayments

discourages participation by pharmacies

in Medicaid MCOs and discourages

MCOs from participating in Medicaid.

Response: The BBA allows us to

permit copayments under managed care

in the same manner as we permit them

under fee-for-service. At this time, we

are not proposing to revise the rules that

apply under fee-for-service to remove

the requirement that States not

reimburse providers for uncollected

payments. Therefore, it will also apply

to services furnished by an MCO. We

encourage interested parties to work

with States in developing their cost

sharing policies.

Comment: One commenter felt that

MCOs should be required to make cost

sharing requirements clear in all cases,

and enrollees should be informed of

what constitutes ‘‘good cause.’’ The

commenter recommended that if an

MCO advertises that it does not require

copayments, then it should be

prohibited from charging copayments

for two years. The commenter also

stated that MCOs should make clear at

the time of open enrollment whether

they intend to charge copayments

during the contract year.

Response: We agree with the

commenter that enrollees should have

clear information about cost sharing

requirements. In § 438.10(d) and (e), we

specify that information furnished to

potential enrollees and enrollees,

respectively, must include information

on any cost sharing. MCOs are also

required to inform potential enrollees

and enrollees of any significant changes

in the information that was furnished to

them 30 days prior to the effective date

of the changes. While the State will

determine what qualifies as

‘‘significant’’, we assume that States

would find that the introduction of new

cost sharing requirements would

constitute a significant change.

In addition, in § 438.56(d)(2)(iv), we

specify that ‘‘good cause’’ for

disenrollment by the enrollee includes

poor quality care, lack of access to

necessary specialty services covered

under the contract, or other reasons

satisfactory to the State agency. Under

this provision, the State could

determine that a change in the MCO’s

cost-sharing policy constitutes ‘‘good

cause’’ for disenrollment.

Comment: One commenter expressed

concern about the inappropriate use of

hospital emergency rooms. The

commenter recommended that we allow

and encourage States to charge

beneficiaries a $25 copayment per visit

for inappropriate use of the emergency

room. According to the commenter,

MCOs could require that hospitals

collect the copayment at the time of the

visit and the enrollees would not be

denied care because of inability to pay

the copayment. If it was determined that

a true emergency existed, the

copayment would be refunded. The

commenter believes that this would

serve as an incentive to enrollees to seek

care in the appropriate setting, at the

appropriate time and would allow the

primary care physician to establish a

medical relationship with the

beneficiary.

Response: Under § 447.53(b)(4),

emergency services are exempted from

cost sharing. Specifically, copayments

may not be imposed on ‘‘[s]ervices

provided in a hospital, clinic, office, or

other facility that is equipped to furnish

the required care after the sudden onset

of a medical condition manifesting itself

by acute symptoms of sufficient severity

(including severe pain) that the absence

of immediate medical attention could

reasonably be expected to result in—(1)

placing the patient’s health in serious

jeopardy; (2) serious impairment to

bodily functions; or (3) serious

dysfunction of any bodily organ or

part.’’ We emphasize that as long as the

enrollee seeks emergency services that

could ‘‘reasonably be expected’’ to have

the above effects, a copayment may not

be imposed, even if the condition was

determined not to be an emergency.

The State may decide to impose a

copayment for non-emergency services

furnished in an emergency room in

cases where the enrollee sought services

in an emergency room when the

standard under § 447.53(b)(4) was not

met. Furthermore, the State may request

a waiver of the requirement that cost

sharing charges be nominal. Section

431.57 provides that for non-emergency

services furnished in a hospital

emergency room, the Secretary may

grant a waiver to permit a State to

impose a copayment of up to double the

nominal copayment allowed under

§ 447.54.

Allowing payment of a copayment up

front in a hospital emergency room as

the commenter suggested would raise

the implication of non-compliance with

the standard in § 447.53(b)(4). However,

enrollees should be aware that if they

seek services in an emergency room

when the standard in § 447.53(b)(4) is

not met, they may be held liable for cost

sharing.

6. Assurances of Adequate Capacity and

Services (§ 438.110)

Under the authority of section

1932(b)(5) of the Act, proposed

§ 438.110 required that an MCO provide

the State and the Secretary with

adequate assurances that the MCO has

the capacity to service the expected

enrollment in its service area.

In proposed § 438.110, we interpreted

the term ‘‘assurances’’ to require MCOs

to submit documentation to both the

State and us. While States were given

the flexibility to decide the types of

documentation to be submitted by

MCOs, we specified that the

documentation had to address the

State’s standards for access to care

outlined under proposed § 438.306

(redesignated as § 438.206 in this final

rule with comment period). In addition,

we proposed that MCOs be required to

submit documentation to the State and

us, along with State certification, at least

every two years, and at the time the

MCO enters into or renews a contract

with the State or when there has been

significant change in the MCO’s

delivery network or enrollee population.

We received many comments on this

section from State agencies, professional

organizations, and advocates. A number

of commenters appeared confused over

this section’s interface with proposed

§ 438.306, and argued that we need to be

more detailed in both sections of this

final rule with comment period. We

recognize that the requirements relating

to availability of services and assurances

of adequate capacity are closely related

and therefore, in this final rule with

comment period, we have redesignated

§ 438.110 as § 438.207 so that these

requirements may be read and applied

together. We will respond to the

comments that were received regarding

proposed § 438.110 below.

Comment: Several commenters felt

that proposed § 438.110, combined with

proposed § 438.306, did not recognize

the unique needs of homeless persons,

women, children, and individuals with

disabilities. Commenters believed we

should require additional

documentation, and establish standards

that specifically recognize the needs of

these populations.

Many recommendations were offered.

With regard to the persons who are

homeless, commenters recommended

that MCOs and PHPs should create

linkages with service providers offering

a wide range of culturally appropriate

6284 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

medical and social services, including

case management. They recommended

that the services be available at sites

such as soup kitchens, drop-in centers,

and shelters where homeless people

congregate and are willing to receive

care.

A few commenters suggested that we

should respond to the needs of children

by requiring that primary care

pediatricians be available to provide

care to children under 19 years of age.

In addition, commenters suggested that

we require pediatricians to serve as

primary care providers, and require that

such providers be available 24 hours a

day, 7 days a week. Further, the

commenters believed that we should

require MCOs to include specialists

with appropriate pediatric training and

expertise, and require that they have

arrangements with appropriate tertiary

care centers. If an MCO fails to have an

adequate number of pediatric providers,

including primary and specialty care,

the commenter urged that we require

that these services be available to

enrollees out of network at no

additional costs.

Other commenters recommended that

proposed § 438.110 be amended to

require MCOs to document the

availability of women’s health

specialists. Specifically, one commenter

recommended that MCOs that do not

contract with hospitals and health

entities that provide a full range of

reproductive services should be

required to demonstrate access to

alternative sites, which are medically

appropriate and geographically,

culturally, and linguistically accessible.

In addition, if an MCO cannot

demonstrate a full range of reproductive

health services, the State should

demonstrate to HCFA how individuals

will be able to access those benefits

without any undue burden.

Commenters also recommended that a

provision be added to specifically

address the needs of disabled

individuals. One commenter

recommended that we require MCOs

to—(1) identify the populations that will

be served, if disabled or unique; and (2)

identify specialized professionals, DME,

and related supply services that will be

available to accommodate each

population category. Another

commenter suggested that MCOs should

be required to document an appropriate

range of services and networks, given

that various communities may speak

different languages. Other commenters

suggested that we incorporate stronger

requirements that address access to

ancillary services, linguistic access, and

physical access. Finally, one commenter

recommended that we require

physicians trained in mental illness to

act as primary care providers for

persons suffering from mental illness.

Response: The proposed rule was

developed to address the needs of all

Medicaid populations served under

managed care. As we indicated in the

preamble to the proposed rule, proposed

§ 438.110 was to address the procedural

requirements for submitting assurances

of adequate capacity and services, while

proposed § 438.306 was to address the

substantive requirements ensuring the

availability of services. The intent

behind both sections was that States be

given flexibility to develop access

standards and documentation

requirements appropriate for the

populations enrolled and specific to the

unique circumstances in each State.

Although we therefore do not

mandate all of the detailed requirements

suggested by commenters, we do require

in this final rule with comment period

that States, MCOs, and PHPs, maintain

an adequate delivery network under

§ 438.206(d)(1), pay particular attention

to pregnant women, children, and

persons with special health care needs.

We added the last category of enrollees

to recognize the special needs of

individuals who, for example, disabled

or homeless, and who require special

attention from the MCO in order to

access the health care system.

In addition, in this final rule with

comment period, we require the State to

identify to the MCO or PHP upon

enrollment specific groups at risk of

having special health care needs. We

also require MCOs and PHPs to make a

best effort attempt to identify and

comprehensively assess pregnant

women, and persons with special health

care needs.

We believe that the above provisions

ensure that the State, when developing

its standards for access to care and

when monitoring an MCO’s or PHP’s

capacity and adequacy of services, pays

particular attention to managed care

enrollees who are vulnerable. Although

this final rule with comment period

does not include all recommendations

offered by the commenters, States are

free to consider them.

Comment: One commenter noted that

neither States nor MCOs have

developed a methodology to measure

adequate capacity. The commenter

states that while many States have

required MCOs to submit a great deal of

information with the intent to measure

adequate capacity, that information for

the most part has not been useful.

Further, the commenter expressed

concern that MCOs will be required to

submit unnecessary data and

information, thus wasting considerable

resources. This commenter suggested

that the most expedient and effective

way to measure adequacy and access is

to ensure that enrollees know how to

contact the managed care plan for

information and how to file complaints

and grievances. The commenter

recommended that States be allowed to

use their judgment on these issues

under their existing certification

processes.

Response: Section 1932(b)(5) of the

Act requires MCOs to provide the State

and the Secretary with adequate

assurances that the MCO has the

capacity to serve the expected

enrollment of Medicaid beneficiaries in

its service area. The Congress specified

that these assurances must demonstrate

that each MCO has an appropriate range

of services, and a sufficient number,

mix, and geographic distribution of

providers. Based on this statutory

mandate, we are imposing detailed

requirements on MCOs and States,

including a requirement that MCOs

submit documentation. We believe that

States must have documentation in

order to assess capacity and adequacy of

services. We have clarified in this final

rule with comment period that the

documentation required under this

section must be submitted by MCOs in

a format specified by the State and

acceptable to us. We recognize that

MCOs may not be able to construct a

provider network that anticipates all

future needs of enrollees. Therefore, in

this section we are requiring that the

MCO have policies and practices in

place to address unanticipated need for,

or limitations in availability within their

service area of, certain experienced

providers when required by enrollees.

We agree with the commenter that

enrollees must know how to contact the

MCO and know how to file grievances,

appeals, and State fair hearings. Section

438.10 requires that this information be

furnished to enrollees.

Comment: We received one comment

questioning whether we should apply

proposed § 438.110 to voluntary MCOs.

The commenter believed that the

provisions are burdensome for MCOs

and PHPs in which enrollment is

voluntary, especially when they are

added to the proposed access

requirements. The commenter

recommended that this section be

applied only to MCOs and PHPs in

which enrollment is mandatory.

Response: Section 1932(b)(5) of the

Act does not distinguish between

voluntary or mandatory managed care

organizations; rather, the statute

generally references managed care

organizations under section 1903(m) of

the Act, which applies to both voluntary

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6285

and mandatory enrollment MCOs.

Section 1903(m)(2)(A)(xi) of the Act

requires that all MCOs meet applicable

requirements in section 1932 of the Act.

We have no discretion to exempt

voluntary enrollment MCOs from the

requirement in section 1932(b)(5) of the

Act. We also do not see any justification

for applying a lower standard under

section 1932(b)(5) of the Act in the case

of MCOs with voluntary enrollment.

Under section 1903(m)(2)(A)(vi) of the

Act, once an individual enrolls in a

‘‘voluntary enrollment’’ MCO, the

enrollee may be ‘‘locked in’’ after the

first 90 days for 12 months at a time. It

is just as important to ensure adequate

capacity in a case, as it is in the case of

a ‘‘mandatory enrollment’’ situation.

Comment: We received one comment

supporting proposed § 438.110(a), and

the grievance and appeals provisions in

proposed subpart E. The commenter

noted that these provisions are

consistent with the broader and more

detailed obligations imposed on all

health benefit plans in California.

Response: Our intent in the proposed

and this final rule with comment period

is not to prohibit a State from imposing

more stringent standards concerning the

adequacy of an MCO’s network capacity

and services. Our intent is to ensure that

States, at a minimum, review MCO

network capacity and services, and

certify to us that the MCO satisfies the

State’s requirements for availability of

services, as required under § 438.206.

We are pleased that our standards are

consistent with California’s.

Comment: We received many

comments suggesting that the

documentation described in proposed

§ 438.110(b) should be sent to the State

and not directly to HCFA. Although

several commenters favored HCFA

becoming more involved in reviewing

MCO documentation justifying adequate

capacity and services, a large number of

commenters recommended that we

delete the requirement for direct

submission of documentation by MCOs

to HCFA.

Specifically, commenters argued that

States, and not HCFA, were responsible

for entering into and monitoring

contracts with MCOs, and ensuring that

adequate capacity exists to serve

enrollees. Other commenters argued that

direct submission of documentation to

HCFA would be redundant,

unprecedented, and contrary to our

stated intent to provide States flexibility

wherever possible. A few commenters

suggested that the proposed

documentation requirements went

beyond the statutory provisions in the

BBA, which in the commenters’ view

only require that ‘‘assurances’’ be made

to the Secretary.

Commenters also asserted that the

proposed rule does not recognize the

differences among the 50 states, and

questioned what HCFA would do with

the information once received, and

whether we would be diminishing the

management authority of the States.

Finally, a number of commenters asked

that we consider the administrative

burden of this requirement, believing it

would constitute unnecessary micromanagement on the part of the Federal

government.

Response: Based on comments

received, we have re-evaluated

proposed requirement that assurances

be routinely and directly provided to us.

This requirement was based on the fact

that section 1932(a)(5) of the Act

requires that MCOs provide adequate

assurances to ‘‘the State and the

Secretary.’’ We believe, however, that

the requirement that the Secretary be

provided with adequate assurances can

be satisfied by requiring the State to

provide assurances to us that it is

satisfied that standards are met. In this

final rule with comment period, we do

not require the MCO to submit

documentation directly to us. We agree

that documentation should be submitted

to the States that are the entities that

contract with MCOs, and that it might

be redundant for us to regularly receive

all of the documentation. In this final

rule with comment period, we require

only that the State submit to us

certification of an MCO’s adequate

capacity and services in accordance

with State-established standards for

access to care under § 438.206. We also

added a provision that allows us to

inspect the documentation submitted by

MCOs.

We did not intend to interfere with

the State’s role in determining whether

an MCO has demonstrated adequate

capacity and services. We believe that

the approach in this final rule with

comment period satisfies our statutory

requirements by providing us with

sufficient flexibility to monitor State’s

actions and it also satisfies the

commenters concerns by restoring the

role of the States and reducing

administrative burden. With respect to

the commenters suggesting that our

requirements go beyond the statute’s

requirement for ‘‘assurances,’’ we note

that the title of section 1932(b)(5) of the

Act is ‘‘Demonstration of adequate

capacity and services,’’ and that the text

requires ‘‘adequate’’ assurances. We

believe it is reasonable, in order for the

State to be ‘‘adequately’’ assured of an

MCO’s or PHP’s capacity, and in order

for the MCO or PHP to ‘‘demonstrate’’

such capacity, to expect documentation

in support of the assurances it makes.

Comment: One commenter

recommended that we request

legislative action to eliminate the

requirement in section 1932(b)(5) of the

Act that assurances be submitted

directly to HCFA. The commenter

argued that direct submission by an

MCO to HCFA would be unprecedented

and redundant.

Response: A legislative change is not

necessary in light of our decision to

interpret our requirement as satisfied by

the provision of assurances to us by

States.

Comment: We received a number of

comments on proposed § 438.110(b)

asking that we provide additional

clarification on the format of

information to be received from MCOs

and States assuring adequate capacity.

Commenters questioned whether we

would specify the electronic format to

be used to submit information and

whether we would require States to

change current formatting requirements.

One commenter reminded us that a

change in formatting requirements

could result in States and MCOs, PHPs,

and PCCMs abandoning software

already in use. Another commenter

noted that for multi-state health plans,

different electronic formatting

requirements in each State would have

enormous cost implications. This

commenter suggested that States submit

aggregate health plan information to

HCFA.

Response: Because we no longer

require direct submission of

documentation from MCOs, it is not

necessary to prescribe formatting

requirements. We are requiring in this

final rule with comment period that

documentation be submitted in a format

specified by the State and acceptable to

us. We recognize that different States

use different systems for collecting

information. Accordingly, we permit a

State to tailor the format of the

documentation to its own unique

system and resource capabilities. In

meeting this requirement the State

should submit to us its proposed format

for approval. As we gain more

experience in implementing this

provision, we will provide formal

guidance on acceptable formats.

Although we are no longer requiring the

direct submission of documentation

from MCOs, we are requiring that States

certify to us the MCO’s assurances of

adequate capacity and services. We

wish to emphasize that the State

certification must address how the MCO

demonstrated compliance with the

State’s access standards developed

under § 438.206.

6286 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

Comment: We received a number of

comments on proposed § 438.110(b)(1),

which requires an MCO to submit

documentation demonstrating that it

offers an appropriate range of services

for the enrollees in the service area,

including access to specialty services.

Many commenters supported the

reference to specialty services. Several

commenters noted that for many

individuals with disabilities and mental

illness, specialty care often amounts to

primary care. In contrast, several

commenters objected to this provision

and argued that the BBA did not address

specialty care as part of this

requirement. One commenter indicated

that there are no national standards to

determine specialty care capacity and

services.

Many recommendations were offered.

A number of commenters recommended

that we maintain this requirement in the

final rule with comment period, with a

few suggesting that we provide

technical assistance to States. One

commenter suggested that we only

require MCOs to demonstrate that they

have the capacity to provide specialty

services in a timely and accessible

manner, and that we require MCOs to

disclose what provisions they have

made for infrequently used tertiary care

services. Another commenter suggested

that the State agency obtain proof, as

appropriate, that it furnishes health

services required by enrollees as

promptly as is appropriate and that the

services meet the agency’s quality

standards. Finally, one commenter

suggested that we incorporate into the

regulation itself the preamble language

discussing proposed § 438.306, which

suggests that States consider the volume

of services furnished to other enrollees,

and reminds States to ensure that

providers are accessible to those who

rely on public transportation.

Response: Although section

1932(b)(5) of the Act refers expressly

only to preventive and primary care

services, it requires assurances of

‘‘capacity to serve the expected

enrollment,’’ presumably including

those enrollees who need specialty

services. While it specifies expressly

that these assurances should ‘‘includ[e]’’

assurances with respect to preventive

and primary care, this does not mean

that assurances about other types of

services are not necessary. Indeed, the

very clause that references preventive

and primary care (section 1932(b)(5)(A))

of the Act also references ‘‘an

appropriate range of services,’’ which

we believe includes specialty services.

Section 1932(b)(5)(B) of the Act refers to

‘‘a sufficient * * * mix * * * of

providers of services,’’ which again in

our view refers to having ‘‘sufficient’’

capacity for all types of providers,

including specialists. We believe that

section 1932(a)(5) of the Act, as we

interpret it, provides authority for us to

require assurances of specialty services.

(We also have relied on our general

authority under section 1902(a)(4)) of

the Act.

We continue to believe that

assurances with regard to specialists are

important, and agree with the

commenters that support this

requirement. MCOs and PHPs must

demonstrate access to specialty services

based on the access standards

established by the State under

§ 438.206. This reflects our recognition

of the growing body of evidence

showing that individuals secure positive

health outcomes when treated by

providers experienced in caring for

significant numbers of individuals with

a particular health care condition (for

example HIV/AIDS). Also, in response

to the above comments about the

importance of specialty care which can

serve as primary care for special

populations, in § 438.206(d)(1)(iii), of

this final rule with comment period, we

have added a parenthetical statement to

specify that in establishing the network,

consideration of the types of providers

needed must take into account the

providers’ ‘‘training and experience’’.

We emphasize that to demonstrate

adequate access to specialty services,

MCOs and PHPs need not contract with

specialists in instances where a

specialist provides infrequently used

services or procedures. An MCO or PHP

may satisfy this requirement in these

types of cases, for example, by having

appropriate arrangements with

specialists, and allowing enrollees to go

to these out-of-network providers to

receive medically necessary specialty

care. We note that in circumstances

where an MCO’s or PHP’s provider

network is unable to meet an enrollee’s

needs and the enrollee must seek care

from an out-of-network provider, the

enrollee may not be held liable for any

additional expenses. In other words, for

those services, enrollee liability must be

the same regardless of whether they

were received from in-network or outof-network providers. Section

438.207(b)(4) of this final rule with

comment period recognizes limitations

in provider networks that may

necessitate other arrangements, and

provides for such alternative

arrangements.

Although we believe examples in the

preamble discussion of proposed

§ 438.306 referenced by the commenter

are appropriate for State consideration,

we have not incorporated them in this

regulation. Given differences that may

exist among States, it would be

inappropriate to impose national ratio

standards for access to specialty care.

Finally, in terms of providing

technical assistance, we are always

available to provide specific guidance to

States upon request. We regularly

provide technical assistance in a variety

of different forms, including issuing

letters to State Medicaid Directors,

publishing Medicaid policy manuals,

reviewing waiver applications and

contracts, performing on-site monitoring

reviews, and engaging in regular

dialogue directly with State officials.

Comment: We received one comment

requesting that we define the term

‘‘mix’’ in proposed § 438.110(b)(2),

which stated that the MCO must submit

documentation to demonstrate that it

‘‘maintains a network of providers that

is sufficient in number, mix, and

geographic distribution to meet the

needs of the anticipated number of

enrollees in the service area.’’ The

commenter argued that the term ‘‘mix’’

is too vague. Further, as used in the

context of the proposed regulation, the

term could be interpreted to mean

ethnic, language, and cultural diversity,

or various types of specialties. The

commenter recommended that we

articulate this term to ensure that rights

and protections are not restricted.

Response: The term ‘‘mix’’ is taken

directly from the statute and we have

retained it in this final rule with

comment period. We believe that the

term ‘‘mix’’ refers to provider types, for

example, as we have just noted above,

the appropriate types of specialists. We

note, however, that States will be

required to review documentation

submitted by MCOs to ensure that each

MCO has demonstrated adequate

capacity and services in accordance

with the State’s standards for access to

care. One of the requirements of the

access provisions is that a State ensure

that each MCO provides services in a

culturally competent manner

(§ 438.206(e)(2)).

Comment: We received a number of

comments on proposed § 438.110(c),

which required MCOs to submit the

documentation described in paragraph

(b) at least every two years, specifically

at the time the MCO enters into or

renews a contract with the State, and at

the time the State determines that there

has been a significant change in the

MCO’s delivery network or enrollee

population. A number of commenters

suggested that the two year time frame

for assessing adequate capacity and

services was insufficient and would not

adequately protect enrollees. The

commenters recommended that we

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6287

require an annual assessment of

adequate capacity.

A number of other commenters

suggested that States should have

flexibility in determining when to

require an MCO to provide assurances

of adequate capacity. They argued that

the two year time period specified in the

proposed rule was too arbitrary and

does not tie to existing contracts or

waiver periods. Moreover, they noted

that many States and MCOs assess

adequate capacity within shorter

intervals than the 2-year period

proposed in the regulation. Their

recommendations included a number of

the following options: (1) shortening the

time frame to one year; (2) revising the

rule to allow for certifications to be

submitted with waiver renewals,

contract processes, or other

administrative processes; and (3)

requiring that assurances be sent at a

time period agreed upon by HCFA and

the State.

One commenter specifically noted

that changes in reimbursement, limits

on services, and the existence of closed

panels affect provider composition. This

commenter suggested that we require

States to re-assess provider adequacy if

changes in reimbursement policy or

other factors require a change in

network composition. Another

commenter believed that if there is no

substantial change in the delivery

system, there is no need to re-submit

information at each renewal. Finally,

one commenter questioned how long it

would take HCFA to review provider

networks before approval can be given

of a contract or contract amendment,

since there were no time frames offered

in the regulation for HCFA’s review

process.

Response: The time frames specified

in proposed § 438.110 were never

intended to prohibit a State from

assessing adequate capacity at intervals

shorter than two years. We proposed

that, at a minimum, MCOs must submit

the documentation at least every 2

years, and envisioned that States

regularly would assess adequate

capacity at the time it enters into or

renews a contract with an MCO and

when the State determines that there

has been a significant change in an

MCO’s delivery network or enrollee

population.

In response to commenters concerns,

we have revised the provision in this

final rule with comment period. We

now require the MCO to submit

documentation annually. The MCO is

still required to submit the

documentation at the time it enters into

a contract and any time there has been

a significant change in the MCO’s

operation that would affect capacity and

services. We also in § 438.207(c)(2)

provide examples of what constitutes a

significant change in the MCO’s

operations. Although States are free to

include other changes, we believe, at a

minimum, significant changes include—

(1) a significant MCO service or benefit

change; (2) an expansion or reduction of

the MCO’s geographic service area; (3)

the enrollment of a new population in

the MCO; and (4) a significant MCO rate

change. We also specify that after the

State reviews the documentation from

the MCO, the State must certify to us

that the MCO has complied with the

State’s requirements for availability of

services, as set forth in § 438.206.

Finally, we acknowledge that several

commenters were confused over the

interface of this rule with the section

1915(b) of the Act, waiver review

process. Commenters should be aware

that, if there has been a significant

period of time between the State’s

assessment of adequate capacity at the

time of a waiver renewal, we may ask

the State to update its analysis of

adequate capacity and services as part of

the waiver review process, and may

request documentation of an MCO’s

capacity at that time.

Comment: Several commenters

expressed the view that § 438.110 did

not have any enforcement mechanism.

Citing problems encountered by

American Indians in gaining access to

specialists in voluntary Medicaid

managed care programs, one commenter

suggested that as an enforcement tool,

we compare the rates paid for Medicaid

beneficiaries by an MCO or PHP to those

paid under fee-for-service Medicaid to

ensure that a sufficient amount is paid

to ensure access and availability.

Further, the commenter suggested that

we also direct detection and

enforcement activity at providers that

limit the number of appointments they

make available to Medicaid enrollees.

Another commenter argued that we did

not discuss any consequences to the

MCO should it fail to demonstrate

adequate capacity and services. This

commenter suggested that we address

corrective action plans and other

appropriate consequences in the

regulation. Several other commenters

recommended that the regulation

explicitly describe HCFA’s authority to

determine whether States and MCOs or

PHPs have adequately demonstrated

capacity, and describe HCFA’s ability to

deny FFP if they have not.

Response: In addition to reviewing

managed care contracts, we regularly

monitor the operation of Medicaid

managed care programs throughout the

country. We have a variety of different

monitoring tools, such as reviewing

State reports and MCO or PHP

documentation, interviewing

representatives of the State, MCO or

PHP, interviewing enrollees, reviewing

provider agreements and contracts, and

surveying participating providers.

We also have many mechanisms to

enforce the provisions of this section.

They range from issuing letters and

corrective action plans to imposing

terms and conditions under waiver

programs, to conducting regular on-site

monitoring reviews, and to withholding

FFP under § 438.802(c) of this final rule

with comment period (see section II. H.

below). Our goal is to work with States

to resolve problems and take action, as

appropriate for the particular

circumstances.

We note, in response to the

commenter’s concern regarding access

to specialists under managed care, that

section 1903(m)(1)(A)(i) of the Act

requires an MCO to ‘‘make services it

provides to individuals eligible for

benefits under this title accessible to

individuals to the same extent as such

services are made accessible to

individuals (eligible for Medicaid

assistance under the State plan) not

enrolled with the organization.’’

Accordingly, under managed care,

States must ensure that MCOs provide

Medicaid enrollees access to contracted

services to the same extent such access

is available under fee-for-service. Again,

FFP could be disallowed in the case of

a failure to comply.

Comment: We received a few

comments questioning whether there is

an adequate process for input and

disclosure with regard to proposed

§ 438.110. One commenter

recommended that we require public

disclosure, upon request, of criteria

used by an MCO or PHP to select and

monitor the performance of health care

providers, including those providing

specialty services to persons with

chronic diseases or disabilities. The

commenter further recommended that

the final rule with comment period

require public disclosure of QISMC and

accreditation surveys, arguing that we

should require the same disclosure of

quality assurance in Medicaid managed

care as required under the

Medicare+Choice program.

Another commenter recommended

that we require States and HCFA to

provide public access to documents,

provide reasonable notice of pending

review, permit public comment, and

hold review hearings as appropriate.

Finally, several commenters

recommended that we require States to

obtain input from consumers, consumer

advocates, and medical providers, for

6288 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

use in setting access standards. They

suggested that States may do this

through MCAC, proposed rulemaking,

or public hearings on proposed State

plan amendments.

Response: In § 438.202(c) of this final

rule with comment period, we require

the State to provide for the input of

recipients and other stakeholders in the

development of the quality assessment

and performance improvement strategy,

including making the strategy available

for public comment before adopting it in

final. We believe that the quality

strategy required in § 438.202(c) is the

appropriate venue for public input with

respect to State requirements governing

MCO assurances of adequate capacity

and services.

In § 438.207 of this final rule with

comment period, we do not impose

specific requirements with respect to

public disclosure of documentation. We

hope that States, consistent with their

own laws, will provide enrollees and

other stakeholders access to all relevant

documentation submitted by MCOs to

demonstrate their capacity to deliver

contracted services. We note that States

and MCOs, PCCMs, and PHPs must

comply with the enrollee information

requirements in § 438.10.

Comment: A few commenters

questioned whether we would consider

granting waivers of the requirement

under proposed § 438.110 that adequate

capacity be assured. One commenter

recommended that MCOs be granted

waivers from this requirement if they

can demonstrate that a good faith effort

has been made to solicit providers to

participate in the MCO’s network. The

commenter asserted that there may not

be an appropriate mix or geographic

distribution of providers in certain

areas, and there may be a limited

number of specialty providers. The

commenter suggested that, if the MCOs

can demonstrate that there are not

enough Medicaid providers for a

particular zip code, they should be

permitted to allow enrollees to go out of

the service area.

Response: The provisions of

§ 438.206, Availability of services, allow

States flexibility in designing standards

for access to care. States should take

into consideration locations where

certain provider types may not be

available. In these cases, States may

permit MCOs to make arrangements

with other providers outside of an

MCO’s service area in order to ensure

capacity and services adequate to meet

the needs of the enrollee population.

As a general rule, § 438.206 requires

the MCO to maintain and monitor a

network of appropriate providers. We

recognize, however, that geographic

mail distribution of providers,

limitations in the number of certain

providers nationally, as well as other

factors, may make it difficult for MCOs

to always be able to construct a provider

network that will be able to address all

the health care needs of its enrollees.

For example, we acknowledge that the

MCO’s providers may not always be

experienced in providing care to an

individual who has a rare condition.

Consequently, in § 438.207(b)(4) we

require MCOs to have policies and

practices to address unanticipated

scarcity of providers to meet the health

care needs of the enrolled population.

Specifically, these policies and

procedures should address the

following: (1) the unanticipated need for

providers with particular types of

experience; and (2) the unanticipated

limitation of the availability of such

providers. In addition, § 438.206(d)(5)

provides that if MCO’s network is

unable to meet an enrollee’s needs, the

MCO must permit the enrollee to access

out-of-network providers.

Comment: One commenter specified

that since deeming is allowed under

section 1932(c)(2)(B) and (C) of the Act,

we should allow States to deem an MCO

or PHP as having met the requirements

of § 438.110, if the organization has

been accredited by a recognized

accrediting body or has been Medicare

certified.

Response: Section 1932(c)(2)(B) of the

Act provides that States have the option

of substituting private accreditation for

the external quality review (EQR)

required under section 1932(c)(2)(A) of

the Act when EQR activities would

duplicate an accreditation review.

Section 1932(c)(2)(C) of the Act

provides States the option to forgo EQR

under section 1932(c)(2)(A) of the Act

when the Medicaid MCO also has a

Medicare+Choice contract in effect, and

has complied with Medicaid EQR

requirements for at least two years. The

deeming provisions cited by the

commenter only applies to the EQR

requirements in section 1932(c)(2)(A)of

the Act, and have no applicability to the

requirement for assurances of adequate

capacity in section 1932(b)(5) of the Act

implemented in proposed § 438.110 and

§ 438.207 of this final rule with

comment period. This final rule with

comment period requires that

assurances of adequate capacity be

made at the time of contract approval

and annually thereafter. We believe that

it is essential that an adequate provider

network be in place when beneficiaries

are first enrolled in an MCO. The EQR

activities are retrospective, that is, they

take place after the fact and review for

adherence to standards. While we

believe that the EQR review is

important, it is not an appropriate

substitute for an assurance of adequate

capacity.

Comment: We received a few

comments questioning our proposal to

eliminate part 434, subpart E from the

regulations; specifically, the

requirements under § 434.50(b) and

§ 434.52. Under § 434.50(b), a State was

required to obtain proof from each

contractor, of the contractor’s ability to

provide services under the contract

efficiently, effectively, and

economically. Under § 434.52, a State

agency was required to obtain proof that

each contractor furnished the health

care services required by the enrolled

recipients as promptly as is appropriate,

and that the services met the agency’s

quality standards.

Commenters argued that these

sections contain important consumer

protections that should be maintained.

Further, commenters asserted that the

proposed rule no longer requires the

State to obtain assurances that the

services meet the State’s quality

standards, and only addresses the

theoretical availability of services as

opposed to whether the services are

provided in a timely fashion.

Response: We believe that it would be

confusing and redundant to retain these

requirements. In part 438, we

incorporate and expand upon the

requirements previously set forth in

subpart E of part 434. We disagree that

the provisions in the proposed and this

final rule with comment period no

longer require a State to obtain

assurances that an MCO’s services meet

the State’s quality standards, and only

address the theoretical availability of

services. In this final rule with comment

period, States must develop a quality

assessment and improvement strategy

that requires MCOs to meet State

standards for access to care and to

submit documentation demonstrating

adequate capacity and services. In

particular, we note that one of the

access requirements is that MCOs

adhere to the State’s standards for

timely access to care (§ 438.206(e)(1)).

7. Emergency and Post-Stabilization

Services (§ 438.114)

Section 1932(b)(2) of the Act provides

that each contract with an MCO or

PCCM must require the MCO or

PCCM—(1) to provide coverage of

emergency services without regard to

prior authorization, or the emergency

care provider’s contractual relationship

with the MCO or PCCM; and (2) to

comply with guidelines established

under section 1852(d)(2) of the Act

(with respect to coordination of postVerDate 11<MAY>2000 21:50 Jan 18, 2001 Jkt 194001 PO 00000 Frm 00062 Fmt 4701 Sfmt 4700 E:\FR\FM\19JAR7.SGM pfrm01 PsN: 19JAR7
Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6289

stabilization services) in the same

manner as those guidelines apply to

Medicare+Choice plans.

In proposed § 438.114, we set forth

the rules implementing these emergency

and post-stabilization requirements. We

proposed definitions of emergency

medical condition, emergency services,

and post-stabilization services. We

proposed to require MCOs to provide

specific information regarding

emergency and post-stabilization

services to enrollees at the time of

enrollment and annually thereafter. We

also outlined proposed rules for

coverage and payment of these services.

We interpreted the term ‘‘coverage’’ to

mean that an MCO that pays for hospital

services generally must pay for

emergency services obtained by

Medicaid enrollees. We interpreted

coverage in the primary care case

management context to mean that the

PCCM must allow direct access to

emergency services without prior

authorization. We applied different

meanings to the term ‘‘coverage’’

because while PCCMs are primarily

individuals paid on a fee-for-service

basis, they receive a State payment to

manage an enrollee’s care. We

determined that while PCCMs, unlike

MCOs, are not likely to be involved in

a payment dispute involving emergency

services, they could be involved in an

authorization dispute over whether a

self-referral to an emergency room is

authorized without prior approval of the

PCCM. Accordingly, proposed

§ 438.114(d)(2) provided that enrollees

of PCCM are entitled to the same

emergency services coverage without

prior authorization as is available to

MCO enrollees under section 1932(b)(2)

of the Act.

Section 1932(b)(2)(B) of the Act

defines emergency services as covered

inpatient or outpatient services that are

furnished by a provider qualified to

furnish services under Medicaid that are

needed to evaluate or stabilize an

emergency medical condition.

Emergency medical condition is defined

in section 1932(b)(2)(C) of the Act as a

medical condition manifesting itself by

acute symptoms of sufficient severity

(including severe pain) that a prudent

layperson, who possesses an average

knowledge of health and medicine

could reasonably expect the absence of

immediate medical attention to result in

placing the health of the individual (or

with respect to a pregnant woman, the

health of the woman or her unborn

child) in serious jeopardy, serious

impairment to bodily functions, or

serious dysfunction of any bodily organ

or part. While this standard

encompasses clinical emergencies, it

also clearly requires MCOs to base

coverage decisions for emergency

services on the severity of the symptoms

at the time of presentation and to cover

examinations when the presenting

symptoms are of sufficient severity to

constitute an emergency medical

condition in the judgment of a prudent

layperson. The above definitions were

set forth in proposed § 438.114(a). The

identical definitions appear in the

Medicare+Choice rules at § 422.113(b)

and therefore, to avoid duplication, we

incorporate those definitions by

reference in this final rule with

comment period.

Comment: One commenter stated that

no protections now exist to require

MCOs to cover ambulance services. The

commenter cited proposed § 438.100(b),

which states that Medicaid contracts

with MCOs, PCCMs, or PHPs must

either provide for all Medicaid services

covered under the State plan or make

arrangements to furnish those services.

The commenter asserted that ambulance

services should be covered in this

regulation based on the authority in

§ 440.170(a), which states that

transportation is a Medicaid covered

service.

Response: Section 440.170(a) applies

to non-emergency transportation, which

is an optional Medicaid service that

States may choose to provide or not to

provide. Ambulance services are not

included in the definition of

‘‘emergency services,’’ as that definition

refers to ‘‘inpatient or outpatient

services.’’ If a State covers ambulance

services under its State plan, and these

services are included in an MCO’s

contract, then the MCO must cover the

ambulance services under the same

terms they are covered under fee-forservice Medicaid. We recognize that the

Medicare program has separate statutory

authority to cover ambulance

transportation when other

transportation may jeopardize an

enrollee’s health, and that the

Medicare+Choice statute thus obligates

Medicare+Choice organizations to cover

them. We do not, however, have that

same statutory authority in the

Medicaid program.

Comment: We received a number of

comments on the rules governing poststabilization care. Some commenters

objected to requiring pre-approval from

MCOs, PHPs, or PCCMs for poststabilization services. Others opposed

requiring an MCO, PHP, or PCCM with

a risk contract that covers poststabilization services to pay for those

services without pre-approval if the

MCO, PHP, or PCCM does not respond

within one hour after receiving the

provider’s request or cannot be

contacted for approval. The commenters

believe that the requirement is too

burdensome and the time frame is too

short for an MCO, PHP, or PCCM to

make an informed decision. Others

thought the time period was too long for

emergency physicians who must keep

track of patient condition and be

responsible for the stability of the

patient. Some commenters believed that

our preamble definition of poststabilization was inconsistent with the

definition in the regulation. They noted

that the proposed definition in the

preamble better described ‘‘maintenance

care,’’ and that it should not be used in

place of the regulation definition.

Response: We acknowledge that the

definition of post-stabilization in the

preamble differed from that in the

proposed regulations text, and that the

preamble definition was not consistent

with the Medicare+Choice definition

that we are required to apply to

Medicaid under section 1932(b)(2)(A)(ii)

of the Act. We regret any confusion that

this may have caused.

Under the Medicare+Choice

definition at § 422.113(c)(1), poststabilization care services means

‘‘covered services, related to an

emergency medical condition, that are

provided after an enrollee is stabilized

in order to maintain the stabilized

condition, or * * * to improve or

resolve the enrollee’s condition.’’ The

Medicare+Choice rules create a two-step

process for post-stabilization care. The

first step occurs during the one-hour

time frame, while the hospital waits for

a response from the MCO. The second

step occurs after the first hour. When

the MCO receives a call from the

treating hospital requesting prior

authorization or transfer, the MCO has

one hour to make a decision on a course

of treatment, and respond to the treating

hospital. During that one hour, the MCO

is responsible for services related to the

emergency medical condition that are

necessary to maintain stabilization. Any

period of instability that rises to the

level of an emergency medical condition

that occurs during this time would be

covered under provisions at § 422.113(b)

related to emergency services.

The rule further establishes that if the

MCO fails to respond within the onehour time frame, or the MCO cannot be

reached, the treating physician can

proceed with post-stabilization services

that are administered not only to ensure

stability, but also to improve or resolve

the patient’s condition. If a

nonphysician MCO representative and

the treating physician cannot reach an

agreement on a course of treatment, the

MCO must allow the treating physician

to speak with a plan physician and the

6290 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

treating physician may proceed with

care administered to improve or resolve

the patient’s condition until a plan

physician is reached.

The MCO is financially responsible

for post-stabilization services until the

MCO and the treating physician execute

a plan for safe transfer of responsibility.

Safe transfer of responsibility should

occur with the needs and the condition

of the patient as the primary concern, so

that the quality of care the patient

receives is not compromised.

Comment: Many commenters

recommended that we broaden the

definition of emergency services to

include coverage of ‘‘urgently needed’’

services. The commenters believe that

expanding the definition would allow

enrollees more leeway in seeking care in

an emergency department for conditions

that may benefit from earlier

intervention. Some commenters stated

that this policy would create a margin

of safety for enrollees who may

underestimate the severity of their

illnesses and delay care if only the

prudent layperson standard applies.

Response: The Congress has defined

the obligations of an MCO to cover

services received outside of an MCO’s

network. While MCO’s are obligated to

cover emergency services and poststabilization services, there is no

counterpart under the Medicaid statute

for the obligation under section

1852(d)(C)(i) of the Medicare statute to

cover ‘‘urgently needed services.’’ This

latter obligation generally applies only

when an individual is out of the

Medicare+Choice organization’s service

area, since it only permits services to be

covered when they were not available

through the organization’s network.

Since Congress in the BBA chose to

obligate Medicare+Choice organizations

to cover ‘‘urgently needed services, but

chose not to do so in the same law in

the case of Medicaid-contracting MCOs’

we believe it would be inconsistent with

Congressional intent to impose an

obligation on MCOs to cover urgently

needed services received out of area.

Comment: One commenter noted that

some MCOs used a retrospective

utilization review process to accept or

deny an emergency claim based on a

professional assessment of the nature of

the emergency. The commenter believes

that this violates the prudent layperson

standard.

Response: Retrospective utilization

review does not necessarily conflict

with the prudent layperson standard as

long as the MCO (or the State) reviews

all documentation, takes into account

the enrollee’s presenting symptoms and

applies the prudent layperson standard

in making its determination. If the

retrospective review reveals that the

enrollee acted in a manner consistent

with the prudent layperson standard,

the enrollee may not be held liable for

any additional costs even if it turned out

that the case did not present a clinical

‘‘emergency’’ (that is, even if it turned

out that the reasonable belief of a

‘‘prudent layperson’’ was incorrect).

Section 438.114(e)(2) of this final rule

with comment period expressly states

that an enrollee who has an emergency

medical condition may not be held

liable for payment of subsequent

screening and treatment needed to

diagnose the specific condition and

stabilize the patient.

Comment: Many commenters were

concerned that requiring MCOs, PHP,

and PCCMs to provide a list of

emergency settings and any other

locations at which MCO, PHP, or PCCM

physicians and hospitals provide

emergency services covered under

contract would imply that enrollees may

not use any hospital or other proper

setting for emergency care, but rather

are limited to using participating

hospitals. They suggested that we

require that the list be accompanied by

a clear statement of the enrollee’s right

to use any hospital or other setting for

emergency care consistent with this

section. One commenter requested that

we prohibit MCOs from using lists of

examples in their instructional materials

of when it is inappropriate to use an

emergency room because people with

certain disabilities may require

emergency treatment for some

conditions that would not be

emergencies for the general population.

Response: We agree with the first

comment and have revised § 438.114(b)

of this final rule with comment period

to include as item (5) of the information

that must be provided to enrollees and

potential enrollees, the fact that, subject

to the requirements of the section, the

enrollee has the right to use any hospital

or other setting for emergency care.

We believe that it is appropriate for

MCOs, as well as States, to educate

enrollees as to when they should or

should not access emergency care.

However, we have deleted the

requirement that information provided

to enrollees and potential enrollees

include appropriate use of emergency

services. States and MCOs can best

determine how and when to provide

this education to enrollees. Further, to

monitor the appropriateness of the

information provided, we encourage

States to establish information

requirements and review enrollee

emergency information from MCOs

before it is released.

Comment: Some commenters

suggested that information regarding

access to and availability of emergency

and post-stabilization services should be

available to potential enrollees upon

request at any time, and this

information should be posted

prominently in emergency rooms and in

providers’ offices.

Response: We agree that potential

enrollees should receive information

regarding emergency care access. We

have revised the introductory text of

§ 438.114(b) to require that the

information be furnished to potential

enrollees upon request. We encourage

States, MCOs, PHPs, and PCCMs to

disseminate information on access to

enrollees as broadly as possible. We do

not agree that we should require that

this information be posted in emergency

rooms as this is more appropriately

provided by the State or the MCO, PHP,

or PCCM.

Comment: Some commenters

suggested that the MCO, PHP, or PCCM

or State should be required to provide

the enrollee with information regarding

the education and board certification

and recertification status of the health

care professionals staffing the

emergency departments in the enrollees’

geographical region. They noted that

under proposed § 438.10(f)(2)(ii), this

information is provided only upon

request. The commenters explained that

in emergencies, the enrollee will not

have time to choose which emergency

department to use and that unless the

enrollees have the information on the

education and board certification and

recertification status ahead of time, they

will not be able to use these markers of

quality in an emergency situation.

Response: Under section § 438.10,

enrollees may request information from

MCOs, PHPs, and PCCMs regarding

education and board certification status

of its participating health care

professionals and hospitals. If enrollees

are particularly concerned about these

issues, they may request the information

immediately upon enrollment so that

they have it available before they need

emergency services.

Comment: Some commenters believed

that the regulations should prohibit

MCOs from developing lists of

‘‘symptoms’’ and diagnoses for coverage

of emergency services under the

‘‘prudent layperson’’ standard. In these

commenters’ view, the development of

such lists is an attempt to establish

plan-specific ‘‘prudent layperson’’

standards in the commenters’ view, and

could have the effect of vitiating

legislative intent. They believe that lists

should be expressly prohibited, and that

the prudent layperson standard requires

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6291

review on a case-by-case basis that

considers not only the patient’s

complaint, but also age and medical

history. The commenters suggest

revising the regulation to prevent the

use of lists under the prudent layperson

definition. If such lists are permitted,

these commenters believe that MCOs

should be required to conduct broad

scale enrollee education regarding the

list of symptoms for coverage of

emergency services. One commenter

suggested that we add the following

language to § 438.114: ‘‘What constitutes

an emergency medical condition with

reference to the definitions in paragraph

(a) of this section cannot be limited by

lists of diagnoses or symptoms, or by

retrospective audits based on such

restrictive emergency lists, including

refusal by the MCO, PHP, or PCCM, to

process any claim which does not

contain the primary care provider’s

authorization number.’’ Another

commenter also stated that some MCOs

require the primary care provider’s

authorization number to appear on filed

claims in order to receive

reimbursement, and that this conflicts

with the prudent layperson standard

Response: We believe that the use of

authorization codes in the payment

approval process may be an effective

and efficient way for a State, MCO, or

PHP to avoid the need to apply the

prudent layperson standard on a caseby-case basis, in that it can be assumed

that the primary care physician has

already done so. However, the absence

of such an authorization cannot be used

to deny an emergency room claim.

Denials must be based on a case-by-case

review applying the ‘‘prudent

layperson’’ standard. We agree with the

commenter’s suggestion that this final

rule with comment period should state

what constitutes an emergency may not

be limited ‘‘on the basis of diagnoses or

symptoms,’’ and have included a

provision in § 438.114(e)(1)(i) of this

final rule with comment period. We also

agree that the regulations should

expressly state that coverage of

emergency room services cannot be

denied based on the fact that it does not

contain the primary care provider’s

authorization number. This suggestion

is reflected in section 438.114(e)(1)(ii) of

this final rule with comment period.

With respect to the question of

‘‘retrospective’’ audits, we have

addressed this above, and believe that

this is addressed in the regulations in

§ 438.114(d)(1)(ii)(A) that makes it clear

that coverage cannot be denied because

the symptoms turned out not to be a

‘‘real’’ emergency in the sense that

health was really at risk in the sense a

prudent layperson might reasonably

believe it would be. This should not be

construed as mandating States, MCOs,

or PHPs to pay a claim if the hospital

or other provider has not submitted the

pertinent documentation within either

reasonable, or where applicable, legal

time frames.

Comment: One commenter believed

that the provisions of proposed

§ 438.114(f) that requires the attending

physician to determine when an

enrollee is stable, is an important

safeguard to ensure that the person most

knowledgeable about the enrollee’s

current condition will make this

determination. Others disagreed, stating

that allowing the attending physician to

be the sole person to determine when an

enrollee is stabilized enough for transfer

may undercut the MCO’s ability to

manage inpatient services and has

potential for abuse. These commenters

recommended allowing the attending

physician’s decision to come under

retrospective review.

Response: Once an emergency

medical condition is acknowledged, the

emergency physician is in the best

position to decide when stabilization is

achieved. As noted above, section

1932(b)(1)(2)(A)(ii) of the Act requires

that MCOs and PCCMs follow the ‘‘poststabilization’’ guidelines established for

the Medicare+Choice program under

section 1852(d)(2) of the Act. The

Medicare+Choice regulations state that

the emergency physician decides when

a patient is stable, and that this decision

is binding on Medicare+Choice

organizations. Because

Medicare+Choice post-stabilization

rules govern Medicaid, we would have

no discretion to adopt a different rule

for Medicaid even if we agreed with the

commenter.

Comment: Commenters expressed

concern that MCOs will argue that in

some cases, coverage of screening is not

covered under the definition of

emergency services in proposed

§ 438.114, even in cases in which a

screening is required under the

Emergency Medical Treatment and

Labor Act (EMTALA). These

commenters contended that MCOs

frequently refuse coverage, relying on

their own definitions of reimbursable

emergency services, when these

definitions are more narrow than what

the hospital is required to cover under

EMTALA requirements. This policy

places physicians and hospitals in the

position of being legally obligated to

render treatment for which they will not

be paid. Some commenters recommend

adding in the emergency services

definition that ‘‘evaluate or stabilize,’’

includes those services required under

EMTALA. One commenter

recommended adding ‘‘within the

meaning of 42 U.S.C. 1395dd’’ at the

end of the emergency services definition

at proposed § 438.114(a)(2), and adding

preamble language that states that the

MCO must ‘‘pay for the cost of

emergency services obtained by

Medicaid enrollees.’’ However, one

commenter stated that under such a

definition, an emergency condition

exists if certain acute symptoms are

manifested even though the underlying

condition may not be an emergency.

The commenter asserted that EMTALA

requirements are expansive, and would

result in more emergency room services

being approved for payment. This

commenter believed additional benefits

to Medicaid beneficiaries are

appropriate, but that unless additional

funding is provided, expanding

emergency services effectively creates

an unfunded mandate for additional

services for which an MCO will have to

pay.

Response: The definition of

emergency services includes the

evaluation necessary to stabilize a

patient with an emergency medical

condition. We believe that all screening

(beyond the initial routine procedures

for example, checking blood pressure

and, temperature) used to determine

whether an emergency medical

condition actually exists involve

medical screens and tests that would

have to be covered. We do not agree that

MCOs should be required to cover any

screening required under EMTALA. The

Congress only required MCOs to cover

services if the ‘‘prudent layperson’’

standard is satisfied. Under EMTALA, a

hospital would have certain screening

obligations even in a case in which the

prudent layperson standard clearly was

not met, but an individual nonetheless

presented themself for treatment at an

emergency room. Because the Congress

limited an MCO’s obligation to

situations in which the ‘‘emergency

medical condition’’ definition

containing the prudent layperson

standard is met, we would have no

authority to require MCOs to pay for

services when this definition is not met,

even if EMTALA would require the

hospital to incur costs. Under this

regulation, MCOs may not refuse

coverage by relying on their own

definition of reimbursable emergency

services if the prudent layperson

standard is met, regardless of EMTALA.

We are not addressing the issue of

additional funding for emergency

services in this regulation. We note,

however, that under § 438.6(c) all

capitation rates paid under risk

contracts must be actuarially sound and

6292 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

appropriate for the services to be

furnished under the contract.

Comment: Some commenters were

concerned that States will attempt to

obtain a waiver of the emergency

services provisions in the BBA under

section 1915(b) of the Act or section

1115 of the Act, and require prior

authorization for emergency services.

They recommend not allowing the

emergency services section to be waived

through section 1915(b) of the Act or

section 1115 of the Act.

Response: We view access to

emergency services using the prudent

layperson standard as an important

enrollee protection and we do not

foresee a circumstance under which we

would exercise our authority under

section 1115 of the Act to permit an

MCO to engage in prior authorization.

We note that section 1915(b) of the Act

only permits waivers of section 1902

provisions, and would not provide

authority to permit prior authorization

even if we were inclined to do so.

Comment: Some commenters

recommended that we establish a

central contact point at HCFAs central

and regional offices where individuals

and entities could direct inquiries

regarding State and MCO or PCCM

activity with respect to emergency

services, establish a process for

obtaining a timely remedy for these

concerns, and clearly set out penalties

that States or HCFA can impose for

violations of the regulations and statute.

Response: The appropriate HCFA

regional office should be contacted

regarding any concerns about

application of the emergency services

provision of the regulation. In turn, our

regional office will contact the central

office should they need policy guidance.

This is the regular procedure within

HCFA and we believe it appropriate to

follow it for these issues as well as all

others. We note, with respect to

penalties, that a failure to comply with

the requirements in § 438.114 would

constitute a failure to comply with

section 1932(b)(2) of the Act, and would

be sanctionable under § 438.700(d) of

this final rule with comment period.

Comment: One commenter

recommended stating in § 438.114 that

copayments not permitted under fee-forservice may not be imposed for

emergency services under managed

care.

Response: Restrictions on copays in

managed care are by statute, the same as

for fee-for-service. This issue is

addressed in the comments on

§ 438.108, which incorporates the feefor-service limits on cost-sharing in

§ 447.50 through § 447.58.

Comment: One commenter believed

that the provision of information that

describes or explains what constitutes

an emergency should be the

responsibility of the State and should

not be left to the MCO. The commenter

recommended allowing States to

provide information on what constitutes

an emergency service. Others stated that

the provision at § 438.114(b) requires

States, MCOs, and PHPs to provide

information annually, especially on

post-stabilization because it is

burdensome, unnecessary, and

potentially confusing to enrollees.

Others suggested removing the annual

requirement or making information

available upon request of the enrollee.

Response: We have revised

§ 438.114(b) to require that the

information must be furnished by the

State or at State option, by the MCO,

PHP, or PCCM. We believe that States

should be permitted to delegate this

dissemination responsibility to MCOs,

PHPs, or PCCMs. We do not believe that

it is too burdensome to require this

information, including post-stabilization

requirements to be furnished on an

annual basis and therefore, we have

retained this requirement. We note that

under the Medicare+Choice program,

we also require that information

regarding emergency services be

provided annually.

Comment: One commenter believed

that HCFA should include in the

regulatory text, rather than just the

preamble, a statement that MCOs must

pay for the cost of emergency services

obtained by Medicaid enrollees. Some

commenters felt that the language in

proposed § 438.114(e)(1)(i) was

confusing, and did not make clear that

MCOs must pay for treatment at

facilities outside its network. They

suggested replacing paragraph (i) with

‘‘(i) An enrollee had an emergency

medical condition as defined at

§ 438.114(a).’’ However, some

commenters disagreed, stating that the

language clearly articulates the

requirement to cover and pay for

emergency services that meet the

prudent layperson standard.’’

Response: While we have not changed

the policy, we have clarified the

requirements in this section by revising

paragraph (d) to state that the specified

entities must cover and pay for

emergency services regardless of

whether the entity that furnishes the

service has a contract with the MCO,

PHP, or PCCM. In addition, we specify

that the entities may not deny payment

for treatment obtained when either—(1)

an enrollee had an emergency medical

condition, including cases in which the

absence of immediate medical attention

would not have had the outcomes

specified in the definition of emergency

medical condition, or (2) a

representative of the MCO, PHP, or

PCCM instructs the enrollee to seek

emergency services. This paragraph also

outlines the coverage and payment rules

that apply to PCCMs not responsible for

payment.

Comment: One commenter believed

that paragraph (b)(6) concerning

preauthorization was confusing. The

commenter noted that ‘‘prior

authorization,’’ ‘‘pre-authorization,’’ and

‘‘pre-approved’’ are used synonymously

throughout the regulation and that we

should choose one word to be

consistent. They recommend revising

(b)(6) to read, ‘‘* * * but payment is

required if the MCO does not provide

prior authorization within an hour

***’’ and choose one word for prior

authorization throughout.

Response: We agree with the

commenter and have adopted the term

‘‘prior authorization’’ throughout the

regulation. In addition, we have revised

§ 438.114(b) to add to the list of required

information the post stabilization rules

set forth at § 422.113(c) of the Medicare

regulations. Proposed paragraph (c)

(coverage and payment for poststabilization services) has been replaced

by a paragraph (f) that provides for

coverage and payment ‘‘in accordance

with § 422.113(c) of this chapter.’’

Comment: Some commenters urged

that the regulation make clear that the

attending physician determines the

point at which prior authorization must

be sought for post-stabilization services.

One of the commenters recommended

changing ‘‘attending physician’’ to

‘‘emergency physician’’ to clarify who is

actually physically present caring for

the patient.

Response: We agree with the

commenters’ point, and in this final rule

with comment period at § 438.114(e)(3),

we use the term ‘‘attending emergency

physician’’ to describe who determines

that the patient’s condition is stable.

Comment: One commenter suggested

replacing ‘‘MCE physicians’’ in

proposed § 438.114(b)(4) with ‘‘MCO,

PHP, or PCCM providers’’ to accurately

reflect the full range of qualified health

professionals.

Response: We agree with the

commenter and have revised paragraph

(b)(4) as suggested (as noted above, we

have also replaced references to ‘‘MCEs’’

with references to all entities subject to

the rule, in this case, MCOs, PHPs, and

PCCMs). In addition, we are changing

‘‘practitioner’’ in proposed § 438.114(f)

to ‘‘provider’’ in § 438.114(e)(3) of this

final rule with comment period.

However, we want to make clear that an

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6293

emergency physician must provide

oversight to those providers who are not

physicians.

Comment: Some commenters

suggested striking the phrase ‘‘with an

average knowledge of health and

medicine’’ from the definition of

emergency services at § 438.114(a). The

commenters believe the phrase is

ambiguous and likely to invite legal

challenge because what is average in

one community or culture may be

different in another.

Response: The language referenced by

the commenters is in the statute and

therefore we have retained it.

Comment: Some commenters question

the meaning of proposed § 438.114(c)(4),

specifying the circumstances under

which the State must pay for poststabilization services not covered under

an MCE (that is, MCO or PCCM) risk

contract. The commenters recommend

stating, ‘‘if post-stabilization services are

not covered by an MCO, PHP, or PCCM

risk contract, the State must pay for all

medically necessary services.’’

Response: We agree with the

commenters that the language in

proposed § 438.114(c)(4) was confusing.

We have replaced this section with a

reference to the post-stabilization

requirements in § 422.113(b) of the

Medicare+Choice regulations. We note

that if the hospital contacts the MCO,

PHP, or PCCM for prior approval, and

the MCO, PHP, or PCCM determines

that it is not at risk for that specific

service because it is not obligated to

cover the service under its contract,

then it should refer the hospital to the

appropriate payer. For example, if a

hospital contacts an MCO for prior

approval for mental health services after

the enrollee has been stabilized and the

MCO contract does not include mental

health services, then the MCO should

refer the hospital to either the State or

the appropriate PHP.

Comment: Many commenters believed

that the prudent layperson standard is

not easily adapted to non-medical

conditions such as behavioral health

which is not generally evaluated based

on impairment of bodily function or

dysfunction of a bodily organ or part.

The commenters felt that individuals

with mental health problems should

have the same protections as others who

may experience a medical emergency.

Other commenters stated that the

concept of ‘‘danger to others’’ inherent

in many definitions of emergent

behavioral health conditions is absent

and arguably is not easily assessed by a

person untrained in the assessment of

behavioral health risks. They suggested

separately defining urgent conditions as

mental health crises that require

immediate treatment to avoid

hospitalization, and suggested

establishing authorization criteria

similar to post-stabilization criteria in

the proposed rule. One commenter

believed that both the ‘‘danger to

others’’ and ‘‘prudent layperson’’

standards could be used simultaneously

without violating the regulations. Other

commenters suggested that the

emergency medical condition definition

encompasses mental illness as well as

physical illness because it states ‘‘***

could reasonably expect the absence of

immediate medical attention to result in

placing the health of the individual in

serious jeopardy * * *’’

Response: We agree that the

emergency medical condition definition

using the prudent layperson standard

pertains to mental health as well as

physical health. We note that this is also

the case with EMTALA. We believe that

the reference to ‘‘placing the health of

the individual in serious jeopardy’’ is

sufficient to cover mental health

emergencies.

8. Solvency Standards (§ 438.116)

Section 4706 of the BBA added new

solvency standards to section

1903(m)(1) of the Act, requiring that an

MCO’s provision against the risk of

insolvency meet the requirements of a

new section 1903(m)(1)(C)(i) of the Act

unless exceptions in section

1903(m)(1)(C)(ii) of the Act apply.

Under section 1903(m)(1)(C)(i) of the

Act, the organization must meet

‘‘solvency standards established by the

State for private health maintenance

organizations’’ or be ‘‘licensed or

certified by the State as a risk-bearing

entity.’’ The exceptions to this new

requirement in section 1903(m)(1)(C)(ii)

of the Act apply if the MCO—(1) is not

responsible for inpatient services; (2) is

a public entity; (3) has its solvency

guaranteed by the State; or (4) is

controlled by FQHCs and meets

standards the State applies to FQHCs.

Section 4710(b)(4) of the BBA provided

that the new solvency standards applied

to contracts entered into or renewed on

or after October 1, 1998. Proposed

§ 438.116 essentially reflected these

statutory provisions. In addition to the

specific comments addressed below, we

received many comments indicating

general support for the implementation

of the new solvency exceptions.

Comment: One commenter expressed

concern that proposed § 438.116(c)(5),

which would exempt MCOs with

contracts entered into on or before

October 1998, will lead to the lack of

beneficiary protection in the event of

insolvency in these plans. The

commenter questioned whether this

exemption applies to contracts in effect

in 1998 as well.

Response: The BBA specified

contracts entered into or renewed on or

after October 1, 1998, as the effective

date of the new solvency requirements.

At this time, all contracts are subject to

the new requirements. In this final rule

with comment period, we have removed

paragraphs (c)(5) and (c)(6).

Comment: One commenter asked if all

MCOs, PHPs, and PCCMs must be

licensed or certified as risk-bearing

entities, and if carve-out services

provided by PHPs would be considered

‘‘public entities,’’ and be exempt from

the solvency standards.

Response: This section does not

require that all MCOs, PHPs, and

PCCMs be licensed or certified as risk

bearing entities. First, the solvency

requirements in this section are only

applicable to MCOs and PHPs, not to

PCCMs. While § 438.116(b)(1) provides

that subject to certain exceptions, an

MCO or PHP must meet the solvency

standards established by the State for

private HMOs, or be licensed or

certified by the State as a risk-bearing

entity. The commenter is correct that

this requirement does not apply to

MCOs that are public entities. With

respect to carve-out services provided

by a PHP, if the PHP is a public entity,

it does not have to meet the private

HMO solvency standards or be licensed

or certified by the State as a risk bearing

entity. However, the PHP would still

have to make assurances satisfactory to

the State that it has adequate provision

against the risk of insolvency.

Comment: One commenter questioned

whether in a subcontracting situation,

the subcontractor would be subject to

the solvency standards. The commenter

noted that it is important for all entities

serving Medicaid beneficiaries be

solvent.

Response: We agree that it is

important for all entities serving

Medicaid enrollees to be solvent. We

believe that the responsibilities of

subcontractors and MCOs with respect

to their subcontractors are adequately

addressed in other sections. We note

that § 438.6(l) provides that all

subcontracts must fulfill the

requirements of this part that are

appropriate to the service or activity

delegated under the subcontract. In

addition, § 438.230 requires that the

State ensure that each MCO oversees

and is accountable for any functions and

responsibilities that it delegates to any

subcontractor. It also requires that each

MCO monitors the subcontractor’s

performance on an ongoing basis and

subjects the subcontractor to formal

review ‘‘according to a periodic

6294 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

schedule established by the State,

consistent with industry standards or

State MCO laws and regulations.’’

Comment: One commenter noted that

under the Medicare+Choice regulations,

MCOs are permitted to apply for a

Federal waiver (preemption) from State

solvency requirements if such

requirements are more stringent that the

Federal PSO requirements. The

commenter suggested that in light of the

availability of waivers in Medicare,

Medicaid regulations should recognize

that some PSOs are not going to meet

State solvency requirements, and permit

their participation in Medicaid managed

care without meeting the State

requirements.

Response: We do not have the

statutory authority to exempt PSOs from

the Medicaid solvency requirements in

section 1903(m)(1) of the Act. The

waiver authority in the BBA for PSOs

that wish to enter into Medicare+Choice

contracts BBA applies only to the

Medicare program.

Comment: One commenter does not

believe that Federally Qualified HMOs

should be exempt from solvency

requirements.

Response: Federally Qualified HMOs

from solvency requirements are subject

to detailed solvency requirements under

title XIII of the Public Health Service

Act and part 417 of this chapter. The

commenter is correct, section

1903(m)(1)(A) of the Act provides that

‘‘an organization that is a qualified

health maintenance organization as

defined in section 1310(d) of the Public

Health Service Act is deemed to meet

the solvency requirements in section

1903(m)(1)(A)(i) and (ii) of the Act.’’

Since this exemption is set forth in the

statute, we do not have the authority to

change it. This comment has prompted

us to recognize that we did not provide

for this exemption in proposed,

§ 438.116, therefore, we have revised

this final rule with comment period.

Comment: Several commenters

asserted that the basic rule of this

section was confusing with respect to

the solvency requirements an MCO

must meet.

Response: In response to this

comment, we have revised § 438.116 to

separate the ‘‘basic rule’’ from the

‘‘other requirements’’ that must be met

as required under section 1903(m)(1)(C).

Comment: One commenter believed

that proposed § 438.116(c)(2) which

provides that the State solvency

requirements in paragraph (b) do not

apply if the MCO is a public entity,

would mean that a county consortium

would not need to meet the State’s

financial solvency requirements. The

commenter asked if these Federal

regulations preempt the State statute.

Response: Section § 438.116(b)(2) in

this final rule with comment period

(§ 438.116(c)(2) in the proposed rule)

does not exempt public entities from all

solvency requirements under Federal

regulation. Section § 438.116(b)(1)

specifies that unless an exception in

paragraph (b)(2) applies, an MCO must

meet the solvency standards established

by the State for private HMOs or be

licensed or certified as a risk bearing

entity by the State. While paragraph

(b)(2) exempts public entities from this

requirement, under § 438.116(a), these

entities must still make assurances

satisfactory to the State showing that

they have adequate provision against

the risk of insolvency. States retain the

flexibility to determine what assurances

must be provided.

Comment: Several commenters

supported the provision that exempts

public entities from solvency standards

imposed on private HMOs.

Response: While we acknowledge the

support of this comment, we would like

to reiterate that public entities are not

exempt from all solvency standards.

Public entities must still provide

assurances satisfactory to the State

showing that they have adequate

provision against the risk of insolvency

in accordance with § 438.116(a).

Comment: One commenter

recommended that Federal requirements

for capitalization should apply to all

managed care organizations. In addition,

the commenter suggested Federal and

State governments should pre-approve

all contracts with managed care

organizations whose enrollees are

primarily Medicaid insured, and require

both Federal and State governments to

guarantee provider payments if

organizations become insolvent.

Response: We do not have statutory

authority to establish Federal

requirements for capitalization to

guarantee payments to providers, or to

require States to do so. However, under

§ 438.6 (Contract requirements), our

Regional Office will review and approve

all MCO and PHP contracts, and under

§ 438.806(b), prior approval by us is

required for all MCO contracts with a

value in excess of $1,000,000. While

there is no Federal requirement that

States guarantee provider payments, if,

under § 438.116(b)(2)(iv), an MCO has

its solvency guaranteed by the State, the

State would be liable for all of the

MCO’s debts, including provider

payments, if the MCO became insolvent.

Comment: One commenter noted that

proposed § 438.116(c) provided that

public entities are not required to meet

the standards a State imposes on its

private HMOs. The commenter

questioned how this policy would affect

a State that imposes the same or similar

requirements on both private and public

HMOs. In addition, the commenter

asked if this provision applies to tribal

governments.

Response: Even though public entities

are not required to meet the solvency

standards established by the State for

private HMOs, public entities are still

required to make adequate assurances

satisfactory to the State that they have

adequate provision against the risk of

insolvency. States still have the

flexibility to determine what assurances

they consider adequate. Therefore, a

State may require that public entities

meet requirements that are the same or

similar to those it imposes on private

HMOs. With respect to tribal

governments, if the MCO operates

outside of the reservation, State

solvency standards apply. But a State

does not have jurisdiction to impose

solvency standards on an on-reservation

tribal MCO as a general operating

condition.

Comment: One commenter expressed

concern that we intend to accept State

solvency standards rather than imposing

Federal solvency standards.

Response: We do not have statutory

authority to require a Federal solvency

standard because the BBA specifically

provides for State flexibility in this area.

D. Quality Assessment and

Performance Improvement (Proposed

Subpart E Recodified as Subpart D)

Background

Section 4705 of the BBA created

section 1932(c) of the Act, paragraph (1)

which requires State agencies that

contract with Medicaid MCOs under

section 1903(m) of the Act to develop

and implement quality assessment and

improvement strategies. Proposed

subpart E (recodified as subpart D in

this final rule with comment period)

implemented section 1932(c)(1 of the

Act), and set forth specifications for the

quality assessment and performance

improvement strategies that States must

implement to ensure the delivery of

quality health care through contracts

with MCOs and (where applicable)

PHPs.

Proposed § 438.302 established

standards for State contracts with MCOs

and PHPs, and required that each State

must have a strategy for continually

monitoring and evaluating MCO and

PHP compliance with those standards.

Proposed § 438.304 set forth minimum

elements required in each State’s quality

improvement strategy. Proposed

§ 438.306 set forth standards for

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6295

availability of services addressing: (1)

Beneficiary choice of entities; (2)

services not covered by the MCO or

PHP; (3) the MCO or PHP delivery

network including: assurance of

adequate capacity and services; the right

to access to a women’s health care

specialist; credentialing requirements;

24 hour, seven day per week access; and

convenient hours of operation; (4)

coordination of care including screening

and assessment; (5) procedures designed

to identify and treat pregnancy and

complex and serious medical

conditions, and (6) a cultural

competency requirement.

Proposed subpart E also contained

rules regarding coverage and

authorization decisions (proposed

§ 438.310), provider selection (proposed

§ 438.314), enrollee information

(proposed § 438.318), enrollee rights

(proposed § 438.320), confidentiality

and accuracy of enrollee records

(proposed § 430.324), and enrollment

and disenrollment requirements

(proposed § 438.326).

Additionally, proposed § 438.328

required an effective grievance system

that meets the requirements of subpart

F of this part; and proposed § 438.330

provided for oversight and

accountability by the MCO or PHP of

functions and responsibilities delegated

to subcontractors.

Proposed § 438.340 required that

MCOs and PHPs have an ongoing

quality assessment and performance

improvement program for the services it

furnishes to enrollees; that the

performance improvement programs

achieve any minimum performance

levels required by the State; and that the

MCO or PHP achieves significant and

sustained improvement in significant

aspects of clinical care and non-clinical

care areas that can be expected to have

a favorable effect on health outcomes

and enrollee satisfaction. The State also

would be required under proposed

§ 438.336 to ensure that each MCO and

PHP uses practice guidelines meeting

specified criteria and under proposed

§ 438.342 to maintain a health

information system that collects,

analyzes, integrates, and reports data on

the achievement of the objectives of this

subpart.

1. Scope (Proposed § 438.300)

Proposed § 438.300 set forth the scope

of subpart E.

Comment: Several commenters found

the provisions in subpart E on Quality

Assessment and Performance

Improvement to be overly prescriptive.

One commenter believed that the lack of

flexibility would prevent States from

accommodating new approaches and

standards in a rapidly changing

marketplace. One commenter contended

that the provisions do not make

allowances for resource limitations of

States, while another suggested that the

provisions of this part are unnecessary

because of our review and approves

MCO contracts.

Response: We understand the concern

that this rule establishes substantial new

requirements for States, MCOs, and

PHPs. However, we believe that these

provisions are important beneficiary

protections, and reflect the intent of the

Congress in enacting the quality and

beneficiary protections of the BBA. As

required by a directive from President

Clinton, we also sought to incorporate

the provisions of the Consumers Bill of

Rights wherever permissible under our

legal authority. When drafting the

proposed rule, we spoke to States as

well as representatives of beneficiaries

to inform ourselves as to their views.

We then tried to strike an appropriate

balance that would reflect the

Congressional intent, but also maintain

flexibility for States, where possible,

and avoid unreasonable burden and

costs on MCOs and PHPs. Public

comment on the proposed rule provided

us an additional opportunity to hear the

opinions of stakeholders. In this final

rule with comment period we make

many of the changes suggested by

commenters.

Comment: Several commenters

believed that these regulations would

discourage or prevent State innovation

in designing managed care programs,

especially as States would fear the loss

of Federal financial participation.

Response: We hope that these

regulations will not have the effect of

discouraging State innovation in

managed care, because we recognize the

important contributions made by States

who have led the way in the past. We

will continue to encourage and support

State innovation in the future. However,

we believe that a formal approach to

quality assessment and improvement is

an essential component of all successful

health care delivery programs, including

managed care programs, and that it is

appropriate to incorporate such formal

quality approaches into Medicaid

managed care programs. We note that

the approaches to quality assessment

and improvement that are contained in

this regulation are consistent with

quality measurement and improvement

activities currently in use throughout

the health care industry

Comment: Several commenters

contended that the quality provisions of

subpart E are so burdensome to MCOs

that this will discourage their

participation in Medicaid managed care.

Response: We are concerned that

some MCOs have decided to leave the

Medicaid market and we have seriously

considered the burden these regulations

carry as we developed this final rule

with comment period. While we have

made some changes in recognition of

this burden, we must balance this

concern with beneficiary concerns

raised by numerous commenters. This is

especially important because the

Medicaid population includes many

individuals with special health care

needs.

Comment: One commenter stated

support for the comprehensive quality

assessment framework of the proposed

rule.

Response: We believe that the statute

intends that State quality strategies be

sufficiently broad to ensure a high

quality of care for Medicaid managed

care enrollees. This is the reason why

we proposed a comprehensive strategy,

and are retaining it in the final rule with

comment period.

Comment: Several commenters

discussed the provision of the BBA that

requires us to conduct a study of the

protections (if any) that may be needed

when enrolling individuals with special

health care needs into managed care.

The commenters believed that we

should have begun the study promptly

following enactment of the BBA so that

the results of the study could be

reflected in the final rule with comment

period.

Response: The research, analysis, and

writing of this BBA-mandated study was

underway during the public comment

period for the proposed rule. As a result,

in analyzing and responding to the

comments, we were able to consider the

comments in light of the findings and

evidence resulting from this study.

While we believe that the proposed rule

addressed the needs of all Medicaid

enrollees, including those with special

health care needs, we have made

revisions to the proposed rule in

response to comments that have been

informed by the findings in the BBA

special needs study.

Comment: Numerous commenters

raised questions about the relationship

of the requirements of subpart E to our

standards and guidelines for Medicaid

and Medicare managed care

organizations contained in our Quality

Improvement System for Managed Care

(QISMC) document. Several

commenters interpreted the regulation

to incorporate QISMC requirements.

One commenter contended it was

unrealistic to expect a small State to

implement QISMC without allowing for

incremental implementation over an

extended period of time. Another

6296 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

commenter suggested that the regulation

should require the use of QISMC, and

that QISMC should be modified and

strengthened by incorporating ideas

contained in our document titled ‘‘Key

Approaches to the Use of Managed Care

Systems for Persons with Special Health

Care Needs.’’ Another commenter

asserted that not requiring States to use

QISMC for Medicaid, when we are using

it for Medicare, discriminates against

Medicaid beneficiaries. Another

commenter asked how future

improvements to QISMC will be

incorporated into the regulations.

Another commenter asked how we will

review State strategies when States

choose not to use QISMC. One

commenter felt that QISMC was

inadequate to improve the health care

provided to vulnerable populations.

Response: All these comments reflect

some confusion about the relationship

of this BBA regulation to QISMC. The

quality provisions of the BBA regulation

and QISMC are similar, but not

identical.

In 1996, before the BBA was enacted,

we began an initiative that aimed, in

part, to—

• Develop a coordinated Medicare

and Medicaid quality oversight system

that would reduce duplicate or

conflicting quality requirements for

Medicaid and Medicare managed care

and send a uniform message on quality

to managed care organizations and

beneficiaries; and

• Make the most effective use of

existing quality measurement and

improvement tools, while allowing

sufficient flexibility to incorporate new

developments in the rapidly advancing

state of quality measurement.

This initiative was QISMC. The most

prominent products of the QISMC

initiative were standards and guidelines

for Medicaid and Medicare-contracting

MCOs. For Medicaid, these standards

updated and replaced earlier standards

sent by us to States as part of the Quality

Assurance Reform Initiative (QARI). The

QARI standards were provided to States

as technical assistance tools for their

discretionary use although most States

with MCO contracts used them, in part

or in whole. QISMC was intended to

replicate the success of QARI, in part by

disseminating revised standards that

reflected advances in private sector

accreditation standards, as well as

advances in quality measurement and

improvement in both the public and

private sectors.

After the BBA was passed in 1997,

our development of the regulations to

implement the quality assessment and

improvement provisions of the law was

informed by our prior work in

developing QISMC. From the QISMC

work, we identified those fundamental

activities that formed the essence of

quality measurement and improvement.

These activities and standards were

revised as necessary to reflect a level of

detail appropriate for regulations and

included in our proposed rule. For this

reason, many of the regulations

implementing the BBA quality

provisions reflect QISMC standards.

However, while QISMC was developed

as a set of standards that address MCOs

and PHPs, the legal requirements set

forth in this final rule with comment

period address States as well as MCOs

and PHPs.

QISMC has been offered to States as

a tool to use to the extent the State

wishes, as long as the State complies

with the requirements in this final rule

with comment period. While full

compliance with QISMC would help

satisfy the quality requirements in

subpart D that were based in part on

QISMC standards, a State may meet the

minimum standards in the regulation

without requiring the use of QISMC. If

a State requires MCOs and PHPs to

follow QISMC, this will promote

compliance with the regulatory

requirements that overlap the QISMC

standards. However, compliance with

QISMC is not sufficient to meet all the

provisions of the regulation because this

regulation includes a much broader

range of topics than is covered by

QISMC. For the foregoing reasons, we

will not use QISMC to monitor States,

but rather monitor against the regulatory

requirements.

Comment: Several commenters

questioned the relationship of Medicaid

quality provisions and those used by

private accrediting organizations for the

commercial managed care market. Two

commenters suggested that private

sector standards be used for Medicaid,

either at State direction or through

deeming. Another commenter

recommended against use of private

sector standards because he believes

that they are geared to a generally

healthy population while the Medicaid

population includes populations with

special health care needs.

Response: The Medicare+Choice

statute, at section 1852(e)(4) of the Act,

provides authority for Medicare+Choice

organizations that are reviewed by

private accreditation bodies to have a

broad range of Medicare+Choice

requirements ‘‘deemed’’ satisfied based

on such private accreditation (if the

private accreditation body applies

standards at least as stringent as

Medicare’s). This authority includes the

authority to ‘‘deem’’ compliance with

QISMC standards, which is mandatory

for Medicare+Choice organizations.

There is no comparable broad deeming

authority provided for MCOs or PHPs

under the Medicaid statute. The only

Medicaid authority for ‘‘deeming’’ by

private accreditation bodies relates to

the deeming of external review

requirements under section

1932(c)(2)(A) of the Act. This

rulemaking does not address these

requirements, or provisions for the

deeming of these requirements in

section 1932(c)(2)(B) and (C) of the Act.

These are being addressed in a separate

rulemaking, in which a notice of

proposed rulemaking was published on

December 1, 1999, 64 FR 67223.

Comment: Several commenters

questioned the applicability (or nonapplicability) of subpart E to entities

other than MCOs. One commenter

agreed with applying the provisions of

this subpart to PHPs. Another

commenter suggested that we extend

these requirements to all MCEs,

including PCCMs. Another commenter

suggested that the provisions of subpart

E not be applied to capitated PCCMs.

Lastly, another commenter suggested

that PHPs be excluded from external

quality review, because the commenter

believed that this imposes an undue

burden on States for contracts that are

limited in scope.

Response: In section 1932 of the Act,

the Congress included provisions that

apply to all MCEs (that is, to MCOs and

PCCMs), provisions that apply only to

MCOs, and provisions that apply only to

PCCMs. Since the Congress thus

addressed PCCMs in section 1932 of the

Act, we believe that where it applied a

requirement only to MCOs, this reflects

a clear and expressed intent that the

requirement not apply to PCCMs. We

therefore are not applying the

regulations implementing section

1932(c)(1) of the Act to PCCMs. With

respect to PHPs, as we have noted

above, the Congress was silent, in

section 1932 of the Act and its

legislative history, concerning what

requirements should be applied to these

entities. At the time the Congress acted,

we had longstanding regulations in

place applying selected section 1903(m)

of the Act requirements to PHPs. We

believe that given that PHPs are paid on

a risk basis, the concerns that caused the

Congress to impose the quality

requirements in section 1932(c)of the

Act on MCOs apply with equal force to

PHPs, and that the extension of these

requirements to PHPs under our

authority in section 1902(a)(4) of the Act

is appropriate. With respect to the

comment on risk-based PCCMs, they are

not subject to these requirements by

virtue of their status as PCCMs, since as

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6297

we have just noted, we are not imposing

these requirements on PCCMs. Rather,

as a risk contractor, they also meet the

definition of PHP, and are subject to

these requirements by virtue of their

status as PHPs. Only PCCMs that fall in

both categories would be subject to the

requirements in subpart D.

Comment: Several commenters

questioned the relationship of the

quality provisions to waiver approval

requirements. One contended that the

relationship is unclear and duplicative.

Another questioned if waivers of any of

the quality provisions will be approved

in light of the proposed rule’s preamble

language which states that waivers will

only be granted if the quality

requirements in this regulation are met

or exceeded.

Response: We believe that the BBA

quality requirements that are addressed

in this subpart should apply to managed

care provided through MCOs and PHPs

regardless of the authority used to

establish these programs. Quality is

equally important whether the managed

care program is established through a

waiver granted under section 1115 or

1915(b) of the Act or as a State plan

amendment under section 1932(a) of the

Act. Therefore, generally, States will be

required to follow these provisions as a

condition for approval of a waiver.

However, the Secretary has the

discretion to waive these requirements

if quality is addressed in the waiver

program in a manner that equals or

exceeds the quality requirements

contained in this subpart. We believe

that to do less would deny beneficiaries

important protections and be counter to

Congressional intent.

Comment: One commenter believed

that the most important quality standard

for persons with disabilities is that these

individuals be served in the least

restrictive setting, and that the standard

for outcomes should include the

achievement of the highest level of

functioning for each individual.

Response: We agree that it is

important to serve persons with

disabilities in the setting that they

desire. We further agree that

achievement of the highest level of

functioning is a desirable outcome for

this population. This is consistent with

the provisions of the proposed

regulation. However, we are not

specifying in the regulation particular

performance measures for any of the

populations served by the Medicaid

program. The strength of each particular

performance measure is dependant

upon the specifications for calculating

the measure. Performance measure

specifications typically change over

time as information systems, coding,

survey instruments and other methods

of data collection change over time. For

this reason, we do not believe it is

appropriate to establish specific

performance measures in regulation.

Comment: One commenter noted that

the proposed rule only addresses

requirements that States and MCOs

must meet, and suggested that these

requirements will be effective in

improving the quality of health care

only if they are acted upon by external

sources.

Response: Subpart D of this final rule

with comment period interprets and

implements section 1932(c)(1) of the Act

and sets forth required quality

standards. We agree that these new

provisions must be executed well to

have the desired impact of improving

the health care provided to Medicaid

beneficiaries. In this regard, States play

a key role. They establish the provisions

of MCO and PHP contracts and are

primarily responsible for ensuring that

the regulatory requirements are

effectively implemented by MCOs and

PHPs. We are responsible for overseeing

the States’ adherence to these rules. To

this end we have revised, and will be

further revising (based on this final rule

with comment period), protocols that

HCFA Regional Offices use to monitor

State compliance with statutory and

regulatory requirements.

Comment: Several commenters

questioned the consistency between

Medicaid and Medicare quality

requirements. One suggested that the

Medicaid requirements should be the

same as those for Medicare. The other

commenter suggested that the Medicaid

subpart be reworked because it is not

appropriate to apply the Medicare

standards to Medicaid due to

differences in the populations covered

by each program.

Response: As stated in the

introduction, the proposed Medicaid

rule is consistent with the

Medicare+Choice regulations wherever

we believe it is appropriate. We believe

that quality provisions should be

consistent for all of our programs unless

the statutory requirements differ, or

program or population differences

necessitate different standards. In

creating this consistency, we carefully

considered the needs of both Medicaid

and Medicare beneficiaries and, where

possible, proposed quality provisions

that meet the needs of both. We believe

that this approach best meets the needs

of our beneficiaries (many of whom are

eligible for both programs), and reduces

burden on MCOs that contract with both

programs. In subpart D, the regulatory

requirements are consistent with those

that apply to Medicare+Choice

organizations. As noted above, however,

under Medicare, Medicare+Choice

organizations are all required to comply

with QISMC, while States have the

option of using all or part of QISMC in

the case of Medicaid-contracting MCOs

and PHPs.

Comment: Several commenters

suggested that particular quality

measures be incorporated into the

regulation. One commenter wanted to

ensure use of quality standards for

patients with end stage renal disease,

including a specific standard identified

by the commenter. Another commenter

suggested that all States measure quality

against objectives contained in ‘‘Healthy

People 2000 and 2010,’’ publications of

the Department of Health and Human

Services that outline a comprehensive

health promotion and disease

prevention agenda for the nation.

Another commenter suggested that we

establish, for children and adults with

disabilities, a distinct set of quality

standards (that is, performance levels) to

ensure that these persons obtain the

quality health care and health-related

services necessary for them to lead full

lives.

Response: We do not believe that

particular quality measures should be

specified in the regulation. Performance

measures and quality standards change

over time and it is important that the

most current and useful measures can

be quickly adopted. However, in

response to these comments we have

added a provision at § 438.204(c) that

requires States to use performance

measures and levels prescribed by us, as

part of their State quality strategy. We

also have provided in

§ 438.240(c)(2)(ii)(A) of the final rule

with comment period that States must

require their contracting MCOs and

PHPs to meet these specific performance

levels. This allows us to establish

performance measures and levels for

subsets of the Medicaid population,

such as persons with end stage renal

disease or other disabilities. We plan to

use performance measures and levels

that are widely accepted, standardized,

and have undergone validity and

reliability testing. At the present time,

we are not aware of large numbers of

such measures specific to persons with

disabilities such as end stage renal

disease that would meet these

requirements. However, we expect

measures to be developed over time that

will meet these criteria. In the

meantime, in response to the comment

concerning the disabled population, we

have added a new § 438.240(b)(4) to

require States to have procedures to

identify enrollees with special health

care needs and to assess the quality and

6298 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

appropriateness of care provided to

these individuals. Also in response to

this comment, we have in

§ 438.204(e)(2) required that the number

of MCO and PHP enrollees with special

health care needs be reported to us. The

identification of these individuals and

the assessment of their care and services

is an essential step in assuring highquality health care for them. We note

that we also provide, in § 438.240(c)(1),

for States to specify performance

measures for their MCOs and PHPs to

support quality improvement.

Comment: Several commenters

suggested that we establish quality

performance levels for States and MCOs.

Response: We agree with these

commenters, and in response to these

comments, and as noted above, we have

added a new § 438.204(c) that requires

that State quality strategies include ourprescribed performance measures and

levels that States must require their

MCOs and PHPs to meet. We believe

that by requiring States to require their

MCOs and PHPs to meet a specified

level of performance on specific

measures, we are carrying out its

responsibility to ensure quality in the

Medicaid program. We intend to use

widely-recognized measures and

establish levels through a public

process, or based on statutory

requirements. We have retained the

States’ authority to set minimum

performance levels for MCOs and PHPs.

Comment: Several commenters

suggested that States and MCOs be

required to have vision and mission

statements.

Response: We do not agree that it is

essential for each State and MCO to

have a vision and mission statement to

support its quality strategy, nor do we

believe it would be appropriate for us to

mandate such a statement. While this

approach can be an effective

management tool, we believe that States

should have the discretion to decide

whether to adopt this approach, as long

as they meet the elements for a

comprehensive quality strategy set forth

in this final rule with comment period.

Comment: Several commenters

suggested that State quality strategies be

required to address all statutory and

regulatory requirements, not only those

addressed in subpart E.

Response: We believe that the scope

of this subpart is sufficiently broad to

include the wide range of areas related

to quality. We note that none of the

commenters provided any specific

examples of additional areas that they

believe would be appropriate for

inclusion. Therefore, we are not

broadening the scope of the State

quality strategy beyond the areas

covered in the proposed rule.

2. State Responsibilities (Proposed

§ 438.302)

Proposed § 438.302 set forth the

State’s responsibilities in implementing

its quality strategy. Specifically,

§ 438.302 required that each State: (1)

have a strategy for assessing and

improving the quality of services

provided by an MCO and PHP; (2)

ensure compliance with standards

established by the State agency; and (3)

conduct regular, periodic reviews to

evaluate the effectiveness of its strategy,

as often as the State agency determines

appropriate, but at least every 3 years.

Comment: We received a large

number of comments suggesting that the

regulation require States to involve

stakeholders in the development of their

quality strategies, as is recommended in

the preamble to the proposed rule. One

commenter suggested that the Medical

Care Advisory Committee perform this

function. Another commenter suggested

that the proposed State quality strategy

should be published and comments

from the public should be considered

before the plan is made final.

Response: As stated in the preamble

of the proposed rule, we expect that

State agencies will consider the input of

stakeholders when developing

performance goals that are clear, fair,

and achievable. We also believe that it

is reasonable and appropriate for States

to consider the ideas of stakeholders

and other members of the public in the

design of their quality strategies.

Therefore, in response to this comment,

and earlier comments on § 438.110

discussed in section II. C. above, in

§ 438.202(c) of the final rule with

comment period we require States to

provide for input of beneficiaries and

other stakeholders regarding their

quality strategies, and specifically, to

make the strategies available to the

public before adopting them. We do not

specify what process States must use to

obtain public input, because we wish to

allow States flexibility to structure this

process as they find appropriate. For

several years, States with section 1115

demonstration projects have been

required to have a process for public

input. States with 1115 demonstrations

may want to use this process for

receiving comments on their quality

strategy or choose another process.

Comment: Several commenters

suggested that we add more specificity

to the requirement for a State quality

strategy. Most of the commenters

suggested that the regulation should

require that the strategy be put in

writing. Two commenters suggested that

standards be established to measure the

success of the strategy. One commenter

suggested that we incorporate in the

regulation the language contained in the

preamble that the strategies should be

‘‘well considered,’’ ‘‘well coordinated,’’

and ‘‘overarching.’’ Another commenter

suggested that the regulation require

State strategies to address all statutory

and regulatory standards, identify each

component of the strategy, address how

the components are coordinated, ensure

adequate monitoring and oversight, and

be effective.

Response: We agree that the State

quality strategies should be in writing,

and in response to this comment, we are

including this requirement in the final

rule with comment period, in

§ 438.202(b). We believe that this new

requirement, along with the requirement

at § 438.202(c) that States consider the

input of stakeholders in the design of

their strategies, the requirement at

§ 438.202(e) that States conduct periodic

reviews of the effectiveness of their

strategy, and the requirement in

§ 438.204(g) that the State strategy

include standards at least as stringent as

those set forth in subpart D, provide the

best mechanisms to ensure that the

strategies will (1) be well considered,

well coordinated, and overarching; (2)

identify each component of the strategy

and how components are coordinated;

and (3) be effective. Therefore, we have

not added the specific requirements

suggested by the commenter to the

regulation.

Comment: Several commenters

considered the proposed maximum

three year period between State reviews

of the effectiveness of their quality

strategies to be too long. The

commenters instead suggested an

annual review of MCO or PHP

compliance with contract requirements.

One commenter believed that the three

year time period was inconsistent with

QISMC requirements, and certification

and licensing procedures. Another

commenter expressed support of the

three year time frame.

Response: The commenters who

objected to the three year maximum

period between reviews of the State

quality strategy appear to have

misunderstood the intent of

§ 438.202(e). Section 438.202(e) does

not apply to State review of MCO and

PHP compliance with contracts, but to

review of the effectiveness of the State’s

quality strategy. State monitoring and

review of MCOs and PHPs is addressed,

in the context of the State’s quality

strategy, in § 438.204(b)(2), which

requires States to continuously monitor

and evaluate MCO and PHP compliance

with the standards specified in the

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6299

subpart. The evaluation of the State’s

quality strategy under § 438.202(e) is

intended to be a broad review of the

interrelationship of all the elements that

the State is required to include in its

quality strategy to determine the

effectiveness of this strategy as a whole.

We believe it is particularly important

for States to step back and review the

‘‘big picture’’ at least every three years

because the field of quality review and

measurement is rapidly evolving,

making it important for States to

reassess their approach at regular

intervals. Requiring periodic review on

a more frequent basis may not provide

the State with sufficient time to

effectively implement its strategy. For

this reason, we are retaining the

provision requiring review at least every

three years.

Comment: Several commenters

suggested that the final regulation

require that beneficiaries be provided

information about the State quality

assurance program and MCO and PHP

quality. In particular, the commenters

wanted enrollees and potential enrollees

to receive information on quality

indicators, quality improvement topics,

external review results, compliance

audits, summarized complaint and

grievance data, and disenrollment

counts.

Response: We agree that beneficiaries,

upon request, should have access to

information concerning the State quality

strategy and MCO and PHP

performance. In § 438.202(b) and (c) of

the final rule with comment period with

comment period we require that the

States’ quality strategies be in writing

and that stakeholders have an

opportunity to make suggestions and

comment on the strategy. We believe

that this requirement will also serve the

purpose of ensuring that beneficiaries

can obtain information on that strategy.

Section 438.10 of the regulation

specifies what information must be

furnished to enrollees and potential

enrollees by the State, the MCO or PHP,

and the enrollment broker. For MCOs,

PHPs, and as appropriate PCCMs that

enroll beneficiaries under a State plan

program under section 1932(a) of the

Act, this includes quality and

performance indicators that can be used

to compare plans. In addition, the

proposed rule implementing the

external quality review (EQR)

requirements in section 1932(c)(2)of the

Act, published in the Federal Register

on December 1, 1999 (64 FR 67223),

identifies EQR results that it proposes

must be made available to enrollees. We

believe that these requirements will

ensure that enrollees and potential

enrollees have access to information

that will enable them to compare the

performance of MCOs and to make an

informed choice.

Comment: One commenter suggested

that we add a new paragraph to

proposed § 438.302 that would require

that State strategies address all covered

services, including midwifery services.

Response: We do not believe it is

appropriate to specify that all covered

services be included, since all covered

services may not be included under an

MCO or PHP contract. We also believe

that the existing regulations already

cover all services that are covered under

the contract, as § 438.202(a) refers to

‘‘managed care services offered’’ by

MCOs and PHPs. This would include

any services they offer. Under

§ 438.206(c) of the final rule with

comment period, the State is

responsible for making available to the

enrollee any Medicaid service not

covered under the MCO or PHP

contract, and these thus would not be

included in an MCO or PHP quality

strategy.

Comment: One commenter believed

that furnishing quality oral health

services requires planning and

treatment decisions that are made by the

dentist and the patient together.

Response: We agree with the

commenter, and believe that the final

rule with comment period addresses

this issue. Paragraphs (b)(5) and (b)(6) of

§ 438.100 (previously designated as

§ 438.320(b)(4) and (5) in the proposed

rule) specify the right of enrollees to

receive information on available

treatment options, and to participate in

decisions regarding their health care.

Comment: One commenter asked

what criteria we will use to review and

evaluate State quality strategies.

Response: Since the requirement that

States develop and follow State

strategies is new, we have no experience

with reviewing and evaluating these

strategies. In response to the

commenter’s concern, however, we have

added a new paragraph (f) to § 438.202

requiring States to submit to us a copy

of their initial strategies and all

significant revisions thereafter. We also

in paragraph (f)(2) specify that States

must regularly report to us on the

implementation and effectiveness of

their strategies.

3. Elements of State Quality Strategy

(Proposed § 438.304)

Proposed § 438.304 set forth the

minimum elements of a State quality

strategy, including contract provisions

that incorporate the standards specified

in this subpart. Specifically, quality

strategies would include procedures for

assessing the quality and

appropriateness of care and services

provided, including but not limited to:

(1) contract provisions that incorporate

the standards specified in this subpart;

(2) procedures for assessing the quality

and appropriateness of care and

services, including, but not limited to

continuous monitoring and evaluation

of MCO and PHP compliance with the

standards; (3) annual, external

independent reviews of quality

outcomes, and timeliness of, and access

to services covered under each MCO

and PHP contract; (4) appropriate use of

intermediate sanctions that at a

minimum, meet the requirements in

subpart I; (5) an information system

sufficient to support initial and ongoing

operation and review of the State’s

quality strategy; and (6) standards, at

least as stringent as those required

under proposed §§ 438.306 through

438.342, for access to care, structure and

operations, and quality measurement

and improvement. In developing a

strategy, we communicated our

expectations that each State will work

with beneficiaries and their advocates,

quality experts, managed care

organizations, and other stakeholders to

develop performance goals that are

clear, fair, and achievable.

Comment: As proposed, § 438.304

required States to ‘‘continuously

monitor’’ MCO and PHP compliance

with the quality standards. Many

commenters urged that we revise this

requirement. Several commenters

suggested that the regulation require an

annual audit of each MCO for

compliance with the standards; that the

requirement include monitoring of

grievances and logs of calls to

beneficiary ‘‘hotlines’’; and that a

medical records review be required of

catastrophic events, random records,

and persons with disabilities. Other

commenters suggested replacing the

continuous monitoring requirement

with a more flexible standard related to

the MCO’s or PHP’s contract cycle or to

the need for monitoring based on the

plan’s performance.

Response: We continue to believe that

States should be required to

continuously monitor and evaluate

MCO and PHP compliance with quality

standards. States may choose, as part of

their quality strategies, to conduct a

comprehensive audit of MCOs and/or

PHPs on an annual or other basis, but

this should not relieve them of the

ongoing responsibility to ensure that

MCOs and PHPs are meeting the

standards at all times. States are in the

best position to decide how best to

accomplish this activity and may vary

their requirements according to their

knowledge of particular MCOs and

6300 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

PHPs. We believe the requirement in

§ 438.416(d) requiring MCOs and PHPs

to submit to the State summaries of their

handling of grievances and appeals is

sufficient to address the comments

regarding monitoring of grievances.

However, we have not required MCOs

and PHPs to have a ‘‘hotline’’, therefore,

including a monitoring requirement for

hotlines would not be appropriate. With

respect to medical records, we do not

believe that we should specify what

records States should review or the

frequency with which they should

perform review. Rather, we believe that

this should be left to States to determine

as part of their overall quality strategies.

With respect to persons with

disabilities, we have added new

requirements for monitoring. New

§ 438.204(b)(1) requires States, as a part

of their quality strategies to have

procedures to identify, and assess the

quality and appropriateness of care

furnished to, enrollees with special

health care needs.

Comment: One commenter suggested

that, as part of the State quality strategy,

States should be required to evaluate the

effectiveness of services provided to

beneficiaries with limited English

proficiency. Another commenter

suggested that States should collect and

analyze data on cultural competency.

This commenter further suggested that

States conduct demonstration projects

related to cultural competency to better

understand this new and critical area of

quality assessment.

Response: We agree that in order for

States’ MCOs and PHPs to effectively

address cultural competency, they all

must have basic information on the

cultural characteristics of their

Medicaid enrollees. We therefore have

revised § 438.204(b)(1) of the final rule

with comment period to require States,

as a part of their quality strategies, to

include procedures to identify the race,

the ethnicity, and primary language

spoken of each MCO and PHP enrollee

and to provide this information to each

MCO and PHP at the time of each

Medicaid beneficiary’s enrollment in

the MCO or PHP. Further,

§ 438.306(e)(4) of the proposed rule has

been modified as § 438.206(e)(2) of the

final rule with comment period to

require the State to ensure that each

MCO and PHP provides services in a

culturally competent manner to all

enrollees, including those with limited

English proficiency and diverse cultural

and ethnic backgrounds. This means

that, as part of its quality strategy, the

State must monitor and evaluate the

effectiveness of these provisions. We

would welcome State demonstrations or

other strategies to develop effective

means of evaluating cultural

competency in the provision of services.

Comment: Several commenters

recommended that we add a State

quality strategy element requiring the

State to have an information system

capable of managing the data that MCOs

are required to report under proposed

§ 438.342. Another commenter stated

that the regulation should require

compatibility between the MCO’s and

the State’s information systems.

Response: Section 438.204(g) of the

final rule with comment period

includes, as an element of the State

quality strategy, that the State provide

for ‘‘structure and operations’’ standards

(among other standards) at least as

stringent as those of this subpart.

Because the health information systems

requirement is included in the subpart,

it is unnecessary to add this as an

element of the State quality strategy.

Likewise, the information systems

requirements in § 438.242 are sufficient.

While this section does not specify that

MCO and PHP systems must be

compatible with those of the State, we

believe that it is in the State’s best

interest to require this. If a State chooses

not to impose this requirement on an

MCO or PHP, the State remains

responsible for obtaining from the MCO

or PHP the information specified in

§ 438.242 and incorporating into its

information system. Some States may

choose this option for MCOs or PHPs

that need time to acquire a compatible

system or to modify an existing system

to make it compatible.

Comment: Numerous commenters

requested information concerning the

EQR element of the State quality

strategy. Several commenters felt that

requiring States to review quality

outcomes, timeliness, and access to care

under the EQR would be expensive and

excessive; and that therefore, review of

all three of these areas should not be

required annually. One commenter

suggested that States should be allowed

to conduct an in-house review. Another

commenter believed that well

performing MCOs and PHPs should not

be required to undergo an annual

review. One commenter wanted

additional information about how EQR

fits into the State quality strategy and

QISMC. Another commenter suggested

that we should establish criteria for EQR

organizations. One commenter

suggested that we publish interim

standards for EQR that would allow

States to access the 75 percent matching

rate established by the BBA.

Response: As noted above, on

December 1, 1999, we published in the

Federal Register a proposed rule to

implement the BBA provision that

requires an annual, external

independent review of the quality

outcomes and timeliness of, and access

to, services covered under each MCO

contract. 64 FR 67223. This proposed

regulation includes information that

will address the comments made

concerning § 438.304(c) of the proposed

rule. The statute requires that we

contract with an independent quality

review organization to develop

protocols to be used in the reviews. That

work is now underway. Until that work

is completed, we cannot publish

standards to permit States to access the

75 percent matching rate provided by

the BBA. We note, however, that States

may currently receive a 75 percent

Federal match under section

1903(a)(3)(c) of the Act for EQR

activities conducted by Peer Review

Organizations (PROs) and entities that

meet the requirements for contracting as

a PRO.

Comment: One commenter suggested

that we add the word ‘‘items’’ before

‘‘services’’ in § 438.304(c) of the

proposed rule, as it is included in the

statute. The commenter also suggested

that we include a list of examples of

such items, such as durable medical

equipment, assistive devices, certain

birth control items, and prescriptions.

Response: Ordinarily, we do not use

the term ‘‘items’’ in our regulations

because the term ‘‘services,’’ as used in

the regulations, includes covered

‘‘items’’ as well. While only the

Medicare regulations expressly specify

that ‘‘services’’ includes ‘‘items’’ (42

CFR 400.202), section 1905(a) of the Act

uses the term ‘‘care and services’’ to

encompass all services or items for

which Medicaid payment may be made.

References in the regulations to

‘‘services’’ therefore, include covered

‘‘items’’ as well. Because of this, we are

not adding the word ‘‘items’’ before

‘‘services’’ in § 438.204(d) (§ 438.304(c)

in the proposed rule).

Comment: One commenter expressed

the need to clarify that appeals on

coverage and claims are handled

through the State fair hearing process,

and not through complaints to the EQR.

Response: The commenter is correct

that appeals on coverage and claims

decisions by enrollees are properly

addressed through the internal appeals

process of the MCO and PHP and the

State fair hearings process. The

proposed EQR regulation makes clear

that handling enrollee appeals is not an

EQR function.

4. Availability of Services (Proposed

§ 438.306)

Section 1932(c)(1)(A)(i) of the Act, as

added by section 4704 of the BBA,

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6301

requires each State that contracts with

MCOs under section 1903(m) of the Act

to develop and implement standards for

access to care under its quality

assessment and improvement strategy.

Section 438.306 of the proposed rule

established standards for access to care.

Paragraph (a) required that States ensure

that all covered services are available

and accessible to enrollees. Paragraph

(b) specified that if a State agency limits

freedom of choice, the State agency

must comply with the requirements of

proposed § 438.52, which specify the

choices that the State agency must make

available. Paragraph (c) specified that if

an MCO or PHP contract did not cover

all services under the State plan, the

State agency must arrange for those

services to be made available from other

sources, and instruct all enrollees on

where and how to obtain them,

including how transportation is

provided. In § 438.306(d) we proposed

new requirements for the delivery

networks of MCOs and PHPs to ensure

that all covered services under a

contract are available and accessible to

enrollees. These requirements would be

imposed on State agencies, which in

turn would enforce these requirements

on MCOs and PHPs. Specifically,

paragraph (d)(1) proposed that the State

agency require all MCOs and PHPs to

maintain and monitor a network of

appropriate providers that is supported

by written arrangements and is

sufficient to provide adequate access to

covered services. In this context,

adequate access generally means that all

contracted services, other than out-ofarea emergency care services, are

available within the MCO’s or PHP’s

network. In establishing and

maintaining such a network, the

proposed rule required that MCOs and

PHPs consider (1) anticipated

enrollment, with particular attention to

pregnant women and children; (2) the

expected utilization of services,

considering enrollee characteristics and

health care needs; (3) the numbers and

types of providers required to furnish

contract services; (4) the number of

network providers who are not

accepting new patients; (5) the

geographic location of providers and

enrollees, considering distance, travel

time, the means of transportation

ordinarily used by enrollees, and

whether the location provides physical

access for enrollees with disabilities.

In § 438.306(d)(2) we proposed that

the State be required to ensure that

MCOs and PHPs allow women direct

access to a woman’s health specialist for

women’s routine and preventive

services, and in paragraph (d)(3) we

proposed that MCOs and PHPs seeking

an expansion of their service area

demonstrate that they have sufficient

numbers and types of providers to meet

the anticipated additional volume and

types of services the additional enrollee

population may require. Proposed

§ 438.306(d) also required that: (1) the

State agency ensure that each MCO and

PHP demonstrate that its providers are

credentialed as described in proposed

§ 438.314, (2) when medically

appropriate, each MCO and PHP make

services available 24 hours a day, 7 days

a week, (3) as part of the State quality

strategy, the State must ensure that each

MCO and PHP requires its providers to

meet the State-established standards for

timely access to care and member

services, taking into account the

urgency of need for services; and (4) that

each MCO and PHP establish

mechanisms to ensure compliance and

monitor continuously for compliance,

and take corrective action in cases of

non-compliance.

In § 438.306(e) we proposed that each

MCO and PHP be required to provide

each enrollee with an initial health

assessment within 90 days of the

effective date of enrollment, and that

pregnant women and individuals with

complex and serious medical conditions

receive this baseline health risk

assessment within a shorter period of

time. We further proposed that each

MCO and PHP have in place Stateapproved procedures to identify and

furnish care to pregnant women and

individuals with complex and serious

medical conditions; and that

appropriate medical procedures be

implemented to address and monitor

their care, including specifying an

adequate number of direct access visits

to specialists as required by the

treatment plan.

Finally, proposed § 438.306(e)(4)

required that the State ensure that each

MCO and PHP provide services in a

culturally competent manner, including

satisfying the language requirements in

§ 438.10(b).

Comment: We received several

comments in support of the proposed

rule, but a few commenters suggested

that we revise it to include more

specific wording. For instance, one

commenter recommended that we

expand the rule to make clear that

access includes receiving services in a

timely manner. Another commenter

suggested that we change the language

to ensure that all covered services are

available to each enrollee as medically

necessary. Another commenter

suggested that the regulation be revised

to reflect that both services and ‘‘items’’

were available and accessible to

enrollees. This commenter was

concerned that the proposed language

did not address access to medical

equipment, drugs, and other supplies

covered by a State Medicaid plan.

Response: Paragraph (a) was intended

to convey the broad general intent of the

subsequent provisions. Subsequent

provisions of the final rule provide more

detailed specifications for what access

standards must include, including

timely access to care and medical

necessity. As noted in a previous

response, we have not added the word

‘‘items’’ to explicitly address access to

‘‘items and services’’ covered by an

MCO or PHP contract because the term

‘‘services,’’ as used in the regulations,

includes covered ‘‘items’’ as well. While

only the Medicare regulations expressly

specify that ‘‘services’’ includes ‘‘items’’

(42 CFR 400.202), section 1905(a) of the

Act uses the term ‘‘care and services’’ to

encompass all services or items for

which Medicaid payment may be made.

References in the regulations to

‘‘services’’ therefore, include covered

‘‘items’’ as well.

Comment: We received numerous

comments in response to proposed

§ 438.306(c), which requires a State—

• To arrange for State plan services

not covered under an MCO or PHP

contract to be made available from other

sources; and

• To instruct enrollees on where and

how to obtain these services, including

how transportation is provided.

Most of the commenters supported

the inclusion of this provision,

indicating that distribution of

information on out-of-plan services has

been unsatisfactory in the past.

However, a few commenters requested

clarification of this provision and

wondered whether States could delegate

this responsibility to MCOs. In contrast,

one commenter disagreed that MCOs

should have the responsibility to advise

enrollees on where and how to obtain

services not provided by the MCO.

Response: We recognize that States

have discretion to contract with MCOs

or PHPs to provide a specific set of

services that may not include all

services covered under a Medicaid State

plan. Our intention in proposing this

provision was to ensure that enrollees in

managed care have access to services

covered under a State plan but not

provided by an MCO or PHP. We

believe that the duty to inform enrollees

on how to obtain those services rests

primarily with the State. However, we

agree that a State may delegate this

responsibility to an MCO or PHP as part

of its contract.

Comment: One commenter believed

that we have gone beyond our authority

6302 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

in proposing § 438.306(c). The

commenter suggested that our use of the

words ‘‘arrange for services to be made

available from other sources’’ expands

the State’s responsibility to a greater

degree under managed care than under

a fee-for-service arrangement. In light of

such concerns, the commenter

recommended that the clause be

deleted, and argued that States should

only be responsible for guaranteeing

payment for State plan services not

covered under an MCO contract.

Response: States continue to have the

same responsibility they have always

had to ensure that covered benefits are

available to eligible beneficiaries in

accordance with a Medicaid State plan.

In proposing § 438.306(c), it was never

our intent to imply that States act as

case managers in ‘‘arranging for services

to be available from other sources.’’

Therefore, we agree that some change to

the proposed rule is necessary to clarify

the State’s responsibility. In the final

rule with comment period, § 438.206(c)

requires that, if the MCO or PHP does

not cover all of the services under the

State’s plan, the State must make

available those services from other

sources and provide enrollees with

information on where and how to obtain

them, including how transportation is

provided.

Comment: We received several

comments on proposed § 438.306(c)

with regard to the provision of

transportation. One commenter noted

that transportation has been an issue in

certain counties within its State.

Another commenter noted that

transportation is particularly important

for adolescents. Several commenters

made specific recommendations. For

example, one commenter recommended

that we clarify how transportation is

reasonably provided, and require that it

be subject to the availability of public

transportation in the region. Other

commenters recommended that we

make the transportation requirement a

separate provision.

Response: Under § 431.53 of our

regulations, a State Medicaid agency is

required to specify in its State plan that

the agency will (1) ensure all necessary

transportation for recipients to and from

providers, and (2) describe the methods

that the agency will use to meet this

requirement. Proposed § 438.306(c) was

intended to ensure that, under managed

care, enrollees still receive necessary

transportation services consistent with

what is described in the Medicaid State

plan. We do not believe any changes are

necessary to further require access to

transportation services under managed

care.

Comment: Several commenters

requested that § 438.306(c) specifically

refer to services excluded from a

contract because of religious beliefs. In

addition, commenters requested that we

address the knowledge and expertise of

providers with respect to the scope of

services provided by the MCO.

Response: We believe that the

information requirements in

§§ 438.10(e)(2)(xii) and 438.102

specifically address the commenters’

concerns. Section 438.10(e)(2)(xii)

requires that, either the State or the

MCE, as appropriate, must furnish

enrollees and potential enrollees with

information on how to obtain services

covered under a State plan. This

encompasses information on services

not covered under an MCO or PHP

contract because of moral or religious

objections and information on the

education, licensure, and board

certification of providers. Section

438.102(c) requires that MCOs or PHPs

that elect on moral or religious grounds

under § 438.102(b)(3) not to provide,

reimburse, or provide coverage of a

counseling or referral service that they

would otherwise be required to under

§ 438.102(b)(1), must furnish

information about the services it does

not cover to the State and to potential

enrollees and enrollees at certain times.

Comment: We received several

comments suggesting that proposed

§ 438.306(d)(1), which set forth

requirements for establishing,

maintaining, and monitoring a network

of appropriate providers, imposed an

undue administrative burden on States.

Commenters objected to the general

requirement for the State to ensure that

MCOs maintain and monitor a network

of appropriate providers ‘‘that is

supported by written agreements and is

sufficient to provide adequate access to

all services covered under the contract.’’

One commenter believed that

documentation referenced in the general

requirement was rarely available to the

Medicaid agency, much less to MCOs.

The commenter viewed the requirement

as impractical, and believed that there

was potential for large implementation

problems. Another commenter

suggested that, although it is the duty of

the State to monitor MCO contracts, it

would be a huge administrative burden

to verify that a written agreement exists

with each provider.

Response: We do not agree that this

requirement is impractical or imposes

an undue burden on States. This

provision is consistent with § 438.230,

which requires written agreements that

specify the delegated activities and

reporting responsibilities of a

subcontractor. We believe that, without

written agreements, MCOs and PHPs

cannot assure their enrollees sufficient

access to network providers. Therefore,

States must obtain assurances from and

monitor MCOs and PHPs, as

appropriate, to verify that such

agreements exist.

Comment: Numerous commenters

suggested that we revise proposed

§ 438.306(d)(1) to add a requirement

that States and MCOs make available, as

part of their network, providers

experienced in serving individuals with

certain conditions, and providers with

specialty training. For example,

commenters suggested that we require

MCOs to contract with providers

experienced in serving individuals with

HIV/AIDS, children with special health

care needs, individuals with chronic

diseases, and individuals with physical

and developmental disabilities. One

commenter recommended that the final

regulation establish minimum standards

for a provider’s experience in serving

persons with chronic diseases and

disabilities in managed care plans.

Minimum standards suggested by

commenters include: (1) current

caseload of persons with certain chronic

diseases or disabilities, (2) provider

training in treating persons with certain

diseases or disabilities, (3) extent or

duration of experience serving persons

with certain chronic diseases or

disabilities, and (4) measures of

successful outcomes in treating persons

with chronic diseases or disabilities.

Response: We agree that States should

ensure that MCOs make available, as

part of their network or through other

arrangements, access to providers

experienced in treating conditions such

as HIV/AIDS and access to specialty

providers for certain chronic conditions.

Therefore, in response to this comment,

in § 438.206(d)(1)(iii), we have added

‘‘training and experience’’ to the list of

attributes MCOs and PHPs must

consider when establishing their

provider networks. We also have added,

in § 438.206(d)(1)(i) ‘‘persons with

special health care needs’’ as a category

of enrollees to whom States, MCOs ans

PHPs should pay particular attention in

meeting this requirement.

We do not believe it is appropriate to

further specify in regulation the types of

specialists that must be included in an

MCO’s or PHP’s provider network, nor

do we believe it appropriate to define

what constitutes an experienced

provider for certain types of conditions.

Because the evidence base regarding

how to precisely define all types of

‘‘experienced providers’’ is still limited,

we believe that States are in a better

position to impose specific

requirements on MCOs and PHPs,

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6303

consistent with their standards for

access to care and the population

enrolled in managed care. However, also

in response to the concerns raised in

this comment, we have added a

requirement at § 438.206(d)(5) that if the

network is unable to provide necessary

medical services, covered under the

contract, to a particular enrollee, the

MCO or PHP must adequately and

timely cover these services out of

network for the enrollee, for as long as

the MCO or PHP is unable to provide

them. We intend that the inability to

provide medically necessary services

would extend to a situation in which

the enrollee needs related and covered

services (for example, a Cesarean

section and a tubal ligation) to be

performed at the same time; not all

related and covered services are

available within the network; and the

enrollee’s primary care provider or

another provider determines that

receiving the services separately would

subject the enrollee to unnecessary risk.

We further specify at § 438.206(d)(8)

that the State must ensure that use of

out-of-network-providers incurs no

greater cost to the enrollee beyond what

he or she would have paid had the

services been received from a network

provider.

We emphasize that § 438.206 is

integrally linked to § 438.207, which

requires MCOs and PHPs to give the

State assurances of adequate capacity

and services to serve the MCO’s and

PHP’s expected Medicaid enrollment,

including access to specialty services. In

meeting the requirements of the final

rule with comment period, each MCO

and PHP will have to submit assurances

of its capacity to States, and States will

have to submit certification to us,

annually and at any time there has been

a significant change in the MCO’s and

PHP’s network that would affect

adequate capacity and services. We

reserve the right to inspect

documentation submitted by MCOs and

PHPs to the State. With these

requirements, we believe that

appropriate checks are in place to

ensure that States are monitoring MCOs

and PHPs against the State’s standards

for access to care.

Comment: We received several

comments suggesting that proposed

§ 438.306(d)(1)(i) should specifically

consider other populations with special

health care needs in addition to

pregnant women and children.

Commenters recommended that we

revise § 438.306(d)(1)(i) to also consider

people with disabilities, adults with

special health needs, persons with

mental illness, persons with substance

abuse problems, persons with

developmental disabilities, and persons

with functional disabilities or complex

problems involving multiple medical

and social needs such as HIV/AIDS and

homelessness.

Response: We agree and have revised

this provision. As noted above,

§ 438.206(d)(1)(i) of the final rule with

comment period requires that each MCO

and PHP, in establishing its provider

network, take into consideration

‘‘persons with special health care

needs,’’ as well as pregnant women and

children. Also, in response to this

comment, § 438.208(b) of the final rule

with comment period requires that

States implement ‘‘mechanisms to

identify to the MCO or PHP, upon

enrollment’’ categories of enrollees at

risk of having special health care needs,

children under age 2, and other

enrollees known to be pregnant or have

special health care needs.

‘‘Persons with special health care

needs’’ is the terminology used by the

Congress at section 4705(c)(2) of the

BBA that called for the Secretary to

conduct a study of the safeguards

needed when such individuals are

enrolled in Medicaid managed care. In

undertaking this study, we

conceptualized individuals with special

health care needs as persons who either

(1) have functional disabilities (e.g.,

difficulty bathing, dressing, eating,

communicating, or problems with

mobility) or (2) live with health or social

conditions that place them at risk of

developing functional disabilities (for

example: mental retardation; serious

chronic illnesses such as HIV,

schizophrenia, or degenerative

neurological disorders; disabilities

resulting from many years of chronic

illness such as arthritis, emphysema, or

diabetes; and certain environmental risk

factors such as homelessness or family

problems that lead to the need for

placement in foster care). From this

conceptual framework, our study

identified six groups of individuals with

special health care needs:

(1) children with special health care

needs;

(2) children in foster care;

(3) individuals with serious and

persistent mental illness/substance

abuse;

(4) individuals who are homeless;

(5) older adults (individuals 65 years

of age and older) with disabilities; and

(6) adults under 65 who are disabled

or who have a chronic condition,

whether physical or mental. As noted

above, under new § 438.208(b)(1), States

are required to identify enrollees in

these categories to their MCO or PHP.

Subsequent to the passage of the BBA,

we also began to explore the concept of

‘‘persons with complex and serious

medical conditions.’’ This category of

persons was referenced in the proposed

rule because they are a group of

individuals addressed in the Consumer

Bill of Rights and Responsibilities

(CBRR). On August 31, 1999, the

Institute of Medicine (IOM) submitted a

report to us entitled ‘‘Definition of

Serious and Complex Medical

Conditions.’’ This study was requested

in order to provide guidance to

Medicare M+C organizations (who do

not have a BBA mandate with respect to

‘‘persons with special health care

needs’’). While the IOM recommended

that the establishment of an

administrative definition for serious and

complex medical conditions would be

premature at this time, it also described

a ‘‘serious and complex condition’’ as:

* * * one that is persistent and

substantially disabling or life

threatening that requires treatments and

services across a variety of domains of

care to ensure the best possible

outcomes for each unique patient or

member.’’

In examining the similarities and

differences between the concepts of

‘‘special health care needs’’ and

‘‘serious and complex medical

conditions’’ as articulated in our work

for its Report to the Congress and the

IOM, respectively, it is clear that

individuals with, ‘‘persistent and

substantially disabling * * *

[conditions] that require treatments and

services across a variety of domains of

care to ensure the best possible

outcomes for each unique patient or

member,’’ are included in our

conceptual framework of ‘‘persons with

special health care needs.’’ The only

component of the IOM description of

persons with serious and complex

medical conditions that is not readily

apparent as included in our conceptual

description of persons with special

health care needs are those health

conditions that are ‘‘life threatening.’’

However, we believe that persons with

life threatening conditions can

reasonably be considered to have a

special health care need. Therefore, the

provisions of this final rule with

comment period require States to ensure

that each MCO and PHP establish and

maintain a network of providers that

considers the MCO’s or PHP’s

anticipated enrollment, with particular

attention to pregnant women, children,

and persons with special health care

needs. We have also, throughout this

final rule with comment period, deleted

the language, ‘‘individuals with serious

and complex health care needs’’ where

used in the proposed rule, and replaced

6304 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

it with ‘‘persons with special health care

needs.’’

Comment: We received numerous

comments that generally supported the

requirement in proposed

§ 438.306(d)(1)(iii) that MCOs consider

the numbers and types of providers

needed to furnish contracted services.

Many commenters recommended that,

instead of providing examples in the

preamble, we establish in regulation

specific enrollee-to-provider ratio

standards. While several commenters

suggested that we incorporate the

examples from the preamble into the

regulation itself, other commenters

suggested that we apply other enrolleeto-primary care provider ratios ranging

from 1200:1 to 2500:1. Some providers

believed that primary care assignments

should be discontinued when a patient

load reaches 3,000. Several believed that

enrollee-to-provider ratios should

encompass all patients treated by a

provider, and not just Medicaid

patients. Finally, some commenters also

believed that specific ratios for

specialists should be established in

regulation, such as ratios for pediatric

specialists and providers serving

persons with HIV/AIDS.

Response: We do not believe it is

appropriate to set national standards

that specify maximum enrollee-toprovider ratios. We believe that the

inclusion of such ratios in regulations

would be too prescriptive, and would

not be appropriate for all Medicaid

managed care programs across the

country. The variation in the comments

we received attests to this. Because of

such variation, we believe that States

are in a better position to establish

specific standards to ensure that an

adequate number of providers is

maintained within MCO and PHP

networks.

Comment: Some commenters

requested that we establish specific

standards in the final rule with

comment period outlining the types of

providers that must be included in an

MCO’s network. One commenter

specifically recommended that the term

‘‘provider’’ be defined when

establishing standards for the various

disciplines and specialty areas of

practice. Other commenters

recommended that an MCO be required

to include in its network specified types

of providers such as nurse-midwives,

obstetricians and gynecologists,

pediatric specialists, and providers with

demonstrated competence in serving

enrollees with mental illness, substance

abuse problems, developmental

disabilities, functional disabilities, and

complex problems involving multiple

medical and social needs such as

homelessness and HIV/AIDS.

Response: We do not believe it

appropriate to impose national

standards requiring specific numbers

and types of providers. States have

implemented varying and often unique

programs that cover a variety of benefits.

Some of these programs serve a broad

spectrum of Medicaid enrollees; while

others serve a narrower group. One set

of standards may not be appropriate in

every circumstance. However, we have

required at § 438.206(d) that each State

must ensure that each MCO and PHP

maintain and monitor a network of

providers that is sufficient to provide

adequate access to all services covered

under the contract, and that in

constructing this network, each MCO

and PHP must consider (among other

requirements): (1) the anticipated

enrollment, with particular attention to

pregnant women, children and persons

with special health care needs, and (2)

the numbers and types (in terms of

training and experience) of providers

required to furnish the contracted

services.

Comment: We received a number of

comments suggesting that we establish

in the final rule with comment period

a national geographic access standard.

Section 438.306(d)(1)(v) of the proposed

rule required MCOs and PHPs, when

establishing and maintaining their

provider networks, to take into account

the geographic location of providers and

enrollees, considering distance, travel

time, the means of transportation

ordinarily used by enrollees, and

whether the location provided physical

access for enrollees with disabilities.

Commenters offered a variety of

recommendations to supplement this

provision. Some commenters suggested

that geographic standards be based on

travel time and not distance, and others

urged that we liberalize geographic

access standards to take into account

allowable public transportation time.

Several commenters recommended that

we require a general time of 30 minutes

from an enrollee’s residence, and others

recommended an exception for frontier

areas. Further, other commenters

suggested varying standards, such as 30

miles or 30 minutes for rural areas, 20

miles or 30 minutes for urban areas, and

45 minutes for specialty care; whereas

other commenters suggested a 30

minute or 30 mile standard, with a 60

minute or 60 mile standard for rural

areas.

Response: We do not believe it is

appropriate to set national geographic

access standards in these regulations.

We recognize that there are unique

circumstances which exist in each State

for which a national standard could be

inappropriate. This is reflected in the

comments received and in the preamble

to the proposed rule in which we noted

that a provider network should be

structured so that an enrollee residing in

the service area does not have to travel

an unreasonable distance to obtain a

covered service, beyond what is

customary under a Medicaid fee-forservice arrangement. The preamble to

the proposed rule also acknowledged

that many Medicaid enrollees may use

public transportation. We stated that ‘‘in

areas where Medicaid managed care

enrollees rely heavily on public

transportation, the State should ensure

that providers are accessible through

these means within the same time

frames as enrollees who have their own

means of transportation.’’ Because of

this, we believe that States are in a

better position to establish access

standards, including geographic access

standards, as part of their States’ quality

assessment and improvement strategy.

Our availability of services requirements

under § 438.206 of the final rule with

comment period allow States sufficient

flexibility to develop access standards

that are appropriate for their own

circumstances, and ensure that States

take into consideration important

factors such as distance, travel time, and

the means of transportation normally

used by enrollees.

Comment: We received several

comments requesting that we be more

specific with respect to our requirement

that MCOs and PHPs take into account

a location’s physical accessibility for

enrollees with disabilities. While the

commenters generally supported

inclusion of this provision, they also

believed that we should be more

specific in our final rule with comment

period. Several commenters believed

that we should require States, at a

minimum, to ensure that sites are

physically accessible and comply with

the Americans with Disabilities Act.

One commenter suggested that States

and MCOs ensure access not only to

locations, but also to all aspects of

medical treatment. Other commenters

stressed that in addition to physical

access, it is just as important for

populations with special health care

needs, such as persons with mental

retardation, to have access to

knowledgeable and trained staff, to

receive understandable information, to

be able to communicate with a provider

if he or she is hearing impaired, and to

have longer appointment times. They

recommended that we reflect these

adaptations in the final rule with

comment period.

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6305

Response: We believe that several of

the requirements in this final rule with

comment period address many of the

commenters’ concerns. We specifically

refer commenters to the following:

• Sections 438.206(d)(1)(i) and

(d)(1)(ii) require each MCO and PHP,

when establishing their provider

networks, to take into consideration

their anticipated enrollment, with

particular attention to persons with

special health care needs, and their

expected utilization of services,

considering the enrollees’

characteristics and health care needs.

• Section 438.206(d)(1)(iii) requires

each MCO and PHP to also consider the

numbers and types (in terms of training

and experience) of providers needed.

• Section 438.206(d)(1)(v) requires

MCOs and PHPs to consider distance,

travel time, means of transportation

ordinarily used by enrollees, and

whether the location provides physical

access for enrollees with disabilities.

• Section 438.100 requires the State

to ensure that MCOs, PHPs, and PCCMs,

comply with applicable Federal and

State laws that pertain to enrollee rights.

The Americans with Disabilities Act is

explicitly mentioned as one of these

Federal laws. Section 438.100 also

requires States to ensure that enrollees

receive information on available

treatment options and alternatives,

presented in a manner appropriate to

the enrollees’ conditions and ability to

understand.

• Section 438.102(b)(2)(ii) requires

that steps be taken to ensure that

enrollees with disabilities have effective

communication with all health system

participants in making decisions with

respect to treatment options.

All these requirements were designed

to ensure that States address issues such

as physical access and composition of

provider networks. We have not

required in this final rule with comment

period that populations with special

health care needs always have longer

appointment times because it is not yet

possible to precisely define all

individuals with special health care

needs, and because all such individuals

may not always require longer

appointment times.

Comment: We received several

comments on proposed § 438.306(d)(2),

which requires that female enrollees

have direct access to women’s health

specialists within the network for

women’s routine and preventive

services, notwithstanding that the MCO

maintains a primary care provider for

each enrollee.

Overall, many commenters supported

inclusion of this provision. However, a

few commenters requested clarification

of regulatory terms. For example,

several commenters expressed concern

over what they viewed as the ambiguity

of the term ‘‘women’s health specialist.’’

They requested that we expand the

definition of that term in the final

regulation to include specific provider

types, such as nurse-midwives or

obstetricians/gynecologists. Others felt

that this provision could be construed to

include non-licensed practitioners or

laypersons.

Response: We do not define

‘‘women’s health specialist’’ in this final

rule with comment period, because

different types of health professionals

may, through education and/or clinical

experiences, be appropriately thought of

by a contracting MCO or PHP or

enrollee as a ‘‘women’s health

specialist.’’ However, we intend for the

term to refer to licensed health

professionals with specific clinical

education and training in women’s

health care, including obstetricians,

gynecologists, nurse midwives, and

nurse practitioners, consistent with

State licensing requirements.

Comment: Several commenters felt

that the term ‘‘routine and preventive

services’’ in proposed § 438.306(d)(2)

should be excluded from this provision,

while other commenters felt that we

should define the term further. One

commenter felt that we should define

the term based on existing professional

guidelines. Others requested that we

define the term to include specific

services, such as prenatal care, labor

and delivery services, breast exams,

mammography, and pap smears.

Response: We agree that some

clarification is needed. In

§ 438.206(d)(2) of the final rule with

comment period, an MCO or, as

appropriate, a PHP is required to

provide female enrollees with direct

access to a woman’s health specialist

within the network for covered care

necessary to provide women routine

and preventive health care services.

This would include initial and followup visits for services unique to women

such as prenatal care, mammograms,

pap smears, and for services to treat

genito-urinary conditions such as

vaginal and urinary tract infections and

sexually transmitted diseases.

Comment: Several commenters

requested that we expand proposed

§ 438.306(d)(2) to clarify whether the

requirement applies to both adult

females and to minor adolescent

females. Other commenters suggested

that we add language that would allow

direct access to a women’s health

specialist for pregnant enrollees of any

age, but otherwise would set a limit for

access to a women’s health specialist to

age 15 or older.

Response: We used the term ‘‘female

enrollees’’ to include minor females.

Thus, we believe that if there is a

medical need to see a women’s health

specialist, there should be no

impediment based on the age of the

enrolled female.

Comment: One commenter believed

that proposed § 438.306(d)(2) would

conflict with recent insurance

legislation in the State which allows

MCOs to require a women’s health

specialist to have a referral arrangement

with, but not actual referrals from, an

enrollee’s primary care physician.

Another commenter stated that it is

unclear whether a female enrollee

would be able to choose any women’s

health specialist within the network.

Response: We believe that, within

MCO and PHP networks, female

enrollees must have direct access to a

women’s health specialist for covered

care necessary to provide women’s

routine and preventative health care

services. We believe that this means that

each woman should have access to any

women’s health specialist within the

network, unless some network providers

are not accepting new enrollees or there

are other network restrictions based on

the enrollee’s choice of primary care

provider. (For example, a woman may

choose a primary care provider that is

part of a subnetwork of providers within

an MCO. As long as the woman was

informed of the consequences of

choosing a primary care provider that is

a part of a subnetwork, at the time of her

enrollment, she can be restricted to

using only those specialists, including

women’s health specialists that are part

of the subnetwork—although provisions

for using out-of-network providers

would still apply.) This provision was

proposed consistent with statutory

authority requiring States to develop

standards for access to care ‘‘in a

manner that ensures continuity of care

and adequate primary care and

specialized services capacity’’ (section

1932(c)(1)(A)(i) of the Act). Moreover,

this provision is consistent with the

beneficiary rights in the CBRR.

Comment: We received several

comments recommending that proposed

§ 438.306(d)(2) be applied to all

managed care entities, including

PCCMs, HIOs, and PHPs. Commenters

also suggested that we should apply this

provision to individuals in managed

care plans with 6-month eligibility.

Response: Section 438.206(d)(2) is

based on authority in section

1932(c)(1)(A)(i) of the Act. As noted

above, with respect to the quality

assurance requirements implementing

6306 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

section 1932(c)(1) of the Act generally,

the Congress chose to apply this

provision only to MCOs, while other

provisions in the same section were

made applicable to both MCOs and

PCCMs (i.e., to ‘‘MCEs’’). The Congress

thus expressed a clear intent that these

requirements not apply to PCCMs. With

respect to HIOs, if they are required to

meet the definition of MCO and comply

with section 1903(m) of the Act

requirements, these requirements would

apply to them. If, however, they have a

specific statutory exemption from

section 1903(m) of the Act, again, the

Congress has spoken directly to the

question of whether these requirements

should apply, and determined that they

should not. We therefore believe it

would be inconsistent with clearly

expressed Congressional intent to

subject PCCMs or section 1903(m) of the

Act-exempted HIOs to requirements

based on the authority in section

1932(c)(1) of the Act. Also as noted

above, however, in the case of PHPs, the

Congress was silent as to what standards

should apply, and based on our

authority under section 1902(a)(4) of the

Act, we have applied the requirements

in subpart D (including the woman’s

health requirement in § 438.306(d)(2)) to

PHPs, as appropriate. We do not believe

that we need to explicitly reference

individuals with six-month eligibility

because the provision applies to all

women regardless of their length of

eligibility or enrollment.

Comment: One commenter suggested

that § 438.306(d)(2) should not apply to

behavioral health organizations, since

women’s health specialists do not exist

in such settings.

Response: We agree with the

commenter that this requirement may

not apply to PHPs that deliver a limited

set of services under a capitated

arrangement. PHPs of this type typically

include organizations contracted to

provide mental health or substance

abuse services and organizations that

provide dental services. Section 438.8(a)

of the final rule with comment period

specifies that the quality assessment and

performance improvement requirements

apply to PHPs ‘‘to the extent that they

are applicable to the services furnished

by the PHP.’’ In the example of a

behavioral health organization, access to

a women’s health specialist for covered

care necessary to provide women’s

routine and preventive health care

services would not be applicable.

Comment: Several commenters

believed that § 438.306(d)(2), pertaining

to women’s direct access to a women’s

health specialist, as proposed, would

impede continuity of care. They

recommended that this provision be

eliminated. Another commenter

recommended that we delete the phrase

‘‘notwithstanding that the MCO

maintains a primary care provider for

each enrollee.’’

Response: As we have stated, we

believe that female enrollees must have

direct access to a women’s health

specialist within an MCO’s and PHP’s

network as applicable and PHP’s

network as applicable. This provision

was proposed in order to provide access

in a manner that ensures adequate

specialized services as required under

section 1932(c)(1)(A)(i) of the Act and in

order to implement the CORR. To make

this purpose and the provision more

clear, we have replaced the words

‘‘notwithstanding that the MCO

maintains a primary care provider for

each enrollee’’ with the sentence, ‘‘This

[direct access to a women’s health

specialist] is in addition to the

enrollee’s designated source of primary

care, if that source is not a women’s

health specialist.’’ This change of

wording also emphasizes that a female

enrollee’s right to directly access a

women’s health specialist cannot be

satisfied, under Medicaid, by simply

offering the opportunity to choose a

women’s health care specialist as a

primary care case manager. We believe

that in the case of the Medicaid

population, direct access for these

services is critical, and that the

opportunity to choose a primary care

case manager who provides these

services is not sufficient, since a woman

may not wish to see a woman’s health

specialist for general care.

Comment: We received one comment

referencing § 438.306(d)(2) which

suggested that OB/GYNs be able to serve

as primary care physicians. The

commenter expressed concern that

women may not receive information

about when they are entitled to self-refer

to OB/GYNs. The commenter

recommended that such information be

required.

Response: Our intent in the proposed

rule was not to require States and MCOs

or PHPs to allow (or preclude States and

MCOs or PHPs from allowing) OB/

GYNs, or other specialists, to serve as

primary care providers. The final rule

with comment period, as amended,

provides flexibility for States to

determine the appropriate specifications

to impose on MCOs and PHPs regarding

the types of primary care providers,

depending on the nature of the managed

care program in the State and the

enrollee population being served.

Moreover, the information requirements

at § 438.10, as amended, are written to

ensure that enrollees receive adequate

information on procedures for obtaining

all benefits, including information on

the right of female enrollees to directly

access a women’s health specialist

within the MCO or PHP network for

covered care necessary to provide

women’s routine and preventive health

care services.

Comment: We received a comment on

the grievances and appeals provisions

urging that enrollees faced with an

adverse decision have the right to a

second opinion, and that this right be

mentioned in the adverse action notice.

The commenter felt that enrollees

should have the right to out-of-network,

unbiased, second opinions, and this

right should be specified in the

regulations.

Response: We agree that enrollees

should have access to an unbiased

second opinion. We believe that this

right extends beyond an adverse action

notice to any instance in which the

enrollee requests a second opinion.

Therefore, we have added requirements

in the regulation, both in Enrollee rights

(§ 438.100) and in the Availability of

services provisions (§ 438.206(d)(3)),

with regard to second opinions.

Contrary to the commenter’s suggestion,

we believe that an enrollee can receive

an unbiased opinion from another

qualified health professional in the

network. Accordingly, we have

specified that the MCO or PHP must

provide for an enrollee to have access to

a second opinion from a qualified

provider within the network or arrange

for the enrollee to obtain a second

opinion outside of the network if an

additional qualified health care

professional is not currently available

within the network.

Comment: We received many

comments on proposed § 438.306(d)(5),

which required the State to ensure that,

when medically appropriate, the MCO

or PHP makes services available 24

hours a day, 7 days a week. The

proposed regulations stated that this

provision applies, at a minimum, to

emergency services and poststabilization services, and to nonemergency services that are required

immediately because of unforseen

illness. A majority of the comments

requested further clarification of terms

and standards. Specifically, several

commenters requested that the term

‘‘unforseen illness’’ be clarified or

deleted. Many commenters argued that

the term is too restrictive, invites legal

controversy over its interpretation, and

is contrary to managed care’s emphasis

on prevention, early detection, and

treatment. Other commenters urged that

we adopt and apply specific standards

for urgent care of 24 to 48 hours

depending on the day of the week an

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6307

unforseen illness occurs. One

commenter specifically recommended

that we add an additional standard of 24

hour, 7 day ‘‘crisis services’’ for

beneficiaries with mental illness.

Another commenter felt that MCOs

should have a mechanism to conduct

triage and assessment, but should not

have to make available non-emergency,

non-urgent care 24 hours a day, 7 days

a week. Finally, one commenter stated

that the availability of services under

this provision should be based on

medical necessity and not medical

‘‘appropriateness.’’

Response: Our intent in proposing

§ 438.306(d)(5) was to ensure that

individuals who require home health

services or other types of non-hospital

based services receive care, when

medically necessary, during nonbusiness hours. After further review and

consideration of comments received, we

have revised the policy so that the final

rule with comment period requires

MCOs and PHPs to ensure that services

are available 24 hours a day, 7 days a

week, when medically necessary

(§ 438.206(e)(1)(iii)). We believe this

change ensures access to care without

using potentially ambiguous terms such

as ‘‘unforseen illness’’ and ‘‘medically

appropriate.’’ We further believe that

this requirement is consistent with our

overall intent as reflected in other

provisions in the final rule with

comment period, including § 438.114,

Emergency and post-stabilization

services, and § 438.210, Coverage and

authorization of services.

Comment: Several commenters felt

that proposed § 438.306(d)(5) was too

prescriptive and costly. One commenter

believed that the provision was likely to

increase the number of providers who

refuse to see Medicaid patients, and

suggested that normal physician

practice standards should be acceptable

for all populations. Other commenters

recommended that the provision be

deleted.

Response: As we have indicated

above, we believe this provision is

important to ensure that enrollees have

access to medically necessary care

during traditional, non-business hours.

Comment: We received numerous

comments on proposed § 438.306(d)(6),

which required MCOs and PHPs to

ensure that its providers’ hours of

operation are convenient to enrollees,

and do not discriminate against

Medicaid enrollees. One commenter

supported the provision, but suggested

that we reference populations with

special health care needs. Other

commenters believed that the term

‘‘convenient’’ in the proposed regulation

was too ambiguous and subjective, and

that this term required further

clarification. One commenter

specifically argued that we were

imposing a new requirement in

Medicaid managed care that we have

not imposed in Medicaid fee-for-service.

Finally, other commenters suggested

that this particular provision, if

included in the final rule with comment

period, would have widespread

implications for the program. They

argued that we have exceeded our

statutory authority in proposing this

provision.

Response: Upon further

consideration, and based on comments

received, we agree that the term

‘‘convenient’’ needs clarification. As a

result, we have moved this requirement

to § 438.206(e), because we believe that

it more appropriately falls under the

‘‘provision of services’’ paragraph.

Under paragraph (e)(1)(ii), the MCO or

PHP must ensure that its providers’

hours of operation are convenient for

the enrollees, as determined by a Stateestablished methodology, and that they

are at least comparable to Medicaid feefor-service.

We believe that the State should

establish standards for what is

convenient for enrollees in terms of

provider hours of operation. Those

standards should be at least comparable

to Medicaid fee-for-service. Thus, an

enrollee who was able to schedule

weekend or evening appointments

under the Medicaid fee-for-service

program should have access to

appointments during those hours under

Medicaid managed care.

We continue to believe that the State

and MCO or PHP must ensure that

providers do not discriminate against

Medicaid enrollees. Thus, we retain this

requirement in § 438.206(d)(7).

Comment: One commenter suggested

that we apply proposed § 438.306(d)(6)

to MCEs, and not just MCOs.

Response: We proposed

§ 438.306(d)(6) under the authority of

section 1932(c)(1)(A)(i) of the Act. As

discussed above in connection with

proposed § 438.306(d)(2), the Congress

expressed a clear intent that

requirements under section 1932(c)(1) of

the Act apply to MCOs, but not PCCMs.

When the Congress wanted to apply

requirements to PCCMs as well as

MCOs, it did so by referencing ‘‘MCEs,’’

which includes MCOs and PCCMs. We

thus believe it would be inconsistent

with clearly stated Congressional intent

to apply requirements under section

1932(c)(1) of the Act to PCCMs.

Comment: We received numerous

comments on proposed

§ 438.306(e)(1)(i), which required MCOs

and their providers to meet Stateestablished standards for access to care

and member services, taking into

account the urgency of the need for

services. Several commenters

recommended that we incorporate into

the final regulation the suggested

standards outlined in the preamble to

the proposed rule. The commenters’

rationale for incorporating the suggested

standards in the final rule with

comment period is that the standards

reflect existing managed care contracts

and there appears to be no reason for

State flexibility regarding maximum

wait times for care. The same

commenters argued that the BBA gives

us the authority to establish minimum

standards for quality assessment and

improvement strategies. Several other

commenters noted the importance of

establishing standards for in-office

waiting times, especially for mental

health services.

Commenters offered a number of

recommendations that included

standards in addition to, or as

alternatives to, those presented in the

preamble to the proposed rule.

Moreover, the recommendations

referenced both in-office waiting times

and appointment scheduling times.

Specifically, the additional standards

included referral appointments to

specialists within 30 days for routine

care, 72 hours for urgent care, and 24

hours for emergency appointments.

Other additional standards included

routine, prenatal visits within 2 weeks

for the first trimester, 1 week for the

second trimester, and 3 days for the

third trimester. Recommended

alternative standards included in-office

waiting times of no longer than 45

minutes or 1 hour, and appointment

times for routine appointments ranging

from 2 weeks to 30 days.

Response: Section 1932(c)(1)(A)(i) of

the Act provides that ‘‘the State shall

develop * * * a quality assessment and

improvement strategy,’’ that shall

include ‘‘[s]tandards for access to care.’’

Under the authority of section

1932(c)(1)(A)(i) of the Act, we have

proposed regulations to ensure that

States take into consideration certain

requirements when developing their

standards for access to care. One of

these requirements (contained in

§ 438.306(e)(1)(i) of the proposed rule) is

that MCOs and PHPs and their

providers meet State-established

standards for access to care.

We disagree with commenters who

suggest that national standards should

be established in the final regulation.

First, as just noted, the statute calls for

‘‘the State’’ to ‘‘develop’’ such

standards, not us. This suggests that the

Congress contemplated that standards

6308 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

be State-specific. Secondly, patterns of

care delivery typically vary across the

country. Because of this, a single

national standard may not be

appropriate in all localities. Therefore,

we only included suggested standards

in the preamble to the proposed rule as

examples for States to consider. The

various additional and alternative

suggestions offered by commenters may

also be appropriate for States to

consider. However, we will not mandate

any of them in this final rule with

comment period.

Comment: Several commenters

suggested that proposed

§ 438.306(e)(1)(i) was too burdensome,

and not consistent with the common

practice of wait times for appointments

of six to eight weeks. Further,

commenters suggested that if more

stringent standards are imposed for

Medicaid managed care enrollees than

commercial enrollees, providers may

avoid serving Medicaid members.

Response: We do not agree with

commenters who suggest that we are

imposing more stringent standards for

Medicaid enrollees than commercial

enrollees. In this final rule with

comment period, we require MCOs and

PHPs to meet State-established

standards. Further, we require that

provider hours of operation be at least

comparable to fee-for-service. We

included examples in the preamble of

the proposed rule for State

consideration only. These examples

were not mandatory requirements. In

fact, we specifically indicated that

States should evaluate a number of

factors, including common waiting

times for comparable services in the

community. We believe that this

statement reflects our intent that, in

designing standards for timely access to

care, States consider existing practice

patterns.

Comment: We received one comment

that we should revise proposed

§ 438.306(e)(1)(i) to add the word

‘‘subcontractors’’ after providers, to

ensure that subcontractors are required

to meet State-established standards for

timely access to care and member

services.

Response: We do not believe that such

a change is necessary for the final rule

with comment period. Section 438.230

of the final rule with comment period

establishes requirements for

subcontractual relationships and

delegation. It ensures that each MCO

and PHP oversees and is held

accountable for any functions and

responsibilities that it delegates to a

subcontractor. In addition, § 438.6(l)

requires that all subcontracts meet the

contracting requirements that are

appropriate to the service or activity

delegated under that subcontract. We

believe that these provisions are

adequate to ensure that subcontractors

are held to the same access standards

imposed on MCOs and PHPs by the

State.

Comment: Several commenters took

issue with the examples contained in

the preamble for proposed

§ 438.306(e)(1)(i), which requires States

to establish mechanisms to ensure MCO

compliance with standards for timely

access to care. Several commenters

expressed concern that documenting inoffice waiting times would be

administratively burdensome, would

lead to increased costs, and may reduce

the willingness of HMOs to participate

in Medicaid. One commenter believed

that satisfaction surveys would be

sufficient to indicate if a problem exists,

which can then be explored with audits

of individual providers. Another

commenter suggested that our preamble

discussion on compliance include

methods for gaining consumer feedback

in addition to mail and telephone

surveys.

Response: In the preamble to the

proposed rule, we offered a number of

mechanisms that States, MCOs and

PHPs could use to monitor compliance

with timeliness standards, including the

use of surveys, analysis of complaints

and grievances, provider self-reports,

random audits, and test calls. While we

cautioned States on the use of general

surveys of its enrolled population, we

did not discount the use of surveys all

together. For example, the Agency for

Healthcare Research and Quality’s

(AHRQ’s) Consumer Assessment of

Health Plans Study (CAHPS) survey

tools are reliable and valid survey

instruments that can be used to assess

many aspects of health care, including

access to quality and timeliness of care.

We believe that States should consider

all appropriate mechanisms for

measuring MCO and PHP performance

against State standards, and rely on

those mechanisms which are most

effective.

5. Proposed § 438.306(e)(2) (Initial

Assessment) and (e)(3) (Pregnancy and

Complex and Serious Medical

Conditions)

Paragraph (e)(2) of proposed § 438.306

required States to ensure that MCOs and

PHPs provide initial assessments of

each enrollee within 90 days, and

within a shorter period of time for

pregnant women and enrollees with

complex and serious medical

conditions. Paragraph (e)(3) of proposed

§ 438.306 set forth specific requirements

for dealing with the two groups and for

their treatment plans. We received a

great many comments on these

proposed provisions which, in the final

rule with comment period, are

redesignated under § 438.208, and

incorporate several additional groups

and time frames.

Comment: Many commenters

requested clarification on what

constitutes an initial assessment as

proposed. Several commenters

questioned whether a telephone call or

questionnaire might suffice. Other

commenters suggested that initial

assessment should be face-to-face, and

should cover both health and social

issues. Several commenters suggested

that, particularly for enrollees with

complex or serious medical conditions,

and populations such as the homeless,

pregnant women, newborns, and

children, assessments should be

conducted face-to-face. One commenter

specifically recommended that we

define initial assessments to include the

following services: a comprehensive

health and developmental history, a

comprehensive unclothed physical

exam, laboratory tests including blood

level assessments appropriate for age

and risk factors, and health education.

Response: We agree that the term

‘‘initial assessment’’ is misleading.

While our original intent was that this

term be analogous to the term

‘‘screening,’’ we are persuaded by

comments that certain individuals

require a more thorough and timely

assessment by an MCO or PHP provider

after enrollment. Accordingly, in

§ 438.208(d) and (e) we are now

requiring that the MCO or PHP make a

best effort to identify, screen, and

comprehensively assess pregnant

women, children under the age of 2

years old, and enrollees with special

health care needs.

In order to assist MCOs and PHPs in

conducting the types of assessments

suggested by the commenters, in section

438.208(b) we are requiring States to

identify to MCOs and PHPs populations

‘‘at risk’’ of having special health care

needs, children under age 2, and other

enrollees known by the State to be

pregnant or to have special health care

needs. The ‘‘at risk’’ populations

include: (1) Children and adults

receiving SSI benefits; (2) children in

title IV–E foster care; (3) enrollees over

age 65; (4) enrollees in relevant, Stateestablished, risk-adjusted, higher-cost

payment categories; and (5) any other

groups of enrollees identified by us

(§ 438.208(b)(1)).

Also in order to address the

commenters’ concerns about ensuring

appropriate assessments, in § 438.208(e)

of the final rule with comment period,

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6309

we require the MCO or PHP to

implement mechanisms to ensure the

ongoing screening of its enrolled

population to identify and

comprehensively assess persons who

become pregnant or who develop

special health needs following

enrollment in the MCO or PHP.

We believe that a State and MCO or

PHP should have the flexibility to

choose the form and substance of the

initial screen or screens. Initial screens

may take the form of a phone call,

mailed questionnaire, home visit or

physical examination; however, it must

be sufficient to identify individuals with

special health care needs. Further, the

initial screen should also attempt to

collect information on any languages or

TTY requirements, and needs for

accessible medical facilities and/or

transportation services. The

comprehensive health assessment, on

the other hand, should include a

physical examination by an MCO or

PHP provider. In fulfilling the screening

and assessment requirements, the MCO

or PHP must ensure that its providers

have the information required for

effective and continuous patient care

and quality improvement.

Comment: We received many

comments with respect to time frames.

Commenters varied in their opinions.

Several commenters believed that 90

days was too long to wait for an initial

assessment (now referred to as

‘‘screening’’ in the final rule with

comment period), particularly for

enrollees with serious and complex

medical conditions. Many other

commenters expressed concern over

whether an MCO or PHP could perform

an initial assessment (screening) on

each enrollee within 90 days. These

commenters noted the difficulty in

contacting an enrollee and ensuring the

cooperation of an enrollee in seeing a

physician in order to have an

assessment (screening) completed. They

felt that initial assessments (screening)

within 90 days was unrealistic and

longer time frames were needed. One

commenter suggested that the issue of

timing can better be addressed in the

contract between the State and the MCO

or PHP. The commenter believed that

the 90 day requirement should not be a

Federal mandate.

Many recommendations were offered.

One commenter suggested that a health

assessment (screen) need only take

place once a year, with an initial

assessment (screening) occurring within

180 days if (1) the member has not used

the emergency room within the last 90

days, (2) the member is in good health,

and (3) the member has reported to the

MCO or PHP that it has had a health

assessment. Other commenters

recommended a shorter time frame of 30

days, and recommended special time

standards for specific populations, such

as requiring an initial assessment

(screening) within 15 to 30 days from

enrollment for newborns and young

children and within 72 hours for

enrollees with HIV. Other commenters

suggested more general standards of no

more than 60 days to complete initial

assessments (screening), to 180 days for

adults and 90 days for children. One

commenter recommended that MCOs or

PHPs only be required to make a good

faith effort to contact each new member

at least two times to schedule an

appointment with his or her primary

care provider. Other commenters

recommended that we revise the final

rule with comment period to require

MCOs and PHPs to meet a variation of

the following language: (1) Make a good

faith effort to conduct an assessment

(screening), (2) make available within 90

days of enrollment an initial assessment

(screening), (3) inform enrollees of the

need for an initial assessment

(screening), or (4) make a substantial

attempt to provide initial assessments

(screenings). One commenter suggested

that an assessment for a child under the

age of 21 should meet the requirements

of the EPSDT guidelines set forth in

§§ 441.50 through 441.62.

Response: We agree with many of the

comments received. Specifically, we

agree with the comment that an MCO or

PHP should only be required to make an

‘‘effort’’ to perform a screening or

assessment. We agree that, through no

fault of its own, an MCO or PHP may

not be able to achieve full compliance

with the proposed initial assessment

(screening) requirement. We therefore

have revised the requirement to provide,

in § 438.208(d) of the final rule with

comment period that MCOs and PHPs

must make a ‘‘best effort’’ to perform the

screening and assessment required in

this section. A ‘‘best effort’’ means that

the MCO or PHP should follow-up on

unsuccessful attempts to contact an

enrollee. With this change, we wish to

make clear that the MCO or PHP is not

relieved of the obligation to screen all

enrollees. Rather, we only wish to

acknowledge that an MCO or PHP may

not be able to achieve 100 percent

compliance with the screening and

assessment requirements. We also

recognize that some enrollees may be

unable to cooperate with the MCO’s or

PHP’s efforts to screen and assess them.

In these cases, MCOs and PHPs should

document the attempt to screen and (as

applicable) assess individual enrollees.

We also agree with the commenters

who believed that a 90 day time frame

was too long, and specifically with the

suggestion of a 30 day time frame in

connection with enrollees with special

needs. Because of this, we have revised

the rule to include different time frames

for screening the especially vulnerable

groups of pregnant women and persons

who either have been identified as

having special health care needs, or

have been identified by the State under

§ 438.208(b) as being in categories at

risk for having special health care

needs. Although we have not identified

children under 2 years of age as

enrollees ‘‘at risk,’’ we recognize the

importance of timely screening and

assessment of young children and have

added them to the groups requiring

quicker screening. Specifically, under

§ 438.208(d), we require MCOs (and

PHPs as determined by the State in

accord with § 438.208(a)(2)) to make a

‘‘best effort’’ to screen and

comprehensively assess pregnant

women, children under 2 years of age,

and persons determined to have special

health care needs in accordance with

the following timeframes:

(1) For enrollees identified by the

State as at risk of having special care

needs, screening within 30 days of

receiving the State’s identification, and

for those the screening identifies as

being pregnant or having special health

care needs, comprehensive health

assessment as expeditiously as the

enrollee’s health requires but no later

than 30 days from the date of

identification through screening.

(2) For enrollees identified by the

State as being children under age 2, and

for other enrollees who are identified by

the State or who identify themselves as

being pregnant or having special health

care needs, comprehensive health

assessment as expeditiously as the

enrollee’s health requires, but no later

than 30 days after the date of

identification.

(3) For all other enrollees, screening

within 90 days of enrollment and for

those the screening identifies as being

pregnant or having special health care

needs, comprehensive health

assessment as expeditiously as the

enrollee’s health requires, but no later

than 30 days after the date of

identification.

We believe that these standards are

reasonable to ensure that persons

requiring special medical attention from

MCOs and PHPs receive services as

expeditiously as possible. Because we

agree with the commenters

recommending these shorter time

frames that such time frames are

necessary to help ensure the health of

vulnerable beneficiaries, we are not

accepting the comments that suggested

6310 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

longer time frames, or abandoning this

requirement altogether.

Comment: Several commenters

suggested that an initial assessment

(now referred to as ‘‘screening’’ in the

final rule with comment period) not be

required for enrollees who are

continuing patients of the MCO or

provider, or when a prior assessment

(screening) is available to the MCO.

Response: We recognize that in some

situations it would be duplicative and

unnecessary to require screening of an

enrollee. For instance, we would not

expect an MCO to screen enrollees for

whom current health care information is

available, such as enrollees already

under the care of providers with the

MCO’s network, or who maintain the

same primary care provider when

enrolling in a different MCO. In such a

case, the screening required under this

rule could be considered to have been

performed. To ensure compliance with

the revised requirements for enrollee

screening, MCOs and PHPs should

document in the enrollee’s health record

why screening is not necessary.

Comment: We received a few

comments that the proposed initial

assessment (screening) requirements

should not apply to PHPs, such as

managed behavioral health

organizations. The commenters

recommended that this provision apply

only to managed care organizations that

provide primary and preventive care

services.

Response: As previously indicated,

§ 438.8 makes the subpart D rules

applicable to PHPs to the extent that

they are applicable to the services

furnished by the PHP. Some PHPs

provide services to the most vulnerable

Medicaid enrollees, many of whom are

diagnosed with chronic conditions or

who are determined to have long-term

care needs. Thus, timely screening and

assessment of these individuals by

PHPs, in relationship to the scope of

services provided by the PHP, is

necessary to ensure that those requiring

special attention receive necessary

medical care.

We acknowledge, however, that a

State might design a managed care

initiative that involves PHPs for which

an initial screening by the PHP might be

duplicative. For example, a State may

utilize a separate ‘‘carve-out’’ program

for mental health services in which an

enrollee may require referral by the

MCO contracted to provide physical

health services. In such a case, a State

might design its managed care initiative

to have the MCO screen for both

physical and mental health. The MCO

could screen the enrolled population to

identify enrollees who likely require

mental health services, and could share

the results of the screen with the PHP.

The PHP, in turn, would conduct a

comprehensive health assessment

through appropriate health care

professionals. States must determine the

most effective and efficient strategy for

assuring that all Medicaid MCO and

PHP enrollees are screened.

While the State is responsible for

ensuring that a screening is carried out

on all Medicaid managed care enrollees

by some combination of the enrollee’s

MCO and PHP, in response to this

comment, we are under § 438.208(a)(2)

of this final rule with comment period

providing the State with the flexibility

to decide how this responsibility will be

carried out, and whether PHPs will be

required to perform screenings and

assessments in cases in which an

enrollee is enrolled in both an MCO and

a PHP or more than one PHP.

Our decision in response to the

comment to permit State flexibility with

respect to PHP screening raises issues of

coordination between MCOs and PHPs

and responsibilities for screening,

assessment and treatment planning for

Medicaid enrollees who also receive

Medicare and are enrolled in a Medicare

+Choice plan. The commenter

presumably was concerned about

possible duplication of efforts in urging

that only the single entity furnishing

primary care perform screenings. We

believe that this concern about

duplication can be addressed, while still

providing for PHP screening where

appropriate, by requiring in a new

§ 438.208(h)(3), that each MCO or PHP

share the results of its screening or

assessment of an enrollee (or both, if the

MCO or PHP performs both) with other

entities serving the enrollee, so that

those entities need not duplicate the

MCO’s or PHP’s screening or assessment

(or both). To address the issue of

Medicaid enrollees also receiving

Medicare and enrolled in a

Medicare+Choice plan, we have added

a new provision at § 438.208(a)(3)

requiring the State to determine the

extent to which each MCO is to perform

initial screening, assessment and

treatment planning for such enrollees,

consistent with the services the State

requires the MCO to provide.

Comment: We received a number of

comments on proposed

§ 438.306(e)(3)(iii) which required the

MCO to develop treatment plans that are

appropriate for the conditions

identified, specify an adequate number

of direct access visits to specialists, and

are updated periodically by the

physician responsible for the overall

coordination of the enrollee’s health

care. Some commenters suggested that

MCOs and physicians need to be given

the flexibility to evaluate each enrollee’s

circumstance. Other commenters urged

that the regulations require that

enrollees participate in treatment

planning. Several commenters believed

that enrollees with complex and serious

medical conditions should be permitted

direct access to specialists, even if they

are out-of-network providers. Other

commenters suggested that this

provision be deleted because it can be

interpreted to permit unlimited access

to specialists. One commenter expressed

the view that direct access to specialists

is a benefit that has just begun to evolve

in commercial plans, and accordingly

should not be applied until MCOs and

PHPs can further manage a direct access

system.

Response: We disagree with

commenters who suggest that this

provision permits unlimited access to

specialists. It was never our intent to

guarantee unlimited access. Proposed

§ 438.306(e)(3)(iii) was drafted to ensure

that enrollees with complex and serious

medical conditions (now referred to as

enrollees with special health care needs)

be permitted a sufficient number of

direct access visits to specialists as

required by the treatment plan. Our

overall intent in the final rule with

comment period remains the same. We

continue to believe that enrollees with

special health care needs who are

undergoing an approved course of

treatment should be able to access

specialists within the MCO’s or PHP’s

network without having to obtain

numerous authorizations from their

primary care providers, and that this is

necessary in order to meet the ‘‘access

to care’’ standard in section

1932(c)(1)(A)(i) that services be

available ‘‘in a manner that ensures

* * * adequate * * * specialized

services capacity.’’ In recognition of

varying MCO and PHP practices, the

final rule with comment period,

requires the treatment plan to specify

either an adequate number of direct

access visits to specialists or a standing

referral to specialists. However, we

continue to require that the treatment

plan be time-specific, and updated

periodically to determine whether

continued access to a specialist for a

course of treatment is necessary. To

avoid confusion, in this final rule with

comment period, we also have added a

specific requirement that we believe

was implicit in the proposed rule.

Section 438.206(f)(6) now expressly

requires that the treatment plan ensure

periodic reassessment for each enrollee

as his or her health requires. In

addition, in response to the comments

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6311

on the need for enrollee participation

and that treatment planning consider

the needs and preferences of the

enrollee, at § 438.206(f)(5) we added a

requirement that treatment plans be

developed with enrollee participation.

Comment: We received a number of

comments urging that we revise

proposed § 438.306(e)(3) to further

address and consider populations with

special health care needs. Many

commenters wanted us to further clarify

and define the term ‘‘complex and

serious medical conditions.’’

Specifically, one commenter

recommended that we revise the

wording of proposed § 438.306(e)(3)(ii)

to state: ‘‘Timely identifies individuals

with complex and serious medical

conditions or mental disabilities,

assesses those conditions, and identifies

appropriate health care services for

monitoring, treatment, or

rehabilitation.’’ Another commenter

recommended that the regulation

include a list of conditions that mandate

the actions spelled out in proposed

§ 438.306(e)(3)(ii) and (iii). Although the

commenter recognized that it would be

impractical to include an exhaustive

list, he argued that there are some

chronic conditions that should be listed,

particularly where continuing attention

and monitoring are vital. Some of the

populations that commenters

recommended include persons with

mental disabilities, cancer patients,

persons with end stage renal disease,

persons awaiting organ transplants,

persons with HIV/AIDS, children with

special health care needs, and persons

with cerebral palsy or other conditions

related to the presence of a

developmental disability. In contrast to

identifying an exhaustive list of

conditions, one commenter suggested

that we develop a definition for

complex and serious medical conditions

based on patient requirements for higher

levels of resources. This commenter

argued that such a definition would

require MCOs that enroll persons whose

needs exceed normal actuarial physical

and mental utilization estimates for a

working age population to demonstrate

higher capacity both in their networks

and with respect to their access

standards.

Response: We agree that clarification

is needed and, as previously discussed,

have revised this provision to require

that MCOs and—where applicable—

PHPs, screen and comprehensively

assess ‘‘enrollees with special health

care needs,’’ which, as noted above, is

how we now refer to individuals with

complex and serious medical

conditions. As we discussed previously,

‘‘persons with special health care

needs’’ is the terminology used by the

Congress at section 4705(c)(2) of the

BBA. We have conceptualized this term

to include:

(1) children with special health care

needs;

(2) children in foster care;

(3) individuals with serious and

persistent mental illness/substance

abuse;

(4) individuals who are homeless;

(5) older adults (individuals 65 years

of age and older) with disabilities; and

(6) adults under 65 who are disabled

or who have a chronic condition,

whether physical or mental.

We note that this listing of

individuals with special health care

needs is not an operational definition of

persons with special health care needs

and that health services research is still

in the process of developing conceptual

models, screening tools and approaches

to identifying individuals with special

health care needs.

Comment: We received a number of

comments suggesting that under

proposed § 438.306(e)(2) and (3), we

should require continuing coverage of

on-going treatment, even if it is out-ofnetwork, until the time of an initial

assessment when a primary care

physician, in consultation with a

specialist, establishes a new care plan.

Commenters believed that unless an

MCO is given prior information, it will

not know if an enrollee is pregnant or

has a complex medical condition to

provide an assessment prior to 90 days.

Other commenters noted that the

disruption of services can be

particularly harmful for enrollees with

complex and serious medical

conditions. To facilitate the initial

assessment, one commenter

recommended that we require the State

Medicaid agency to provide the MCO

with information on age, eligibility

category, and whether a child is in

foster care or is in an out-of-home

placement.

Response: We believe that most States

already have mechanisms in place to

transition enrollees with ongoing health

care needs to managed care. However,

we acknowledge the commenters’

concerns that our proposed regulation

did not address the potential disruption

of services, even for a short period of

time, between enrollment and the time

of assessment by the new primary care

physician/specialist in the receiving

MCO or PHP. To address this concern,

as discussed in section II. B. above, we

have added a new paragraph (b) to

proposed § 438.62 to require a State to

have a mechanism to ensure continued

access to services when an enrollee with

ongoing health care needs is

transitioned from fee-for-service to an

MCO, PHP or PCCM; from one MCO,

PHP or PCCM to another; or from an

MCO, PHP or PCCM to fee-for-service.

We believe this provision, plus the

requirements in § 438.208 for (1) State

identification of enrollees with special

needs or at risk for special needs, and

(2) MCO and PHP screening and

assessments, respond to commenters’

concerns that MCOs have the means to

identify, in an expedient fashion,

enrollees who require immediate

attention, and provide needed services

to such enrollees.

Comment: One commenter objected to

the fact that proposed § 438.306(e)(3)

required an MCO to implement and

update a treatment plan. Specifically,

the commenter suggested that requiring

an MCO to implement a treatment plan

for specific enrollees is not appropriate

for such an administrative entity, as

such plans should be developed and

implemented only by a patient’s

physician or other health care

professional.

Response: We agree with the

commenter. Section 438.208(g) of the

final rule with comment period,

requires MCOs and PHPs to use

appropriate health care professionals to

perform comprehensive health

assessments and to develop and

implement treatment plans.

Comment: A commenter suggested

that proposed § 438.306(e)(3) be revised

to require the MCO to timely provide

effective EPSDT screens and mandated

EPSDT services.

Response: EPSDT screenings are

required in current regulations. We

believe it would be duplicative to

restate those requirements in this final

rule with comment period.

Comment: One commenter believed

that proposed § 438.306(e)(3)(iii)(C) is

unclear, and recommends that the final

rule with comment period be changed to

read ‘‘a treatment plan that specifies an

adequate number of direct access visits

to specialists as appropriate to the

enrollee’s condition.’’ Further, the

commenter suggests that we add the

phrase ‘‘or, when required by the

condition, the names of specialists to

whom the enrollee shall have direct

access for the duration of the treatment

plan.’’

Response: We agree that the proposed

language was unclear. We have revised

the cited provision, which is now

redesignated as § 438.208(f), to require

MCOs and PHPs to implement a

treatment plan that: (1) is appropriate to

the enrollee’s conditions and needs

identified by screening and assessment,

and (2) specifies either a standing

referral or an adequate number of direct

6312 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

access visits to specialists. We expect

that the treatment plan will specify the

specialist(s) to whom the enrollee has

direct access, but do not believe it

necessary to require in regulations text

that the treatment plan must specify the

actual names of specialist to whom the

enrollee shall have direct access for the

duration of the treatment plan.

Comment: Several commenters

expressed concern with proposed

§ 438.306(e)(3)(iii)(D). Commenters

suggested that requiring physicians

themselves to update a treatment plan is

unrealistic and administratively

burdensome. One commenter

recommended that the final rule with

comment period, be revised to permit

the updating of a treatment plan by a

specialist instead of a primary care

provider.

Response: We agree on the need to

allow for situations in which a specialist

or other health care professional within

an MCO or PHP assumes the

responsibility for updating an enrollee’s

treatment plan. While we believe that a

treatment plan should be developed in

coordination with an enrollee’s primary

care provider, we recognize that MCOs

or PHPs may permit professionals other

than the enrollee’s primary care

provider to update the enrollee’s

treatment plan. Accordingly, in the final

rule with comment period, § 438.208(g)

requires MCOs and PHPs to use

‘‘appropriate health care professionals’’

to develop, implement, and update any

required treatment plan.

Comment: We received a number of

comments on proposed § 438.306(e)(4),

which required that MCOs and PHPs

ensure services are provided in a

culturally competent manner, including

at least meeting the language

requirements of § 438.10. Overall, the

majority of commenters supported this

provision, but many suggested that we

clarify the provision in the final rule

with comment period. Several

commenters requested that we define

cultural competency and strengthen the

regulation to require that MCOs include

in their networks providers that have an

understanding of enrollees’ customs and

traditions.

Commenters offered many

recommendations. One commenter

suggested specific language: ‘‘the MCO

ensures that services are provided in a

culturally competent manner to all

enrollees, by providers with appropriate

knowledge and skills to treat enrollees

who are members of linguistic or ethnic

minorities, and adults and children with

special health care needs, including

recipients with mental illness,

substance abuse problems,

developmental disabilities, functional

disabilities, or complex problems

involving multiple medical and social

needs (for example, HIV/AIDS and

homelessness).’’ Several other

commenters recommended that we add

requirements such as: (1) full attention

by the MCO to racial and ethnic

minorities, (2) interpreter services,

including braille and sign language, (3)

an appropriate number of caregivers

properly trained in cultural

competency, and (4) provider awareness

of medical risk related to racial, ethnic,

and socioeconomic factors. Finally,

other commenters recommended that

we: (1) mandate California’s standards

for cultural competency, (2) limit

providers who are culturally aware to 5

percent or 200 in number to combat

recruitment or other training burdens,

(3) revise the rule to require that MCOs

identify enrollees who belong to ethnic

minority groups that may have special

barriers in accessing care, and make

continued efforts to improve

accessibility, or (4) mandate that the

National Committee for Quality

Assurance (NCQA) require MCOs to

collect ethnicity data to ensure quality

so that appropriate educational,

screening, and treatment programs can

be developed.

Response: We do not believe it is

appropriate to add all of the specificity

suggested by the commenters, however

we do agree that further strengthening

and clarification is needed. As a result,

we have added a provision at § 438.204

that requires States, as an element of

their State quality strategies, to identify

and provide MCOs and PHPs with

information, on, the race, ethnicity, and

primary language spoken by each

Medicaid beneficiary at the time of their

enrollment in an MCO or PHP. We will

provide technical assistance to States on

implementing these requirements. Our

final rule with comment period also has

been revised at § 438.206(e)(2) to require

MCOs and PHPs to ensure that services

are provided in a culturally competent

manner to all enrollees, including those

with limited English proficiency, and

diverse cultural and ethnic

backgrounds.

While we decline to add a definition

of cultural competency in regulation

text because the state of the art with

respect to standards for cultural

competency is still evolving. States

should undertake efforts to further

define cultural competency in their

contracts and in standards for access to

care under their quality assessment and

performance improvement strategies.

We offer the following statement as one

that States may consider using in any

definition of cultural competency:

‘‘Cultural competency in health care is

a set of attitudes, skills, behaviors, and

policies that enable organizations and

individuals to work effectively in crosscultural situations. It reflects an

understanding of the importance of

acquiring and using knowledge of the

unique health-related beliefs, attitudes,

practices, and communication patterns

of beneficiaries and their families to

improve services, enhance beneficiary

understanding of programs, increase

community participation, and eliminate

disparities in health status among

diverse population groups.’’

Comment: Several commenters

believed that we needed to further

clarify proposed § 438.306(e)(4) to

ensure appropriate linguistic access.

One commenter recommended that the

comment period be strengthened to

require, at a minimum, that MCOs and

PHPs have a means of communicating

during medical and administrative

encounters.

Response: We agree that some

clarification in the final rule with

comment period is needed. As noted

above, we have provided in

§ 438.206(e)(2) that MCOs and PHPs

must provide services in a culturally

competent manner to all enrollees,

including those with limited English

proficiency, and diverse cultural and

ethnic backgrounds. Further, as noted

above in section II.A., we require in

§ 438.10(b) that States and MCOs,

PCCMs and PHPs make interperter

services available to meet the needs of

all enrollees. We believe that § 438.10(b)

is sufficient to ensure that enrollees

have means of communication during

medical and administrative encounters.

5. Continuity and Coordination of Care

(Proposed § 438.308)

Proposed § 438.308 set forth a series

of requirements to ensure that a State

require MCOs and PHPs to maintain

continuity and coordination of care for

its enrollees. Proposed § 438.308(a)

required that MCOs and PHPs have in

place written policies that provide each

enrollee with an ongoing source of

primary care appropriate to the

enrollee’s needs, as well as, formally

designating a practitioner who is

responsible for coordinating the

enrollee’s overall health care.

In proposed § 438.308(b), MCOs and

PHPs were required to ensure

coordination of services, both internally

and with services available from the

community.

Proposed § 438.308(c) required MCOs

and PHPs and their providers to have

the information necessary for effective

and continuous patient care and quality

improvement, including procedures to

ensure that each provider maintains

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6313

health records that meet requirements

established by the MCO or PHP, taking

into account professional standards, and

there is appropriate and confidential

exchange of information among

providers.

Proposed § 438.308(d) required

procedures to ensure that providers

inform enrollees of specific health

conditions that require follow-up, and if

appropriate, provide training in self

care, and deal with factors that hinder

enrollee compliance with prescribed

treatment or regimens.

Comment: We received a number of

comments urging that proposed

§ 438.308 address the continuation of an

enrollee’s ongoing treatment when

transitioning to managed care. (Similar

comments, discussed above, were also

received on proposed § 438.306(e)).

Although many commenters

commended us for addressing the issue

of continuity and coordination of care

once a beneficiary has been enrolled in

managed care, many also expressed

concern that the proposed regulation

did not highlight the need for

identification and continuation of an

enrollee’s treatment when transitioning

from fee-for-service into managed care

or from one managed care organization

to another. Several commenters stated

that the interruption of treatment for

only a short period of time could have

serious and possibly irreversible

consequences on a individual’s health.

Other commenters suggested that

ongoing treatment without interruption

was especially critical for persons

suffering from mental illness, substance

abuse, and chronic conditions such as

HIV/AIDS.

A number of recommendations were

offered. Some commenters

recommended that we require

continued coverage of ongoing

treatment until a new care plan is

established as a result of an initial

assessment in the receiving MCO. Other

commenters suggested that we define

continuing treatment to include

equipment, medical supplies, and

prosthetic and orthotic appliances.

Several commenters also recommended

specific regulatory language that would

permit an enrollee to continue to be

covered for a course of treatment for a

specified transition period. These

commenters suggested that State

agencies or the MCO or both be required

to notify enrollees of the right to have

treatment continued. In addition, the

forwarding MCO should be required to

share all medical files on a transferring

enrollee with the receiving MCO.

Response: As noted above in this

section, and as discussed more fully in

section II. B., in response to the large

number of comments on this issue, we

have added to § 438.62 a new paragraph

(b) that requires States to have a

mechanism to ensure continued access

to services when an enrollee with

ongoing health care needs is

transitioned from fee-for-service into a

MCO, PHP or PCCM; from one MCO,

PHP or PCCM to another MCO, PHP, or

PCCM; or from an MCO, PHP, or PCCM

to fee-for-service. We further have

specified minimum requirements that

the State transition mechanisms must

address, and have identified specific

population categories that State

transition mechanism must cover.

Comment: Several commenters

believed that proposed § 438.308 did

not adequately address the issue of prior

existing relationships. Commenters

voiced concerns about the impact on

enrollees when existing relationships

have to be discontinued as a result of

mandatory managed care programs, or

as a result of providers leaving the

network. These commenters specifically

referenced populations with special

health care needs and pregnant women

as particular populations who would

suffer an adverse impact. Some

commenters recommended that

pregnant women have the option to

continue care with their OB/GYN until

completion of post-partum care and

others recommended that women who

have already initiated prenatal care be

exempted from the mandatory

enrollment requirement. Other

commenters focused their

recommendations on other populations

with special health care needs, with

some recommending that we require

MCOs to contract with providers

currently serving Medicaid

beneficiaries, and others requesting that

we exempt populations with special

health care needs from managed care

entirely, particularly children with

special health care needs.

Response: In section 1932(a)(2) of the

Act, the Congress specifically exempted

certain categories of children with

special needs and Medicare eligible

beneficiaries from mandatory

enrollment under section 1932(a)(1) of

the Act. Given the level of specificity in

the statute, we believe that it would be

inconsistent with Congressional intent

to exempt additional categories of

beneficiaries. With respect to the

suggestion that MCOs be required to

cover out-of-network services, once

again the Congress has specified in

detail those circumstances (e.g., poststabilization services), for which an

MCO is required to pay for out-ofnetwork services or those circumstances

(e.g., family planning services) for

which an MCO cannot limit an enrollee

to its network of providers. We do not

believe that we would have authority to

require MCOs to cover non-emergency

services furnished by a provider with

whom the MCO has no relationship.

However, we understand the

commenters’ concerns that an existing

relationship may be disrupted as a

result of a beneficiary enrolling in

managed care, and as discussed in the

previous comment response, we believe

we have addressed this problem in

§ 438.62(b). We wish to make clear that

the requirements in § 438.62(b) are not

intended to preempt State laws that

require continuation of care outside the

network.

Comment: We received numerous

comments on proposed §§ 438.308(a)(1)

and (a)(2). Several commenters argued

that certain individuals with disabilities

and other chronic conditions may

require a specialist or other qualified

and experienced practitioner as their

primary care provider. Some

commenters recommended that the final

regulation explicitly provide for the

designation of a specialist as the

primary care provider in certain

instances, such as for persons with

complex and serious medical

conditions. One commenter suggested

that an MCO be required to refer chronic

renal disease patients to a nephrologist

for primary care services before a

patient develops end stage renal disease.

Another commenter suggested that we

add language to allow residents, under

supervision, to serve in the role of

‘‘continuing physician.’’ Finally, one

commenter recommended that primary

care systems not be allowed as care

managers for complex behavioral needs.

Response: We agree that there may be

instances where a specialist would be

an appropriate choice for a primary care

provider, particularly for individuals

with special health care needs.

However, we decline to impose that

degree of specificity in regulation

because: (1) the existing evidence base

regarding better health outcomes for

individuals whose primary care

provider is a specialist is limited; and

(2) it is not possible at present to specify

in this regulation all the decision rules

to direct when a given individual must

have a specialist as a primary care

provider. We believe that States, MCOs,

and PHPs have sufficient flexibility

under the final rule with comment

period to permit specialists or other

experienced providers to serve as

primary care providers, as appropriate.

We also do not believe that it is

appropriate to revise this final rule with

comment period, to prohibit primary

care systems from acting as care

managers for persons with complex

6314 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

behavioral needs. Again, States have the

flexibility to decide the appropriate

specifications to impose on MCOs and

PHPs regarding the types of primary

care providers, depending on the nature

of the managed care program in the

State and the population being served.

Comment: One commenter

recommended that we revise proposed

§§ 438.308(a)(1) and (a)(2) to allow an

MCO or enrollee to designate a medical

group or provider entity, instead of an

individual, for primary care and overall

coordination.

Response: We agree that the MCO

should have the flexibility to include

medical groups and other provider

entities as sources of primary care and

overall coordination. Our intent in

drafting the proposed rule was to ensure

that enrollees have an ongoing source of

primary care and a designated person or

entity responsible for coordinating their

health care. Section 438.208(h) in the

final rule with comment period, now

requires the State to ensure that each

MCO and each PHP: (1) provide each

enrollee with an ongoing source of

primary care appropriate to his or her

needs; and (2) have a mechanism to

identify the person or entity formally

designated as primarily responsible for

coordinating the enrollee’s health care.

While we thus have added flexibility to

designate a medical group or entity as

the primary care source, we urge MCOs

and PHPs to make every effort to

promote a relationship between an

enrollee and a single primary care

provider.

Comment: Several commenters

requested that we clarify whether we are

proposing a ‘‘case-manager’’ or ‘‘pointof-entry’’ care coordination model in

proposed § 438.308(a). One of these

commenters stated that under either

model, the entity must be intimately

familiar with the varied needs of the

enrollee, and stressed that appropriate

safeguards must be in place to ensure

effective coordination among care

providers. One commenter specifically

recommended that we modify the

proposed rule to indicate that, based on

the initial assessment under proposed

§ 438.306(e)(2), the type of care

coordination for each enrollee be

determined by an analysis of individual

need.

Response: Our intent was not to

propose a ‘‘case-manager,’’ ‘‘point-ofentry,’’ or any other particular model of

care coordination. Rather, our intent

was to ensure that MCOs and PHPs,

regardless of the model of care

coordination, make every effort to

promote a relationship between the

enrollee and the primary care provider

source. We recognize that some MCOs

and PHPs might have systems of care

coordination under which a person or

entity, other than the enrollee’s primary

care provider, coordinates services. We

believe that our revised language in

§ 438.208(h) better reflects our intent.

With respect to the specific comment

that the type of care coordination for

each enrollee be determined by an

analysis of individual need, we believe

that the comprehensive assessment,

treatment plan, and coordination

program requirements in § 438.208

sufficiently address this issue.

Comment: A commenter found

proposed § 438.308(a)(1) unclear, and

thought that it could be interpreted to

mean that an MCO must provide each

enrollee with a primary care provider,

and allow self-referral to a specialist on

an as-needed basis. This commenter

recommended that we delete this

provision because, as the commenter

interpreted it, it was unworkable in a

managed care environment.

Response: We have clarified our final

rule with comment period so that each

MCO and each PHP must provide an

enrollee with an ongoing source of

primary care appropriate to his or her

needs, and have a mechanism to

identify the person or entity who is

formally designated as primarily

responsible for coordinating the

enrollee’s health care. We believe that

this language is clear and cannot be

interpreted to allow self-referral to a

specialist.

Comment: We received several

comments supporting the proposed

provision in § 438.308(b), which

requires an MCO to ensure coordination

of services internally and with services

available from community organizations

and other social programs. Many of

these commenters requested that we

expand the coordination of services list.

In contrast, several other commenters

stated that they felt that the proposed

regulation was unclear and questioned

whether it was practical for an MCO to

serve as a gatekeeper for non-medical

services. Some commenters questioned

our authority in proposing this

provision, with a few stating that this

provision was a major expansion of

State and MCO responsibility. Several of

these commenters indicated that this

provision would be difficult for States to

monitor, and recommended either that

we clarify the regulatory language or

delete the provision entirely. In

addition, one commenter referenced the

cost-effectiveness test under 1915(b) of

the Act waiver programs, noting that

such a test is based on a comparison to

historic fee-for-service costs that does

not include costs associated with

coordinating services with other social

programs.

Response: We agree that the extent to

which an MCO can coordinate all health

and health-related services that are

needed by an individual enrollee is

variable, and that effective approaches

to care coordination has not been well

addressed to date by health services

research. MCO responsibility for care

coordination can range from: (1)

coordination of all Medicaid services

included in the contract between the

MCO and the State; (2) coordination of

all Medicaid services regardless of

whether they are included in the MCO’s

contract with the State; and (3)

coordination of all health, social,

educational, and other services needed

to maintain optimal health of an

enrollee. Determining the appropriate

level of responsibility for the MCO for

care coordination is complex. The

ability of the MCO to coordinate care is

determined, in part, by the authority the

MCO has to coordinate care provided by

entities not a part of the MCO and by

the MCO’s available resources. Further,

social or community organizations

external to the MCO may not desire the

MCO to coordinate care out of concern

that care will be ‘‘medicalized’’ or that

the authority of other agencies for care

coordination will be weakened.

Since these are complex issues, we

encourage all State Medicaid agencies to

work with beneficiaries, MCOs and

PHPs and other stakeholders in their

State to determine the appropriate

responsibilities of MCOs and PHPs in

the State for care coordination. We

accordingly have, in response to the

above comments, deleted the

requirement in proposed § 438.308(a)(2)

that MCOs and PHPs coordinate

services available from community

organizations and social programs. We

note, however, that an MCO or PHP may

still have responsibilities for

coordination that exist under fee-forservice Medicaid. Under § 431.615,

State Medicaid agencies are required to

establish, as part of their State plan,

‘‘arrangements’’ with State health and

vocational rehabilitation agencies and

Title V grantees. These arrangements

must include coordinating plans for

health services provided or arranged for

recipients. In addition, similar

arrangements are required under

§ 431.620, between a State Medicaid

agency and State mental health

authority or mental institutions. Section

431.635 also outlines requirements for

the coordination of Medicaid with

Special Supplemental Food Programs

for Women, Infants, and Children (WIC).

While these requirements are imposed

on States, we believe that States may

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6315

delegate some of these coordination

responsibilities to MCOs and PHPs. To

the extent that these responsibilities are

delegated, MCOs and PHPs must ensure

coordination of health-related services

with community and other social

groups. This is now a State option,

however.

In response to comments, § 438.208(h)

of the final rule with comment period,

thus requires that: ‘‘Each MCO and PHP

must implement a coordination program

that: (1) Meets the requirements

specified by the State; (2) Ensures that

each enrollee has an ongoing source of

primary care appropriate to his or her

needs and a person or entity formally

designated as primarily responsible for

coordinating the health care services

furnished to the enrollee; (3)

Coordinates the services it furnishes to

enrollees with the services the enrollee

receives from any other MCOs and

PHPs; (4) Ensures that the results of its

screen or assessment of an enrollee (or

both, if the MCO or PHP performs both)

are shared with other entities serving

the enrollee, so that those entities need

not duplicate the MCO’s or PHP’s

screening or assessment or both; (5)

Ensures that in the process of

coordinating care, each enrollee’s

privacy is protected consistent with the

confidentiality requirements in

§ 438.224; (6) Ensures that each provider

maintains health records that meet

professional standards and that there is

appropriate and confidential sharing of

information among providers; (7) Has in

effect procedures to address factors

(such as a lack of transportation) that

may hinder enrollee adherence to

prescribed treatments or regimens; and

(8) Ensures that its providers have the

information necessary for effective and

continuous patient care and quality

improvement, consistent with the

confidentiality and accuracy

requirements of § 438.224 and the

information requirements of § 438.242.

We are further requiring in

§ 438.10(d)(2)(i)(C) that the scope of

MCO and PHP coordination be

disclosed to potential enrollees by

adding ‘‘MCO and PHP responsibilities

for coordination of enrollee care’’ as an

additional type of information that must

be provided to potential enrollees.

Comment: Several commenters

suggested that proposed § 438.308(b)

would not achieve continuity and

coordination of services if an MCO

contract does not cover all medically

necessary services included in a State

plan. These commenters believed that

an MCO should take responsibility for

coordinating all Medicaid services that

are not part of its contract. One

commenter requested that we clarify

whether a State may determine that a

State entity, local organization, or

community organization is more

appropriate to fulfill the coordination

role. As an alternative, the commenter

recommends that we revise the final

rule with comment period to state,

‘‘With the permission of the enrollee, or

when consistent with the State’s

confidentiality laws, the MCO must

provide that its providers release

information concerning the enrollee’s

medical treatment to community

organizations and other social programs

when so requested by such

organizations or programs.’’

Response: Consistent with our

response to the prior comment, and

with our revisions to this section, we do

not believe that § 438.208(h) prevents a

State Medicaid agency from delegating

the responsibility for coordinating

health-related services to entities other

than the MCO or PHP, such as other

State and local organizations. Under the

final rule at with comment period,

§ 438.208(h), States have the discretion

to contract with MCOs and PHPs to

provide a specific set of services that

may not include all services covered

under a Medicaid State plan. In a

situation where the State has assumed a

coordination function or delegated it to

an entity other than the MCO or PHP,

the MCO or PHP must still coordinate

care and services to the extent and

manner specified by the State and

ensure that in the process of

coordinating care, each enrollee’s

privacy is protected consistent with the

confidentiality requirements in

§ 438.224.

Comment: We received several

comments on proposed § 438.308(c)(2),

which would require an appropriate and

confidential exchange of information

among providers. One commenter

indicated that he or she was pleased to

see the importance of confidentiality

stressed. However, several comments

suggested that proposed § 438.308(c)(2)

lacked specificity about what

information should and should not be

shared between primary care and

behavioral health providers. Several of

these commenters recommended that

enrollees be provided informed consent

before information is shared. One

commenter specifically noted that

existing confidentiality requirements,

especially those related to substance

abuse treatment, severely limit the

practitioner’s ability to exchange

treatment information. Another

commenter stated that it is difficult to

know what proposed § 438.308(c)(2)

means without a definition of the term

‘‘confidential.’’ This commenter

recommended that we reference

applicable State law in the final rule

with comment period.

Response: Our intent in drafting this

provision was to ensure that MCOs and

PHPs and their providers have the

information necessary for effective and

continuous patient care and quality

improvement. In proposed § 438.308(c),

we referenced the need for providers to

maintain health records consistent with

the requirements established by MCOs

and PHPs, taking into account

professional standards. In proposed

§ 438.308(c)(2), we also referenced the

need for confidential exchange of

information among providers. Both of

these requirements were included in an

effort to reinforce the confidentiality

requirements in proposed § 438.324. We

did not intend that the proposed rule be

interpreted to require informed consent

or to supersede relevant State law

governing the exchange of information

between providers.

We decided to revise the requirement

to provide further clarification and to

avoid confusion over the interface of

this provision with § 438.224.

Accordingly, § 438.208(h)(7) of the final

rule with comment period, specifies that

each MCO and PHP must ensure that its

providers have the information

necessary for effective and continuous

patient care and quality improvement

‘‘consistent with the confidentiality and

accuracy requirements of § 438.224 and

the information requirements of

§ 438.242’’. In addition, at

§ 438.208(h)(4), we require that MCOs

and PHPs have coordination programs

that ensure that each enrollee’s privacy

is protected consistent with the

requirements of § 438.224. Based on

these revisions, we believe that there is

no need to define the term

‘‘confidential.’’

Comment: We received several

comments in support of proposed

§ 438.308(d), which would require

MCOs and PHPs to have procedures in

place to ensure that providers: (1)

Inform enrollees of specific conditions

that require follow-up and, if

appropriate, provide training in selfcare, and (2) deal with factors that

hinder enrollee compliance with

prescribed treatments or regimens. One

commenter noted that the proposed rule

recognizes the value of disease

management programs. Another

commenter supported the rule but felt

that we should further clarify it to

ensure that MCOs take responsibility to

educate patients as to when they may go

to emergency rooms. Another

commenter asked that we recognize that

there are limits on self-care

requirements due to the nature of an

enrollee’s disability.

6316 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

Other commenters objected to the

proposed rule. One commenter opined

that self-care cannot be legislated. This

commenter believed that by making this

a compliance issue, we were exceeding

her authority. Another commenter felt

that this provision was not practical and

would lead to increased administrative

costs.

Response: We continue to believe in

the value of providing information and

training on conditions that may improve

with self-care, and encourage MCOs to

provide for this. However, we are

persuaded by commenters that some of

the conceptual language on ‘‘specific

health conditions that require followup’’ and ‘‘if appropriate, provide

training in self-care’’ are unclear and

subjective. We note that potentially all

health conditions that require a visit to

a health care practitioner require some

degree of ‘‘follow-up.’’ Accordingly, in

§ 438.208(h)(6) of the final rule with

comment period, we only require that

MCOs and PHPs have in effect

procedures to ‘‘address factors (such as

lack of transportation) that hinder

enrollee adherence to prescribed

treatment regimens.’’

With regard to the comment that

MCOs and PHPs should have the

responsibility to educate beneficiaries

on the proper use of the emergency

room, we encourage MCOs and PHPs to

undertake this type of education.

However, any training effort must be

consistent with the emergency services

requirements in § 438.114.

6. Coverage and Authorization of

Services (Proposed § 438.310)

Proposed § 438.310 set forth

requirements to ensure that each

contract with an MCO or PHP identify

all services offered under the contract

and follow written policies and

procedures for processing requests for

services in a manner that ensures access

to these services. Further, the proposed

requirements would ensure that

utilization management activities are

not structured in a manner that is

detrimental to enrollees. These

standards implement section 1932(b)(1)

of the Act, and to the extent appropriate

and applicable, are consistent with

Medicare+Choice regulations at

§ 422.112.

In paragraph § 438.310(a) we

proposed that the State ensure through

its contracts with MCOs and PHPs that

each MCO or PHP identifies, defines,

and specifies the amount, duration, and

scope of all Medicaid benefits that the

MCO or PHP must furnish. Furthermore,

the contract must specify what

constitutes medically necessary services

to the extent they are described in the

State plan, and provide that the MCO or

PHP furnishes the services in

accordance with that provision. We

believe these requirements are essential,

as it is a concern that an MCO’s or PHP’s

authorization procedures, if unduly

burdensome, can prevent an enrollee

from having access to, or receiving

services to which they are entitled

under the State plan. In addition to

serving as a protection for enrollees,

these requirements support the

provider’s needs and desires to know

what is required for authorization

determinations.

In § 438.310(b) we proposed to require

that, in processing requests for initial or

continuing authorization of services, the

MCO or PHP and its subcontractors: (1)

follow written policies and procedures

that reflect current standards of medical

practice; (2) specify the information

required for authorization decisions; (3)

have in effect mechanisms to ensure

consistent application of review criteria;

(4) consult with the requesting provider

when appropriate; and (5) observe time

frames specified in paragraph (d) of

proposed § 438.310.

In paragraph (c), we proposed that

MCO and PHP contracts be required to

provide that written notice be provided,

within the time frames in paragraph (d),

of decisions to ‘‘deny, limit, reduce,

delay, or terminate’’ services, including

specific reasons for the decision, along

with information on the enrollees right

to file a grievance or request a State Fair

Hearing.

In paragraph (d), we proposed that

contracts be required to specify that

services will be provided as

expeditiously as the enrollee’s health

condition requires, and within Stateestablished time frames not to exceed 14

days in ordinary cases, and 72 hours if

a further delay could ‘‘seriously

jeopardize the enrollee’s life or health or

ability to regain maximum function.

In paragraph (e) we required that each

MCO and PHP contract must provide

that, consistent with § 438.6(g) and

§ 422.208, compensation to individuals

or entities that conduct utilization

management activities is not to provide

incentives to deny, limit or discontinue

medically necessary services.

Comment: Numerous commenters

expressed the view that proposed

§ 438.310(a)(1) would be difficult to

implement. These commenters felt that

while a general description of categories

of core benefits and service limitations

seemed reasonable, the requirement to

include the amount, duration, and scope

of each service in the contract was not

reasonable, and would make the

contract too extensive to manage; create

unintended exclusions; not allow for

consideration of patient specific needs;

and require frequent contract

amendments to keep current. They also

urged that States have the flexibility to

determine the level of detail to include

in contracts, and believed that the

requirements in proposed § 438.310

went beyond legislative intent.

Commenters recommended that the

contract identify, define, and specify

each service that must be offered, but

that the amount, duration, and scope be

defined in a State Plan or other

document. In contrast to the

commenters who were opposed to the

provision, several commenters

supported the proposed provision,

stating that it was essential that

contracts make clear the services that an

MCO must offer to ensure that the

enrollee receives the services that they

are entitled to under the State Plan.

Commenters who supported the

provision did not distinguish between

the requirement to identify the services

and the requirement to include the

amount, duration, and scope of each

service.

Response: The intent behind this

provision was to ensure that enrollees

receive the services that they are

entitled to receive under the State plan,

regardless of the MCO or PHP that they

elect, with the recognition that some

MCOs and PHPs may not directly

provide some services, in which case

the State must arrange for these services.

While we acknowledge the difficulties

that were raised concerning

implementing this provision as

proposed, we also agree with

commenters who stated that it was

essential that the contract make clear

the services an MCO or PHP is to offer.

Any limitations in amount, duration

and scope are important features of

benefit coverage. Failure to address

them in a contract creates the potential

for confusion between the State and

MCO or PHP and thereby the possibility

that an enrollee may not have timely

access to service to which he or she is

entitled. Because of these concerns, the

final rule with comment period at

§ 438.210 still requires that the amount,

duration, and scope of services be

specified, now on the basis of what is

contained in the State Plan. It further

requires that the amount, duration, and

scope be such as can reasonably be

expected to achieve the purposes for

which the services are furnished.

However, we also note that if an MCO

or PHP does not cover a particular

service, the State must make

arrangements to ensure that enrollees

are able to receive all services covered

under the State plan.

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6317

Comment: One commenter believed

that proposed § 438.310(a)(1) gives the

impression that States and MCOs may

negotiate away existing Federal

requirements governing coverage

determinations in the Medicaid

program. Specifically, the commenter

pointed out that existing regulations for

fee-for-service at § 440.230 require that

services be provided in sufficient

amount, duration, and scope ‘‘to

reasonably achieve its purpose.’’ It

further prohibits States from arbitrarily

denying or reducing the amount,

duration, or scope of such services

solely on the basis of diagnosis, type of

illness, or condition. Although State

agencies may place limits on a service,

limitations much be based on

appropriate criteria such as ‘‘medical

necessity’’ or on utilization control

procedures. The commenter was

concerned that § 438.310(a)(1) could be

read to undermine these requirements

by implying discretion to define

amount, duration, and scope in

contracts in a manner negotiated

between the State and MCO or PHP.

Response: We agree with the

commenter that the provisions at

§ 440.230 should also apply to a

managed care arrangement, and we

accordingly have included them in

§ 438.210 of the final rule with comment

period in response to this comment. In

addition, we have clarified that services

limited for the purpose of utilization

control must still be provided in

sufficient amount, duration, and scope

to reasonably achieve the purpose for

which they are furnished.

Comment: One commenter suggested

that benefits and services referenced in

§ 438.310(a)(1) include all Federally

mandated benefits and services,

including nurse-midwifery services.

Response: Federal law allows States

to ‘‘carve-out’’ specific Medicaid

services from contracts with MCOs and

PHPs, and offer them on a fee-forservice basis or through a separate

managed care contractor. For this

reason, proposed § 438.310(a)(1) was not

intended to govern what services are to

be included in or covered by an MCO

or PHP contract, but to require that, for

those services that are included in or

covered by the contract, that the

contract identify, define and specify

those services. Therefore, we are not

requiring in the final rule with comment

period that each MCO and PHP contract

include all Federally mandated benefits

and services, including nurse-midwifery

services.

Comment: Many commenters

suggested the regulation mandate a

definition of medical necessity for

States to use in their managed care

contracts, or more specific guidance

regarding the definition. Commenters

presented a range of reasons for

including a standard definition,

including the need for consumers and

providers to understand the scope and

limits of health care benefits, ensuring

enrollees are not denied services to

which they are entitled, avoiding

disputes between States and MCOs or

PHPs and providers, eliminating State

variances in the definition, curbing

future lawsuits, and improving the

incentive for managed care plans to

compete based on innovative quality

improvements, rather than restrictive

authorizations.

Several different definitions were

suggested by different commenters.

Some of the recommendations suggested

that the definition reflect maintenance

of functioning, prevention of

deterioration, optimum participation in

community living, consideration of the

differences between children and adults

(especially age-appropriate services and

the developmental, rather than

rehabilitative, nature of some services

for children), and should specifically

address mental health needs.

Other commenters found the

provision regarding medical necessity

too prescriptive and believed that

medical issues should not be resolved

through a regulation or contracting

process.

Response: We disagree that the

provision is too prescriptive. States have

existing medical necessity specifications

in Medicaid fee-for-service programs

and individuals enrolled in managed

care are entitled to the same services as

all other Medicaid eligible persons in

the State. Clear specifications of medical

necessity in the contract are critical in

determining what a State is paying

MCOs and PHPs to provide and, in

some cases, what the State is providing

outside the managed care setting for all

parties in the program. The application

of State specifications in individual

situations allows for medical judgement.

However, we also do not agree that a

definition of medical necessity should

be included in the regulations. There

currently exists no widely-accepted

national definition, and at present States

currently are allowed under

§ 440.230(d) to ‘‘place appropriate limits

on a service based on such criteria as

medical necessity or on utilization

control procedures,’’ and have great

flexibility in defining that criteria.

Therefore, we do not believe it is

appropriate to promulgate a national

definition at this time. However, we

believe that more specific guidance

regarding State contract specifications is

needed. In particular we believe that

medical necessity criteria used by

Medicaid MCOs and PHPs should not

be more restrictive than the State

Medicaid medical necessity criteria

used in the State’s Medicaid program

overall, and that this be evident to all

parties, thus decreasing the potential for

disputes.

Therefore, we have revised the

regulation to require that the

specifications of medical necessity in

the contract must be no more restrictive

than any such specifications in the State

Medicaid fee-for-service program,

described in State statute, regulations,

State plan, or other policy or

procedures. This addition of ‘‘State

statute, regulations or other policy or

procedures’’ provides greater specificity

than the sole reference to ‘‘State plan.’’

found in the proposed rule. We further

agree that the contract should be clear

about what the State’s specifications are

with respect to medical necessity

criteria. Therefore, we have added

provisions requiring that the contract

address the extent to which the MCO or

PHP is responsible for covering

medically necessary services to: (1)

prevent, diagnose, and treat health

impairments; (2) enable the enrollee to

achieve age-appropriate growth and

development; and (3) attain, maintain or

regain functional capacity. While we are

not mandating that services must be

covered to meet these goals, the contract

must clearly address the extent of each

MCO’s and PHP’s responsibility to

provide such services. This provision

will promote greater consistency of

medical necessity specifications across

MCOs and PHPs within a State. We

believe that services to meet mental

health needs are understood to be under

the purview of these specifications

without specific mention.

We believe this revised regulatory

provision, in conjunction with other

provisions in this regulation, will meet

commenters’ concerns regarding

beneficiary understanding as well.

Section 438.10 requires that information

regarding the kinds of benefits, and

amount, duration and scope of benefits

available under the contract must be

provided to enrollees or potential

enrollees upon request. This provision

should improve the understanding of

beneficiaries so they are not denied

services to which they are entitled. This

section also requires the provision of

information regarding grievance, appeal

and fair hearing procedures to assure

that beneficiaries understand their

ability to dispute decisions made by

MCOs and PHPs.

We anticipate that greater specificity

in MCO and PHP contracts will reduce

the potential for MCOs and PHPs to

6318 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

develop specifications of medical

necessity inconsistent with those

developed by the State Medicaid

agency. However, it must be noted that

medical necessity relates to

determinations regarding specific care

given to a specific patient with specific

medical condition under certain

circumstances and is thus more focused

on individual situations. Some potential

for dispute is inherent in such

decisions.

Comment: Many commenters

indicated that the regulation should

recognize the special status of Early and

Periodic Screening, Diagnosis, and

Treatment (EPSDT) provisions, and

provide specific reference to them under

the medical necessity provision.

Response: This regulation does not

affect any of the pre-existing EPSDT

regulations. Further, some EPSDT

services may be provided by the State

outside of the managed care contract.

We believe it is redundant and

unnecessary to repeat all existing

requirements in this regulation, which

focuses on managed care programs. For

this reason, we have not included any

specific reference to EPSDT in the

provisions on medical necessity.

Comment: Some commenters found

that the proposed regulation gave the

impression that the States and MCOs

may negotiate away the Federal legal

requirements governing coverage

determinations in the Medicaid

program. Comments suggested that the

regulations ensure that States include in

managed care contracts a definition of

medical necessity consistent with

Federal law.

Response: The provision addressing

medical necessity in no way affects any

other Federal requirements governing

coverage determination in the Medicaid

program. All parties must adhere to all

other Federal statutes and regulations.

However, we believe it would be

redundant to repeat all such

requirements in this regulation.

Comment: Commenters urged that we

review and approve definitions of

medical necessity before approving

managed care contracts.

Response: Section 438.6 of this final

rule with comment period requires us to

review and approve MCO and PHP

contracts. As part of that review, we will

assure that regulatory requirements at

§ 438.210 pertaining to MCO and PHP

contract provisions on medical

necessity are met. While these

provisions are not a definition of

medical necessity, they will promote

greater shared understanding by MCOs,

and PHPs and beneficiaries about how

medical necessity is determined.

Comment: One commenter asserted

that ongoing monitoring by us is

essential to ensure that States or MCOs

do not define medical necessity so

narrowly that they deprive beneficiaries

of services to which they are entitled

under Medicaid.

Response: We agree that ongoing

monitoring of managed care programs is

important. We utilize a variety of

mechanisms to monitor State contracts

and State Medicaid managed care

initiatives. These mechanisms include:

data reviews, State and MCO on-site

reviews, and input from beneficiaries,

advocates and providers. Furthermore,

other provisions in this regulation, such

as § 438.204(d) (which requires external

reviews of the timeliness of and access

to services covered under each MCO

and PHP contract), provide significant

additional information to assist us and

States in monitoring.

Comment: One commenter believed

that each State operating a Medicaid

managed health care plan that includes

children should be required to consult

with the State agency that is responsible

for overseeing the delivery of early

childhood intervention services (under

Paragraph B and C of Individuals with

Disabilities Education Act) to ensure

that the plan includes adequate

provisions for coordination of health

and early intervention services to such

youngsters.

Response: We strongly support

coordination between appropriate State

agencies. In § 438.202, we require States

to provide for the input of recipients

and other stakeholders in the

development of the State strategy for

quality assessment and performance

improvement. We consider other State

agencies such as State Mental Health

and Substance Abuse agencies, Title V

Maternal and Child Health agencies,

and IDEA agencies as stakeholders who

should have input into the development

of the strategy.

Comment: We received comments

urging that there be no gaps in Medicaid

services. A major problem, in the view

of these commenters, is that States often

are unaware of their responsibility to fill

gaps left in the case of services not

provided through an MCO or PHP.

Response: We agree that all needed

Medicaid covered services must be

furnished. In the final rule with

comment period—

Section 438.210 requires that the

contract identify, define, and specify

services that the MCO or PHP is

required to offer; and

Section 438.206 specifies if an MCO

or PHP contract does not cover all of the

services in the State plan, the State must

make those services available from other

sources and give enrollees information

on how and where to obtain them,

including how transportation is

provided.

In determining whether services

should be provided in individual cases,

fair hearing officers are bound by their

interpretation of the State’s overall

Medicaid program coverage criteria, and

must apply these criteria rather than

specific coverage criteria in the contract

if the hearing officer determines that the

contract criteria are inconsistent with

State criteria. The State retains overall

responsibility for covering all services

in accordance with the Medicaid State

plan and implementing policies and

procedures, regardless of whether some

or all of these services may have been

contracted to an MCO or PHP.

Comment: Commenters expressed

divergent views on the basis for medical

necessity determinations, including

preferences for evidence-based

standards, professional standards,

generally accepted standards of

medicine, or deference to the

recommendation by the treating

professional. Some voiced concern that

the evidence-based standard for

determining which services are

medically necessary would limit

obligations to services deemed effective

based on quantitative or scientific

studies. Quantitative evidence of

efficacy does not always exist with

respect to persons with developmental

disabilities or other special populations

who have not been involved in studies.

On the other hand, some commenters

felt the professional standard of review

was inappropriate because of disputes

among professionals.

Response: Because of the variable

evidence base for the efficacy of the

multitude of therapeutic interventions

possible for any population, and the

lack of consensus regarding the best

approach to medical necessity

determinations (as evidenced by the

comments received) we do not mandate

a single approach for determining

medical necessity. States have great

flexibility in establishing this standard,

which is applicable in both fee-forservice and managed care.

Comment: Commenters indicated that

MCO subcontracts should be required to

include the same ‘‘medical necessity’’

definition, as well as EPSDT

requirements and access standards, and

the clear description of benefits that are

contained in contracts between the State

and MCOs.

Response: MCOs and PHPs are

responsible for assuring that services are

provided in accordance with their

contract with the State, regardless of any

subcontracts in place. MCOs and PHPs

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6319

may delegate activities, but not

responsibility, for contract provisions.

Section 438.230(a)(1) requires the State

to ensure that each MCO or PHP

oversees and is accountable for

functions delegated to subcontractors.

States must monitor this process on an

ongoing basis and insure the

development of corrective action plans,

where necessary.

Comment: A commenter believed that

all coverage decisions made by the MCO

should be consistent with current

standards of medical practice.

Response: Section 438.210(b)(1) of the

final rule with comment period,

requires that the MCO or PHP and its

subcontractors follow written policies

and procedures that reflect current

standards of medical practice in

processing requests for initial and

continuing authorization of services.

Comment: A commenter was

concerned that proposed § 438.310(b)(1)

could be interpreted to require a written

authorization for every authorization

decision. The commenter felt that while

this may be possible for many courses

of treatment, it was not universally

possible.

Response: Section 438.210(b)(1) of the

final rule with comment period requires

MCOs and PHPs to follow written

policies and procedures that reflect

current standards of medical practice.

The provision applies to the

authorization process in general, not

each determination. The intent is to

ensure that actual determinations are

consistent and made in accordance with

policies and procedures that reflect

current standards of medical practice.

Comment: Some commenters noted

that a stated intent of the service request

processing requirements in proposed

§ 438.310(b) was to ensure that the

authorization process was not unduly

burdensome for providers. These

commenters believed that this objective

would be better achieved by a more

general requirement that the MCO’s

process be reasonable, rather than by

asking States and MCOs to establish

specific requirements in their contracts.

They felt the requirements were too

detailed for a contract, and that the level

of specificity was not called for under

the BBA. Commenters were most

opposed to the requirement that each

contract specify the information

required for authorization decisions. In

contrast, one commenter believed that

there should be more specificity than

we proposed, especially in the area of

routine authorization decisions.

Response: The reason for proposed

§ 438.310(b) was that there is concern

that the authorization process itself

could be one of the reasons enrollees do

not receive services to which they are

entitled under the State plan. We want

to ensure that the authorization

procedure itself does not prevent

enrollees from receiving services that

they are entitled to receive under the

State plan, and that the MCO’s or PHP’s

information requirements do not place

undue burden on the provider or the

enrollee. To make explicit our intent

that the authorization process not be

unduly burdensome for providers or

enrollees, in response to the above

comments, we have expressly stated this

in § 438.210(b)(2)(i) of this final rule

with comment period.

Comment: One commenter believed

that the requirement for consistent

application of review criteria should be

eliminated because in this commenter’s

view it would require health plans to

establish another complicated audit

process. The commenter felt that the

inconsistencies that this provision

addresses would be picked up by

existing audit procedures.

Response: We believe that consistent

application of review criteria is essential

in assuring beneficiaries’ access to care.

Therefore, at § 438.210(b)(2) we retain

the requirement that MCOs and PHPs

have mechanisms in effect to ensure

consistent application of review criteria

for authorization decisions. Whether a

mechanism is acceptable, as well as

how a mechanism is defined, is not

dictated in the regulations, but left up

to the discretion of the State and the

MCO or PHP.

Comment: One commenter felt that it

was important to establish a structure

that would assure that MCOs’

authorization procedures are evaluated

on a periodic basis, with the input of

practice managers.

Response: Since the requirements of

§ 438.210 are part of MCO and PHP

contract requirements for access to care,

States are responsible for ensuring

compliance with service authorization

requirements as part of their overall

quality strategy, as set forth in § 438.202

(State Responsibilities) and § 438.204

(Elements of State Quality Strategies).

MCOs and PHPs are also required by

§ 438.240 to have an ongoing quality

assessment and performance

improvement program that has in effect

mechanisms to detect both

underutilization and overutilization of

services. In light of the above

requirements, we do not believe it is

additionally necessary to require in this

rule that authorization procedures

separately be evaluated on a periodic

basis with the input of practice

managers.

Comment: One commenter

recommended that the regulation

require that initial coverage decisions

that alter the request of the provider in

any way be made, and certified, by a

licensed medical doctor. The

commenter also urged that initial

coverage decisions mirror the

requirement in the grievance process

(proposed § 438.406(d)) that the review

of a denial based on medical necessity

be conducted by a ‘‘provider with

appropriate expertise in the field of

medicine that encompasses the

enrollee’s condition or disease.’’

Response: We agree, in part, with

these comments. While we agree that

individuals who make initial coverage

decisions should be health professionals

who have appropriate clinical expertise,

we note that relevant expertise may be

possessed by health care professionals

who are not always physicians. Dentists,

psychologists and certified addiction

therapists are examples of health

professional who are not physicians, but

who may have appropriate clinical

expertise. Therefore, in response to the

above comments, we have provided in

§ 438.210(b)(3) of the final rule with

comment, that any decision to deny or

limit a service must be made by a health

care professional who has appropriate

clinical expertise in treating the

enrollee’s condition or disease.

Comment: Commenters contended

that the requirement in proposed

§ 438.310(c) that a written notice be sent

to the provider for all authorization

decisions not fully approved as

requested is not current practice for

commercial MCO contracts.

Response: We believe that the

provider should be notified of all MCO

and PHP service authorization decisions

that are not fully approved as requested.

In § 438.210(c) of the final rule with

comment period, we have removed the

requirement that this notice be in

writing to ease the burden on MCOs and

PHPs.

Comment: Numerous commenters had

difficulty distinguishing between the

requirements at §§ 438.310(c) and (d)

pertaining to a notice of adverse action

and the time frames for such action, and

those in § 438.404 requiring an MCO to

give notice of intended action when an

MCO intends to deny, limit, reduce,

delay or terminate a service or deny

payment for a service. There were other

comments on these provisions.

Response: We agree that, in the

proposed rule, the distinction between

proposed §§ 438.310(c) and (d) and

proposed § 438.404 was not clear. In the

final rule with comment period,

§ 438.210(c) requires only that the

notice of adverse action meet the

requirements of § 438.404, and

paragraphs (d) and (e) set forth only the

6320 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

time frames for standard and for

expedited authorization decisions,

respectively. For further clarity, we note

that the distinction between proposed

§ 438.310 and § 438.404 is drawn at the

point the authorization decision is

made. If the decision is authorized

outright, there is no link to § 438.404;

however, if the decision is made to deny

or limit a service, notice must be given

in accordance with § 438.404, as these

decisions are subject to the grievance

and appeal process.

Comment: Some commenters were

opposed to proposed § 438.310(d) which

specified the time frames for providing

services. They did not believe it was

reasonable to expect services to be

provided within the specified time

frames. Several commenters suggested

that the time frames be consistent for

both the Medicaid and the Medicare

programs, since providers participate in

both programs.

Response: There was an unintended

ambiguity in proposed § 438.310(d). The

time frames were intended to apply to

authorization of services, not furnishing

of services. The final rule with comment

period, at § 438.210(d) and (e), makes

clear that the time frames are applicable

to standard and expedited

authorizations. The time frames are

necessary to ensure that the appeal time

frames can be met when an

authorization is not approved. In

general, the time frames are consistent

with those in Medicare.

Comment: In addition to comments

interpreting the time frames in proposed

§ 438.310(d) to apply to the furnishing,

rather than the authorization of services,

there were comments that understood

§ 438.310(d) to apply to authorizations,

but found 14 calendar days insufficient

for a routine authorization if all of the

supporting documentation was not

present. The commenters recommended

that the 14 days should begin after all

of the supporting information is

received.

Response: The time frame in proposed

§ 438.310(d) and § 438.210(d) of this

final rule with comment period, allows

for an extension of up to an additional

14 days if the enrollee or the provider

requests extension, or the MCO or PHP

justifies to the State agency that

additional information is needed and

that the extension is in the enrollee’s

interest.

Comment: Numerous commenters

questioned whether enrollees were

adequately protected by the provision in

§ 438.310(d)(2) requiring authorization

to be made no later than 3 working days

after receipt of the request for service

(with a possible extension of up to 14

additional calendar days) if the ordinary

14 day time frame could seriously

jeopardize the enrollees’ life or health or

ability to regain maximum function. The

commenters felt that each case is

unique, and that in some cases,

immediate authorization is necessary,

and in others, 24 hours, etc. A standing

minimum of 3 working days, with an

extension of 14 days possible, was not

acceptable to these commenters. One

commenter believed that 14 days was

excessive for an ordinary authorization

that could be completed in a much

shorter time.

Response: We recognize that there

may be situations in which 72 hours, or

the additional 14 days, would be

detrimental to the enrollee’s health.

Under § 438.210(e) of the final rule with

comment period, the time frame for an

expedited authorization decision is ‘‘as

expeditiously as the enrollee’s health

condition requires’’ and in the case of a

decision that denies or limits services,

early enough to permit the MCO or PHP

to process an appeal within 72 hours

after receipt of the request for service.

The time frames are provided as

minimum requirements, but we expect

States, MCOs and PHPs to consider the

enrollee’s health concern as the

foremost deciding factor.

Comment: A commenter suggested

that we revise § 438.310(d) to allow the

provider, rather than just the enrollee, to

request extensions in service

authorization time frames. As

justification, the commenter said that

the time required for the provider to

arrange for the enrollee to request an

extension may force an MCO to deny

services that would otherwise be

approved, if the provider had time to

submit additional documentation.

Response: We agree with the

commenter, and in the final rule with

comment period, have provided that the

provider, acting on behalf of the

enrollee, as well as the enrollee may

request extension for a standard

authorization decision, but only the

enrollee may request extension for an

expedited decision.

Comment: A commenter indicated

that in § 438.310(d), as well as others in

the subsection, the reference to

‘‘physician’’ should be deleted and

‘‘attending provider’’ should be

inserted. The rationale for this

recommendation was that the language

should more accurately reflect the full

range of qualified health professionals.

Response: We agree and have

replaced the term ‘‘physician’’ with

‘‘provider.’’

Comment: Two commenters offered

their support for the requirement in

proposed § 438.310(e) that

compensation to utilization review

entities not be structured so as to

provide incentives to deny, limit, or

discontinue medically necessary

services.

Response: We have retained this

provision as § 438.210(f) of this final

rule with comment period.

Comment: Several commenters

encouraged us to avoid duplication in

the regulation.

Response: We agree, and have

attempted to avoid unnecessary

duplication in this final rule with

comment period. For example, we have

eliminated duplication of information

requirements that in the NPRM

appeared both in proposed § 438.10 and

proposed § 438.318.

7. Establishment of Provider Networks

(Proposed § 438.314)

Proposed § 438.314 placed

requirements on State Medicaid

agencies to ensure that contracted MCOs

and PHPs have written policies and

procedures for the selection and

retention of providers. This proposed

section required States to ensure that

such policies include requirements for

initial provider credentialing and

recredentialing in accordance with time

frames set by the State, but not less

frequently than what the State requires

for private HMOs.

Comment: Many commenters believed

that proposed § 438.314 was too

prescriptive. Some commenters

interpreted the proposed rule as

extending credentialing requirements to

providers who perform services under

the supervision of physicians, and

argued that these requirements generally

should only apply to physicians. These

commenters expressed the view that

requiring credentialing of a broader

range of providers adds no value. There

were a number of recommended

credentialing approaches ranging from

adoption of the NCQA credentialing

criteria, the American Medical

Association’s credentialing process, and

Medicare policy.

Response: We reexamined the

proposed rule in light of these

comments and in response to these

comments, have made several

clarifications to the final rule with

comment period. We believe these

changes will address most of the

commenters’ overriding concerns about

ambiguity as to who will be subject to

credentialing requirements. The final

rule with comment period at

§ 438.214(b) now includes provisions on

credentialing that were intended, but

not explicit in the proposed rule.

Specifically, in § 438.214(b) we now

clarify which providers are subject to

credentialling and recredentialling

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6321

requirements, distinguishing in

§ 438.214(b)(1) requirements that must

be met by physicians and other

licensed, independent providers from

requirements in § 438.214(b)(2) that

must be met by other providers.

Exceptions to these requirements are

described in § 438.214(b)(3). These

exceptions apply to providers who are

permitted to furnish services only under

the direct supervision of a physician or

other provider, and for hospital-based

health care professionals (such as

emergency room physicians,

anesthesiologists, and certified

registered nurse anesthetists) who

provide services only incidental to

hospital services. The latter exception

does not apply if the provider contracts

independently with the MCO or PHP or

is promoted by the MCO or PHP as part

of the provider network.

We did not adopt the NCQA

standards as suggested by commenters.

While our requirements are not

identical to the NCQA standards, they

have much in common. For example,

the exceptions to credentialing outlined

above are the same as the exceptions

under the NCQA standards. The AMA

credentialling process no longer exists.

Comment: One commenter

recommended that board certification be

dropped as a credentialing criterion.

Response: No change was required in

response to this comment, since board

certification was not a requirement in

the proposed rule, and is not in this

final rule with comment period.

Comment: One commenter believed

that credentialing criteria should be

appropriate to the nature of the services

provided.

Response: We believe the

credentialing criteria are sufficiently

flexible to recognize the characteristics

of each MCO and PHP, and the

providers within its network.

Comment: One commenter believed

that provider selection should be based

on objective quality standards.

Response: We believe that the final

rule with comment period, as

structured, provides for objective

quality standards.

Comment: One commenter

recommended that we require

‘‘economic profiling’’ to be adjusted to

reflect varying practice characteristics.

Response: We cannot respond to this

comment because we do not understand

what the commenter means by

‘‘economic profiling,’’ or what its

relationship is to credentialing. The

intent of this rule was to ensure that

MCOs and PHPs implement a formal

selection process and, at a minimum,

that the process address provider

qualifications, provider discrimination,

the exclusion of certain providers and

additional requirements States may

want to impose.

Comment: One commenter

recommended that there be written

policies and procedures for selection

and retention of physicians.

Response: We agree, and in response

to this comment, the final rule with

comment period at § 438.214(a) now

specifies that States must ensure that

MCOs’ and PHPs’ selection and

retention policies and procedures must

be in writing.

Comment: One commenter

recommended that the final rule with

comment period, prohibit MCOs from

removing providers from their networks

without good cause.

Response: While States would be

permitted under § 438.214(e) to adopt

such a rule if they believe it would be

appropriate based on conditions in the

State, we do not believe that such a

requirement should be imposed

nationally in this final rule with

comment period. This is because we

believe that it may be reasonable, in

some cases, for an MCO or PHP to

remove providers from its network

without cause. For example, there may

be a need for an MCO to reduce the size

of its provider network if its enrollment

declines, and its payments to providers

are based on a certain volume. In

addition, evaluating the quality of care

of providers may be facilitated by

having fewer providers serve greater

numbers of enrollees. We wish to note

that under § 438.12(a)(1), if an MCO or

PHP declines to include a provider in its

network, it must give the provider

written notice of the reason for this

decision.

Comment: A number of commenters

believed that there was a need to

specifically assure that there be no

discrimination against providers who

traditionally serve more vulnerable

populations, such as those who serve

limited English proficient populations,

high risk populations, and those

requiring high-cost treatments. One

commenter suggested that such

providers be given priority in network

selection and referrals. The same

commenter believed that MCO

gatekeepers frequently do not have

professional credentials, and therefore

should not control access to care.

Response: It is not clear why the

commenters believe there is a need for

assurance that there be no

discrimination against providers who

traditionally serve vulnerable

populations, since proposed

§ 438.314(b)(3) expressly provided that

selection and retention criteria could

not ‘‘discriminate against * * * those

who serve high risk populations.’’ This

provision has been retained in the final

rule with comment period at

§ 438.214(c). We believe the

commenters’ concerns are also

addressed in a number of other sections.

For example, as discussed above,

§ 438.10(b) requires that information be

available in languages spoken in the

service area, and that interpreters be

available to meet the needs of all

enrollees, and § 438.206(e)(2) requires

that MCOs and PHPs provide services in

a culturally competent manner. Both of

these provisions would encourage the

use of providers who ‘‘serve limited

English proficient populations.’’

Under § 438.206(d), in establishing a

provider network, MCOs and PHPs are

required to consider persons with

special health care needs and include

the numbers and types of providers ‘‘in

terms of training and experience’’

required to serve the population. Again,

this favors the use of providers with

experience with vulnerable populations.

Finally, under § 438.50(f)(2), in the case

of a default enrollment process under a

mandatory program under section

1932(a)(1) of the Act, an attempt must

be made to preserve existing providerbeneficiary relationships, and

relationships with providers that have

traditionally served the Medicaid

populations. Again, this favors giving

priority to providers serving the

vulnerable populations cited by the

commenter.

With respect to the concern that

gatekeepers do not have necessary

professional credentials, § 438.210(b)(3)

requires that any denials of an

authorization for services be made by ‘‘a

health care professional who has

appropriate clinical expertise in treating

the enrollee’s condition or disease.’’ We

believe that all of the foregoing

provisions adequately address the

commenter’s concerns.

Comment: Several commenters were

unclear on the meaning of ‘‘high-risk

populations’’ as used in proposed

§ 438.314(b)(3), and sought clearer

standards under this provision.

Commenters suggested specific

examples of high risk patients,

including adults and children with

special health care needs, such as those

with mental illness, substance abuse

problems, developmental disabilities,

functional disabilities, or complex

problems involving multiple medical

and social needs like HIV/AIDS, and the

homeless. Other commenters felt that

the provision governing providers who

serve ‘‘high-risk’’ populations should be

dropped from the rule as too vague to

implement, and questioned the wisdom

of employing such standards, which

6322 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

they believed would lead to

unresolvable disputes.

Response: We disagree with the

commenters who believe that we should

delete the requirement in proposed

§ 438.314(b)(3), because we believe that

many Medicaid beneficiaries are best

served by providers who are

experienced in caring for individuals

with the health or social conditions that

make an enrollee ‘‘high risk;’’ (for

example, poverty, homelessness,

disrupted family situations). We agree

that the specific examples of high risk

populations cited by the commenters

are examples of high risk populations.

We do not believe, however, that we

should include regulations text

specifically citing such categories, since

this may be seen as limiting the scope

of this provision. We instead believe

that States should be free to interpret

‘‘high risk populations’’ based on their

knowledge of the high risk populations

in their State.

Comment: One commenter discussed

the very valuable role nonprofit social

service agencies play in the care

delivery system for Medicaid

beneficiaries, and expressed the view

that these provider agencies would gain

more credibility if they were accredited

by the Medicaid program. There are

now standards for such agencies that are

recognized by many States. The

commenter recommended that such

agencies be accredited, and that they

have the option of accreditation from

the Council of Accreditation (COA), a

body more representative of the social

service model, as well as by a medical

accrediting body such as the Joint

Commission on the Accreditation of

Healthcare Organizations (JCAHO) or a

JCAHO-type accrediting body.

Response: We do not believe it would

be appropriate at this time to provide for

accreditation of these agencies because

(1) accreditation standards and

procedures for such entities are in their

formative stage, and (2) to the extent

these agencies provide specific

Medicaid State plan services, they

would already be subject to any

accreditation requirements applicable to

the service in question. We note,

however, that there is no Federal

prohibition preventing States from

adopting such quality standards if they

choose.

Comment: One commenter took

exception to the requirement at

proposed § 438.314(b)(1) that provider

selection criterion would be based in

part on eligibility for payment under

Medicaid. The commenter believed that

there would be times when an MCO

may wish to provide services through a

provider in good standing who is not an

eligible provider type under fee-forservice.

Response: We have clarified the final

rule with comment period at

§ 438.214(d) to better reflect our intent

to preclude only providers who have

been barred from participation in the

Medicaid program (for example,

providers convicted of fraud). We did

not intend to preclude States from

allowing MCOs or PHPs to provide

services through providers in good

standing who do not participate in the

traditional part of the Medicaid program

(for example, alternative providers or

providers who have not otherwise

chosen to participate in the Medicaid

fee-for-service program).

Comment: A commenter

recommended that MCOs not be

permitted to have separate panels of

providers for Medicaid and for their

other lines of business.

Response: Our experience has

demonstrated that such a requirement is

not practical. We have considered

imposing such a requirement in the

past, and have determined that it would

not be in the best interests of Medicaid

beneficiaries to do so. Some of the most

successful managed care programs have

employed providers with particular

experience in treating the Medicaid

population. Permitting these providers

to exclusively serve Medicaid

beneficiaries allows more Medicaid

beneficiaries to access these

experienced providers. It is also the case

that some managed care organizations

include physicians in their networks

who would not agree to accept Medicaid

patients. In such a case, if these MCOs

or PHPs were not permitted to limit

Medicaid patients to a subset of

physicians who agree to treat Medicaid

beneficiaries, they would not be

available as a Medicaid option. We

therefore are not including this

requirement.

8. Enrollee Rights (Proposed § 438.320)

(Redesignated as § 438.100)

As part of these standards, in

proposed § 438.320(a), we required that

each contract with an MCO or PHP have

written policies with respect to enrollee

rights, and the MCO or PHP ensure

compliance with Federal and State laws

affecting the rights of enrollees, and

ensure that its staff and affiliate

providers take these rights into account

when furnishing services. Under

proposed § 438.320(b), States must

ensure that each enrollee has a right to:

Receive information regarding their

health care; have access to health care;

be treated with respect and

consideration for enrollee dignity and

privacy; participate in decision making

regarding his or her health care; receive

information on available treatment

options or alternative courses of care,

and have access to his or her medical

records. Proposed § 438.310(c) required

that States ensure compliance with

various civil rights laws.

Comment: Several commenters felt

that the rights in proposed § 438.320

should be extended to individuals

enrolled in PCCMs, as well as those in

MCOs and PHPs.

Response: As discussed above, to the

extent requirements in proposed subpart

E are grounded in section 1932(c)(1) of

the Act, we determined that it would be

inconsistent with the Congressional

intent to apply them to PCCMs, since

the Congress made a conscious decision

not to do so even when other provisions

in section 1932 of the Act did so apply.

We believe that the rights in

§ 438.100(a)(2), (b)(1), (b)(4), (b)(5),

(b)(6), (b)(8), (c), and (d), however, are

supported by our authority under

section 1902(a)(4) of the Act to specify

methods necessary for proper and

efficient administration, and the

requirement in 1902(a)(19) of the Act

that States provide ‘‘safeguards as may

be necessary to assure that * * * care

and services will be provided * * * in

the best interests of the recipients.’’

Therefore, in response to this comment,

we are revising § 438.100(a)(2), (b)(1),

(b)(4), (b)(5), (b)(6), (b)(8), (c), and (d) to

make these paragraphs and

subparagraphs applicable to PCCMs.

Comment: Several commenters

suggested that without proper

enforcement, the ‘‘rights’’ that were

contained in proposed § 438.320 were

just ‘‘paper rights.’’

Response: We agree that to be

effective, enrollees’’ rights must be

enforced, and believe that the final

regulation with comment period include

provision for enforcement. First, under

subpart F, discussed in section II. E.

below, enrollees have the right to file a

grievance with their MCO or PHP if they

believe any of their rights have been

violated. In addition, (1) § 438.66

mandates that States actively monitor

MCOs’ and PHPs’ operations, (2)

§ 438.202(d) requires that States ensure

compliance by MCOs and PHPs with the

quality standards established by the

State, and (3) § 438.204(b)(2) requires

that State quality strategies include

continuous monitoring and evaluation

of MCO and PHP compliance with

standards. We believe that these

provisions do provide for enforcement

of enrollee rights.

Comment: Several commenters were

concerned that the enrollee rights

outlined in proposed § 438.320

contained too much subjective language

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6323

that could be construed in any way that

an MCO chooses.

Response: We believe that the

provisions for Enrollee Rights now set

forth in § 438.100 are specific enough to

ensure specified rights for enrollees of

MCOs, PHPs, and PCCMs, while still

affording States the flexibility to

determine how to guarantee that these

rights are upheld.

Comment: Several commenters found

the rights outlined in proposed

§ 438.320 too sparse, and believed that

they did not fully implement the

recommendations in the Consumer Bill

of Rights and Responsibilities (CBRR).

Response: Proposed § 438.320 was

intended to articulate a broad set of

fundamental enrollee rights, and was

not intended to encompass all aspects of

the CBRR, which are reflected in detail

in numerous provisions throughout

virtually every subpart in part 438. For

example, important enrollee rights are

reflected in the information

requirements in § 438.10 in subpart A,

the continuity of care requirements in

§ 438.62 in subpart B, the rights related

to provider enrollee-communication and

emergency services in §§ 438.102 and

438.114 in subpart C, the right to access

to a woman’s health care specialist in

§ 438.206(d)(2) in subpart D, and the

grievance and appeal rights throughout

subpart F. See our discussion of these

and other provisions for further

discussion of how this final rule with

comment period implements the CBRR.

Comment: One commenter objected to

the provision in § 438.320(c) requiring

that MCOs and PHPs must ‘‘comply

with any other Federal and State laws

that pertain to enrollee rights,’’ because

the commenter believed it was not

appropriate for the Federal government

to regulate compliance with State laws.

Response: The language in the

proposed rule was intended to

acknowledge that there are a number of

States with their own requirements

pertaining to enrollee rights. We do not

believe that it is inappropriate to require

that the State ensure that the MCOs,

PHPs and PCCMs also comply with

these regulations. However, we are not

expecting States to take over the

enforcement of State and Federal laws

that are not within their jurisdiction. In

order to more narrowly define the

Federal and State laws that are being

referenced, we have added the term

‘‘applicable’’ to the final regulation.

Comment: One commenter suggested

that in addition to providing services in

accordance with proposed §§ 438.306

through 438.310, proposed

§ 438.320(b)(2) should also include the

right to ‘‘receive all services provided

under the State plan.’’

Response: The requirement that a

beneficiary receive all services provided

under the State plan is set forth in

§ 438.206(c), which is incorporated in

§ 438.100(b)(2), so that this right is

included in § 438.100.

Comment: One commenter requested

that we explicitly state that enrollees

have a right to a second opinion.

Response: We agree, and in response

to this comment, have added a reference

at § 438.100(b)(3) to the right to a second

opinion provided for under

§ 438.206(d)(3).

Comment: Several commenters

offered their support for proposed

§ 438.320(b)(3) which required that

enrollees be treated with respect and

due consideration for their dignity and

privacy. It was the commenter’s belief

that populations with special needs

have not always been treated in this

manner. However, one commenter,

while supporting the provision, felt that

the standard was not appropriate for a

Federal regulation, and would be

difficult for States to measure or

enforce.

Response: We believe that there are

ways to monitor compliance with this

provision retrospectively through such

means as enrollee surveys, site visits,

hot lines, and grievance procedures. In

addition, including respect, dignity and

privacy as explicit enrollee rights

attempts to address this issue

proactively. As commenters indicated,

we believe this is a fundamental and

important enrollee right and, as such,

should be included in the regulation.

Comment: Several commenters

suggested that we revise the language in

proposed § 438.320(b)(4) to state that the

information must be presented in a

language appropriate to the consumer’s

condition and ability to understand.

Response: Section 438.100 provides

that enrollees receive information in

accordance with § 438.10, which

requires that all information furnished

to enrollees and potential enrollees meet

specified language and format

requirements. We believe these

provisions address the commenter’s

concern. We therefore do not believe

that a revision to the language at

§ 438.100 is necessary.

Comment: While offering support for

the provision that requires information

to be provided to enrollees, some

commenters suggested that we revise

the proposed regulation to require ‘‘full

and complete’’ information on ‘‘all’’

available treatment options and

‘‘alternatives,’’ including alternatives as

to the ‘‘site of care.’’ These commenters

felt that these revisions are essential in

ensuring that enrollees receive

information on family planning services

that are not covered by the MCO.

Response: We consider the

commenters’ suggestions already

addressed in the regulations. For

example, § 438.102(b)(1)(ii) and (iii) give

enrollees a right to all ‘‘information the

enrollee needs in order to decide among

all relevant treatment options.’’ and ‘‘the

risks, benefits and consequences of

treatment or non-treatment.’’ With

respect to information on family

planning services, § 438.10(e)(2)(vi)

expressly requires that information be

provided on how enrollees may obtain

family planning services from out-ofnetwork providers. In the case of

services not covered through the MCO

or PHP, under § 438.10(e)(2)(xii),

information must be provided on how

and where the enrollee must obtain the

benefits. In the case of benefits not

covered on moral or religious grounds,

information must be provided on how

or where to obtain information about the

service.

Comment: Several commenters

offered their support for proposed

§ 438.320(b)(5), requiring that enrollees

be permitted to participate in decisions

on their health care, but requested that

this provision be revised to clarify that

enrollees not only have the right to

participate in decisions, but that they

also had the right to refuse treatment.

Additionally, commenters wanted this

provision to explicitly state that

enrollees had the right to participate in

‘‘all’’ treatment decisions and to make

‘‘informed decisions.’’

Response: We agree with the

commenters that it may not be clear that

the right to participate in decisions also

includes the right to refuse care,

although this was our original intent.

Consequently, we have revised

§ 438.100 (b)(6) to expressly include the

right to refuse treatment. However, we

believe that the suggested changes to

include the qualifiers ‘‘all’’ and

‘‘informed’’ are not necessary, as these

concepts are already contained in the

provision as written.

Comment: A number of commenters

believed that enrollee ‘‘access’’ to

records was not sufficient, and that they

also needed to be able to receive

‘‘copies’’ of their medical records, and

all relevant documents, at no cost. They

also requested that we revise proposed

§ 438.320(b)(6) to include the right to

correct inaccuracies, and to append the

record if there was a disagreement.

Response: We agree with the

commenters that enrollees should also

have the right to receive copies of

medical records, and have addressed the

commenters concerns in § 438.224

(Confidentiality and accuracy of

6324 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

enrollee records), discussed in section

II. D. 8. below. In response to this

comment, we have provided in

§ 438.100(b)(7) for the right to receive a

copy of records, and request that they be

amended or corrected, and have

referenced § 438.224. We have not,

however, required that enrollees be able

to receive a copy of his or her medical

record at no cost, because we believe

that providers may incur some costs in

responding to numerous requests to

photocopy medical records and related

documents.

Comment: Some commenters

suggested that we provide additional

detail on the specific relevant sections

of the laws cited in proposed

§ 438.320(c) and citations for the

regulations implementing these

provisions.

Response: In response to this

comment, we have included additional

detail, including citations to

implementing regulations in some cases,

in § 438.100(d) of the final rule with

comment period.

Comment: A commenter

recommended that the text of proposed

§ 438.320(c), and not just the preamble,

make clear the point that State Medicaid

Agencies are not expected to take over

the enforcement of State and Federal

laws not within their jurisdiction.

Response: We believe that it is clear

from the preamble to the proposed rule

and to this final rule with comment

period, that we are not expecting States

to take over the enforcement activities

that are not within their jurisdiction.

However, as noted above, in order to

more narrowly define the Federal and

State laws that are being referenced, we

have added ‘‘applicable’’ to the

regulation.

Comment: A number of commenters

believed that enrollees should be free to

exercise their rights without fear from

reprisal from the MCO or PHP in which

they are enrolled, including the right to

refuse services, without the loss of other

desired services or disenrollment.

Response: We agree with commenters,

and in response to this comment have

added language at § 438.100(c) to ensure

that an enrollee’s free exercise of his or

her rights does not adversely affect the

way the MCO, PHP, PCCM, their

providers, or the State agency treats the

enrollee.

Comment: Commenters requested that

we include explicit statements of

additional enrollee rights, including the

right to: (1) Fully participate in the

development of their plan of care and

treatment decisions; (2) participate in

research or experimentation only with

informed, voluntary, written consent;

(3) be free from physical, verbal, sexual,

or psychological abuse, exploitation,

coercion, or neglect; and (4) be treated

in a humane environment that affords

reasonable protection from harm and

ensures privacy.

Response: Section 438.100(b)(6)

provides enrollees with the right to

participate in decisions regarding their

health care, which we believe would

include plans of care, treatment

decisions, or participation in any

research or experimentation. With

respect to the right to be free from

abuse, exploitation, or neglect, or to be

treated in a humane environment that

affords protection from harm and

ensures privacy, we believe that these

rights are inherent in the right under

§ 438.100(b)(4) to be treated with respect

and dignity and the confidentiality

rights in § 438.224, discussed in section

II.D.9. below. Further, we have revised

proposed § 438.306(e)(3)(iii)(now

§ 438.208(f)(5) to require that treatment

plans, developed for individuals who

are pregnant or who have special health

care needs, are to be developed ‘‘with

enrollee participation’’.

Comment: Commenters suggested that

we add as a right that beneficiaries have

the right to be free from seclusion,

physical or chemical restraints, used by

staff as a means of coercion, discipline,

convenience or retaliation.

Response: We agree that this is a

fundamental right, and in response to

this comment, have added it to the

requirements of § 438.100 in the final

rule with comment period.

Comment: Commenters proposed the

inclusion in proposed § 438.320 of a

number of additional rights in the

following areas: information standards,

complaint and grievance procedures,

quality assurance, service authorization,

choice, disenrollment, emergency

services, access and capacity, and

benefits and coverage.

Response: As discussed previously,

§ 438.100 was intended to put forth a

basic and general fundamental set of

rights. More detailed and specific

enrollee rights are articulated in greater

detail in other sections of the regulation.

The suggested changes in the areas of

information standards, complaint and

grievance procedures, quality assurance,

service authorization, choice,

disenrollment, emergency services,

access and capacity, and benefits and

coverage are more fully detailed in the

corresponding provisions of the

regulations which are dedicated to these

respective topic areas. Therefore, the

specific suggestions offered by the

commenters were considered in the

context of these other provisions. For

example, the comment that the enrollee

has the right to receive timely and

adequate advance written notice of any

decision to deny, delay, reduce,

suspend, or terminate medical services

is addressed in §§ 438.210(c) and

438.404.

9. Confidentiality (Proposed § 438.324)

Current regulations at 42 CFR part

431, subpart F govern the safeguarding

of beneficiary information at the State

level. The regulations in part 431,

subpart F, specify for State Medicaid

agencies, among other things, the types

of information to be safeguarded, when

such information may be released, and

how such information is to be

distributed.

In proposed § 438.324, consistent

with the regulations at part 431 subpart

F, we proposed that the State ensure,

through its contracts with MCOs and

PHPs, that each MCO and PHP (1)

maintain records and information (in

oral, written, or electronic format) in a

timely and accurate manner, (2)

safeguard the privacy of any information

that identifies a particular enrollee by

ensuring that original records are

released only in accordance with

Federal or State law, or court orders or

subpoenas; copies of records and

information are released only to

authorized individuals; and

unauthorized individuals do not gain

access to, or alter, patient records, (3)

protect the confidentiality and privacy

of minors, subject to applicable State

and Federal laws, (4) ensure that

enrollees have timely access to records

and information that pertain to them,

and (5) abide by all Federal and State

laws regarding confidentiality and

disclosure of mental health records,

medical records, other health

information, and any information about

an enrollee. The requirements we

proposed in this section are consistent

with the right to confidentiality of

health information supported by the

CBRR.

We received numerous comments in

response to this section requesting that

we include specific guidelines and

address substantive issues in more

detail. Prior to addressing these

comments, we must first clarify our

original intent in proposing this section.

We included this section in order to

ensure that MCOs and PHPs would be

held responsible for safeguarding the

confidentiality of enrollee information.

We did not intend to impose specific

guidelines for the use and disclosure of

enrollee information. We recognized

that there are many different State and

Federal laws that specifically address

confidentiality and it was not our intent

to interfere with these laws. Several

States have enacted strong privacy

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6325

protections that will continue to apply

to MCOs and PHPs participating in the

Medicaid program. In addition, the

Secretary is currently developing a final

regulation that will address

confidentiality of health information at

the Federal level in accordance with

section 264 of the Health Insurance

Portability and Accountability Act

(HIPAA) (Public Law 104–191). In order

to remain consistent with existing laws

and regulations, as well as the

forthcoming HIPAA regulation, we only

included general requirements in this

section.

Comment: We received two comments

on proposed § 438.324(b)(1), which

provided that original medical records

must be released only in accordance

with Federal or State law, or court

orders or subpoenas. One commenter

recommended that we revise the

regulation to require that both the

original and copies of patient medical

records be released to Medicaid fraud

control units and other law enforcement

agencies. Another commenter suggested

that this provision conflicts with

requirements in § 431.306(f). That

section requires that when a court issues

a subpoena for a case record, the

Medicaid agency must inform the court

of the applicable statutory provisions,

policies, and regulations restricting the

disclosure of information. The

commenter believed that in light of this

existing requirement, the release of

information should not be required

through the use of subpoena power

alone.

Response: The requirement proposed

in § 438.324(b)(1) was intended to

highlight the importance of ensuring the

integrity and availability of original

medical records. If an MCO or PHP

receives a request for an enrollee’s

information, we would expect that the

MCO or PHP would typically only

release a copy of that information.

However, as the commenters note, the

proposed language could create

confusion regarding the requirements

for this subset of identifiable health

information, and how it differs from the

protections afforded to other such

information. It was our intent that

originals should only be released in

accordance with applicable laws.

Therefore, in order to more accurately

reflect this intent, in § 438.224(c) of the

final rule with comment period, we

have deleted the specific reference to

court orders and subpoenas, and

eliminated the provision singling out

original records from other health

information. We rely on the State, the

MCO, and the PHP to make appropriate

decisions regarding disclosure of copies

versus originals, based on the specific

circumstances of each disclosure.

Procedures to be followed in response to

a subpoena are addressed by the

requirement (in the parenthetical in the

first line of § 438.224) that MCOs and

PHPs must follow subpart F of part 431.

Comment: We received several

comments in response to proposed

§ 438.324(b)(2), which requires that

copies of records and information from

MCOs be released only to authorized

individuals. Several commenters

believed that we did not define the term

‘‘authorized individual’’ or ‘‘authorized

representative’’ in the proposed rule,

and that it was thus unclear who may

receive medical records from an MCO or

PHP. Other commenters found that this

provision did not include necessary

language addressing inappropriate

disclosures of information within an

MCO or PHP. Specific recommendations

made by commenters were that the

definition of ‘‘authorized individual’’

include family members, guardians, and

legally authorized representatives.

Response: We recognize that the use

of the term ‘‘authorized’’ in this section

has generated some confusion. It was

our expectation that the MCO or PHP

would establish and follow procedures

to specify who would be ‘‘authorized’’

to received confidential enrollee

information, and that these procedures

would reflect applicable Federal and

State law. We recognize that the term

could be interpreted in other ways.

Therefore, in § 438.224(b) and (c) of the

final rule with comment period, we

have revised the language to make more

explicit our intent as to what would

constitute an authorized disclosure, and

in doing so, we removed the term

‘‘authorized individual.’’

Comment: Several commenters

requested that the proposed rule be

strengthened with regard to limiting the

flow of identifiable data. Some

commenters suggested that we require

MCOs and PHPs to use non-identifiable

data whenever identifiable data is not

needed to complete a task. Some

commenters stressed that the final rule

with comment period should also

include additional safeguards to protect

a beneficiary’s sensitive health

information, so that the disclosure of

identifiable data can be used only for

activities which MCOs or PHPs and

providers need for legitimate purposes.

One commenter recommended that an

MCO or PHP should be required to

define when identifiable data is

necessary for a particular activity. In

addition, several commenters

recommended that we include technical

standards in the regulations to address

electronic and paper records. Finally,

other commenters suggested we include

incentives in the regulation for MCOs

and PHPs to use non-identifiable data,

and include a requirement for MCOs

and PHPs to justify the use of

identifiable data needed for an activity.

Response: These comments describe

many standard procedures that should

be in place for protection of health

information and ones which MCOs and

PHPs will likely put in place to comply

with the requirements of this section.

However, consistent with the above

discussion of our purpose in writing

this section of the rule, our intent was

not to create specific technical

mechanisms (including standards

regarding the use of identifiable and

non-identifiable data) that MCOs and

PHPs must have to safeguard data. As

discussed previously, we proposed this

section because we believe that MCOs

and PHPs should have safeguards in

place (including, as appropriate, the

ones suggested by the commenters) to

ensure that patient-identifying

information is used for legitimate

purposes. To underscore our intent not

to create new technical standards, we

have deleted sections of the proposed

rule (§ 438.224(d) and (e)) that we

believe are already covered by the

requirements at Subpart F of part 431

and which may have inadvertently lead

readers to believe that we were

attempting to create new standards.

Therefore, we have not revised this

section to include technical standards

for securing electronic and paper

records, or to impose specific

requirements on MCOs and PHPs as to

when they must use non-identifiable

data. However, in response to the broad

concern expressed by commenters about

the different ways patient-identifying

information might be used or disclosed

to others, we have added a new

requirement at § 438.224(e) that requires

the State to ensure that each MCO and

PHP establish and implement

procedures to ensure that enrollees

receive, upon request, information

pertaining to how MCOs and PHPs use

and disclose identifiable information.

Comment: We received several

comments in support of proposed

§ 438.324(c), which requires MCOs and

PHPs to have procedures to protect the

confidentiality and privacy of minors,

subject to applicable Federal and State

law. Several commenters indicated that

a major obstacle to minors obtaining

needed health care is due to concerns

about the lack of confidentiality. They

suggested that we maintain the

proposed regulation and preamble,

which they believe is clear in that it

refers to services and treatment which

minors can obtain without parental

consent and what information can be

6326 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

released to a parent upon request. They

also suggested that family planning,

mental health, and substance abuse

services be addressed by the MCO’s or

PHP’s procedures.

In contrast, several commenters

contended that all information about a

minor should be released to parents

barring a court order stating otherwise.

One commenter focused on the

developmentally disabled population,

and believed that copies of medical

records, treatment options, and

confidential information relevant to the

receipt of medical services must be

communicated to a family member or

guardian prior to proceeding with the

proposed treatment. Other commenters

suggested that the final regulation stress

confidentiality of family planning

services for adults as well as minors.

Response: Section 438.324, as a

whole, was intended to ensure that

MCOs and PHPs have procedures to

protect the confidentiality of all

enrollees. We proposed a specific

provision addressing the confidentiality

of minors in recognition of the large

number of enrollees under age 18. It was

not our intent to interfere with Federal

and State laws that address the

confidentiality of minors. Therefore, in

the final rule with comment period, we

have removed the reference to minors

because we intend the term ‘‘enrollee’’

to encompass all enrollees.

Comment: Several commenters

recommended that we revise proposed

§ 438.324(d) to clarify that, in addition

to enrollees, authorized representatives

of enrollees must have timely access to

records and information. One

commenter recommended that we revise

this provision to require MCOs to

provide enrollees with access to their

records within 24 hours (excluding

weekends and holidays); and to obtain

photocopies. Another commenter

pointed out that under their State law,

the Medicaid agency is not required to

provide timely access to records if the

beneficiary is currently under civil or

criminal investigation. Another

commenter questioned this provision,

and suggested that under patient/doctor

confidentiality, the patient holds the

privilege of confidentiality, not the

provider. Further, the commenter

contended that patients are the owners

of their medical records and always

have had the opportunity to review and

correct errors. The commenter

wondered what role an MCO or PHP

should play in enforcing patient rights.

Several commenters also suggested that

enrollees be able to receive copies of

their records. Commenters also

recommended that enrollees be able to

request amendments or corrections to

their records.

Response: We proposed § 438.324(d)

to ensure that MCOs and PHPs have

orderly procedures to enable an enrollee

to access his or her medical records in

a timely manner. It was not our intent

to interfere with Federal or State laws

governing access to medical records or

other information. While we have not

included specific time lines, exceptions,

and rules in this provision, we have, in

§ 438.224 of the final rule with comment

period, clarified the language to more

clearly reflect our intent. We have

replaced the general term ‘‘access’’ with

more specific language in § 438.224(f)

that requires the State to ensure that

each MCO and PHP has procedures to

ensure that the enrollee can request and

receive a copy of his or her records and

information and that the enrollee may

request amendments or corrections.

Comment: Several commenters

questioned proposed § 438.324(e),

which required MCOs and PHPs to

abide by all Federal and State laws

regarding confidentiality and disclosure

of mental health records, medical

records, other health information, and

any information about an enrollee. One

commenter believed that it was

redundant for the Federal government to

regulate compliance with State law.

Another commenter contended that

Federal requirements should preempt

State and local confidentiality laws.

This commenter suggested that

requiring multi-state Medicaid MCOs to

adopt different State confidentiality

procedures in each State was unduly

burdensome, and serves no legitimate

purpose. This commenter recommended

that confidentiality requirements be

uniform and pre-empt State and local

confidentiality laws.

Response: It was not our intent to

preempt or supersede other Federal or

State laws governing confidentiality.

Rather, we intended to create a baseline

of protections for Medicaid managed

care enrollees that is consistent with

other applicable laws. We continue to

believe that it is important to highlight

other applicable laws and to require that

States ensure that MCOs and PHPs have

procedures that comply with these laws;

and therefore, we have retained this

requirement. With respect to the

commenter urging that Federal

requirements be established that would

pre-empt State law, we believe that this

would be inconsistent with the structure

of the Medicaid program, which is a

State-run program under which States

are granted discretion to establish their

own approach. While a national MCO or

PHP may have to follow different rules

in different States under the Medicaid

program, this would be equally true for

their commercial lines of business in

different States.

Comment: We received several

comments supporting proposed

§ 438.324(e). Several commenters

appreciated that we made a distinction

between medical records, and the

sharing of necessary information

between physical health providers and

mental health and substance abuse

providers. While some commenters

recommended that the language be

maintained, other commenters

recommended that we clarify the

regulation to require compliance with

Federal rules concerning confidentiality

of substance abuse treatment and to

emphasize the primacy of 42 CFR Part

2, Confidentiality of Alcohol and Drug

Abuse Records.

Response: Under this provision,

MCOs and PHPs must abide by all

Federal and State laws regarding the

confidentiality of health information,

including laws pertaining to the

confidentiality of substance abuse

treatments. We have clarified our final

rule with comment period to require

that the State must ensure that, for

medical records and any other health

and enrollment information that

identifies a particular enrollee, the MCO

or PHP establishes and implements

procedures to abide by all Federal and

State laws regarding confidentiality and

disclosure. We believe that this

provision, as stated, includes existing

laws that govern confidentiality and

disclosure of medical records, mental

health records, substance abuse records,

and any other identifiable information.

Comment: A commenter expressed

concern that § 438.324 does not address

how confidentiality policies will affect

the use of patient information in

research. The commenter stressed that

studies of disease, epidemiology,

therapy, and health services depend on

access to patient records, including

records for Medicaid managed care

enrollees. The commenter

recommended that we address the issue

of research in the final rule with

comment period so that medical records

are available through a process that

meets confidentiality concerns but is

not unduly burdensome.

Response: The use and disclosure of

health information for research is an

extremely complicated issue. We do not

believe that this regulation is the

appropriate vehicle to specify when

such uses and disclosures are

appropriate and what specific

safeguards must be in place to protect

that information. We do require the

State to ensure that MCOs and PHPs

safeguard the confidentiality of any

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6327

information that identifies a particular

enrollee. In addition, we require the

State to ensure that MCOs and PHPs

have procedures in place that address

how the information will be used and

disclosed. We would expect that these

procedures would specifically address

when the MCO or PHP would use

enrollee information for research and

under what circumstances it would

disclose the information to outside

researchers. As noted above, the

forthcoming HIPAA regulation will

address this issue in more detail.

10. Enrollment and Disenrollment

(Proposed § 438.326) and Grievance

Systems (Proposed § 438.328)

These proposed sections required that

a State agency include as part of its

quality strategy ensuring compliance

with the enrollment requirements in

§ 438.56, and, consistent with section

1932(c)(1)(A)(ii) of the Act, with the

grievance requirements in subpart F. We

received no comments on proposed

§ 438.326, and one comment relating to

proposed § 438.328.

Comment: One commenter requested

that we mandate that States conduct

random reviews of service denial

notifications, and other forms of noncoverage to ensure that MCOs and PHPs

are notifying members in a timely

manner.

Response: We agree with this

comment. In § 438.228(b) of the final

rule with comment period, we have

added a requirement that States must

conduct random reviews to ensure that

each MCO and PHP and its providers

and contractors are notifying enrollees

in a timely manner. We have further

added at § 438.228(c) a requirement that

State must review, upon request of the

enrollee, grievances not resolved by an

MCO or PHP to the satisfaction of the

enrollee.

11. Subcontractual Relationships and

Delegation (Proposed § 438.330)

Proposed § 438.330 set forth

requirements specifying that the State

must ensure that an MCO or PHP

entering into a contract with the State

oversees and remains entirely

accountable for the performance of any

activity it delegates to a subcontractor.

Under proposed § 438.330, it is the sole

responsibility of the MCO or PHP to

ensure that the delegated activity or

function is performed in accordance

with applicable contractual

requirements. Specifically, under

proposed § 438.330, the MCO or PHP

should: (1) Evaluate the ability of the

prospective contractor to perform the

functions delegated; (2) enter into a

written agreement that specifies the

delegated activities and reporting

requirements of the subcontractor, and

provides for revocation of the delegation

or imposition of other sanctions if the

subcontractor’s performance is

inadequate; (3) monitor the

subcontractor’s performance on an

ongoing basis, and subject the

subcontractor to formal review at least

once a year; and (4) if deficiencies or

areas for improvement are identified,

take corrective action. These provisions

are consistent with the CBRR as they

relate to consumer choice of provider

networks that are adequate to serve the

needs of consumers, and in particular,

these provisions ensure that States hold

MCOs and PHPs accountable for the

availability and adequacy of all covered

services.

Comment: One commenter

recommended requiring certifications to

the State that payments under a

subcontract are sufficient for the

services required. Commenters

recommended that all subcontracts

should be made available for public

inspection, so that they are available to

the State, enrollees, and advocates.

Response: While we are not requiring

a direct certification to the State, it is

the MCO’s or PHP’s responsibility under

§ 438.230(b)(1) to evaluate, before

delegation occurs, the prospective

subcontractor’s ability to perform the

activities that are to be delegated. This

evaluation may include evaluation of

the subcontractor’s financial stability

and financial ability to deliver services.

Subsequently, the MCO or PHP is held

accountable for any functions it

delegates, and therefore, has ultimate

responsibility for oversight of the

subcontractor. In addition, there is

nothing in this provision that would

preclude a State from requiring such a

certification if it so chooses.

Moreover, we do not review

subcontracts and normally do not

become involved in the relationship

between MCOs and PHPs and their

subcontractors, with the exception of

physician incentive rule arrangements,

which must be disclosed. The law

imposes requirements on MCOs, not on

their subcontractors. We do not believe

that we should be involved because the

MCO or PHP (with whom there is a

direct relationship) is ultimately

responsible that requirements are met.

Therefore, we will not in this final rule

with comment period require public

access to subcontracts. However, public

access to subcontracts is subject to State

procedures and policies governing their

disclosure.

Comment: Several commenters

requested clarification on the definition

of subcontractor. The commenters

questioned whether we intended for this

provision to apply to individual

providers or solely to organizations. One

commenter expressed the view that if an

individual physician/provider is

considered to be a subcontractor, the

requirement for annual recredentialing

would be unreasonable. Another

commenter suggested that we give

States the flexibility to define

subcontractor as it applies to these

provisions, while other commenters

recommended that we define the term

so that these provisions would apply

solely to organizations.

Response: Any entity, whether an

individual or organization, that is not an

employee of the organization, but who

assumes responsibility on behalf of the

MCO or PHP, would be considered to be

a subcontractor. While we are not

specifically defining subcontractor, we

do intend for it to include any nonemployee individuals or organizations

within the MCO’s or PHP’s network.

Comment: One commenter believes

the requirement that the MCO subject

each subcontractor’s performance to

formal review on an annual basis is

unnecessarily prescriptive. The

commenter notes that there is

considerable overlap between this

requirement and the provider

credentialing requirements, and that

States should have flexibility in this

area.

Response: The intent of this provision

was not to require recredentialing once

a year. Proposed § 438.330 was designed

to hold MCOs and PHPs accountable for

the availability and adequacy of all

covered services delivered through their

subcontracts. As a result of this

comment, we have revised

§ 438.230(b)(3) of the final rule with

comment period to require that the

MCO or PHP monitor the

subcontractor’s performance on an

ongoing basis, and subject it to formal

review according to a periodic schedule

established by the State, consistent with

industry standards or State laws and

regulations.

Comment: One commenter expressed

the view that the proposed rule did not

go far enough in protecting an enrollee’s

rights when Medicaid services are

delegated to subcontractors. The

commenter believed that the enrollee

has the right to know what to expect of

a subcontractor, and that the State

should be much more involved in

making sure the subcontractor complies

with the requirements of the contract

and State and Federal law. The

commenter recommended that, at a

minimum, all subcontracts should be

directly monitored by the State with the

6328 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

monitoring procedures applicable to the

MCO also applied to subcontractors.

Response: Section 438.230(a) of the

final rule with comment period requires

that the MCO or PHP oversee, and be

held accountable for, any functions and

responsibilities that it delegates to any

subcontractor. Therefore, it is the MCO’s

or PHP’s responsibility to ensure that its

subcontractors are in compliance with

all applicable laws, including those

identified under § 438.100 (Enrollee

Rights). It is the sole responsibility of

the MCO or PHP to ensure that the

delegated function is performed in

accordance with applicable contractual

requirements. However, there is nothing

in this provision that precludes States

from monitoring subcontracts if they so

choose.

Comment: One commenter

recommended that regulatory language

be revised so that it is the same as that

used in the Medicare+Choice

regulations. The commenter believes

that this will reduce the regulatory

burden on managed care organizations

that contract under both programs. The

commenter recommends that the

Medicaid final rule with comment

period require that subcontractors

comply with all applicable Medicaid

laws, regulations, and our guidance.

Response: For the most part, the

requirements contained in the Medicare

regulations for subcontractors are

reflected in the Medicaid regulatory

language. However, in response to this

comment, we have added a new

provision at § 438.6(l) to require that all

subcontracts fulfill the requirements of

part 438 that are appropriate to the

service or activity delegated under the

subcontract.

Comment: One commenter suggested

that the final rule with comment period

address the obligation of States and

MCOs to certain subcontractors,

specifically Federally Qualified Health

Centers (FQHCs) and Rural Health

Clinics (RHCs). They recommended that

the rule reflect the statutory requirement

that MCOs that enter into contracts with

FQHCs and RHCs are required to

provide payment that is not less than

the level and amount of payment which

would be made for services from a

provider which is not an FQHC or RHC.

These commenters also believed that the

final rule with comment period should

reflect the requirement that States

directly compensate FQHCs and RHCs if

they receive less compensation than that

to which they are entitled. The

commenters believe that an FQHC’s or

RHC’s ability to provide high quality

services, such as HIV services, in a

managed care environment depends

upon linkages with MCOs that include

adequate compensation.

Response: The rules cited by the

commenter are ‘‘transitional’’ in nature,

as the payments provided for

thereunder are to be phased out over the

next several years. We do not believe it

appropriate to promulgate regulations

that will be obsolete in a relatively short

period of time. Moreover, we do not

believe regulations are necessary, as the

statutory requirements are

straightforward and self-implementing,

and we have provided guidance to all

States on FQHCs and RHCs, through

State Medicaid Director Letters on April

21, 1998, October 23, 1998, and

September 27, 2000. We will continue,

as necessary, to clarify FQHC and RHC

payment policies.

Comment: One commenter expressed

the view that subcontractual

relationships may not be advantageous

between Indian Health Service (IHS)

and tribally operated programs and

MCOs, if they are only reimbursed at a

capped rate that does not give them the

ability to recoup the costs of providing

services in reservation communities

located in rural and isolated locations.

However, the commenter believed that

some contracts may be desirable in

communities where a local relationship

with an MCO provider provides a

network of support services not

available in the Indian health care

system. Another commenter cited a

Memorandum of Agreement between

IHS and HCFA, and Federal legislation,

which each provide that IHS is

compensated at a special rate, and that

tribally operated programs may also

choose to be compensated at the IHS

rate. Furthermore, services furnished by

these entities are entitled to a 100

percent Federal matching rate. The first

commenter requested that we require

that IHS or tribal providers operating as

subcontractors be allowed to bill States

or their fiscal intermediaries directly for

American Indian Medicaid

beneficiaries. The second commenter

recommended that IHS, tribal providers,

and urban Indian clinics receive

payment for services to IHS

beneficiaries who are also Medicaid

beneficiaries from States or their fiscal

intermediaries directly and not be

required to bill MCOs, regardless of

whether the facility is a subcontractor or

providing ‘‘off-plan’’ services.

Response: As also noted in section II.

H. below, policies concerning IHS or

tribal providers, the rates paid to such

providers, or the Federal matching

applicable to such providers, are

unaffected by, and are outside the scope

of, this rulemaking.

12. Practice Guidelines (Proposed

§ 438.336)

Proposed § 438.336 required that

States ensure that each MCO and PHP

develop or adopt and disseminate

practice guidelines that met standards

set forth in proposed § 438.336(a),

which required that the guidelines: (1)

Be based on reasonable medical

evidence or a consensus of health care

professionals; (2) consider the needs of

MCO and PHP enrollees; (3) be

developed in consultation with

contracting health care professionals,

and (4) be reviewed and updated

periodically. MCOs and PHPs were

required under proposed § 438.336(b) to

disseminate the guidelines to providers

and enrollees where appropriate, or

when they request them. Proposed

§ 438.336(c) required that decisions

with respect to utilization management,

enrollee education, coverage of services,

and other areas be consistent with the

guidelines.

Comment: Several commenters

requested clarification of the regulatory

language requiring MCOs and PHPs to

‘‘develop’’ (or adopt) practice

guidelines. One commenter assumed

that § 438.336 did not require the

development of ‘‘new’’ practice

guidelines, but only that if practice

guidelines currently exist, they should

be disseminated according to the

language in this section. Another

commenter was unclear if the provision

required MCOs to adopt guidelines, or

required MCOs, if using practice

guidelines, to use them in accordance

with this section.

Other commenters requested that

MCOs be allowed to ‘‘develop’’ their

own practice guidelines instead of

‘‘utilizing’’ existing practice guidelines

developed by governmental agencies.

Some commenters believed that practice

guidelines should not be required.

These commenters believed a blanket

requirement for practice guidelines in

all disease management areas is unwise,

as not all areas have developed

guidelines. Also, the commenters noted

that the Medicare+Choice regulations do

not mandate the development of

guidelines.

Response: We realize that the words

‘‘develops’’ and ‘‘development’’ were

misleading in that they appeared to

suggest that we were encouraging MCOs

and PHPs to develop their own practice

guidelines, instead of using those

already established by expert panels.

We have removed those words from

§ 438.236 of the final rule with comment

period. Since a number of practice

guidelines already exist for a variety of

clinical areas, we do not specify how

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6329

many or which practice guidelines

MCOs and PHPs must adopt. Rather,

each MCO and each PHP will need to

establish a process for identifying and

reviewing guidelines that are relevant to

the health conditions of its enrolled

population and implement a process, in

conjunction with its providers, for the

adoption and implementation within

the MCO or PHP. This is consistent with

industry standards in the private sector.

NCQA’s 1999 accreditation standard

QI8, ‘‘Clinical Practice Guidelines,’’

states, ‘‘The MCO is accountable for

adopting and disseminating practice

guidelines for the provision of acute and

chronic care services that are relevant to

its enrolled membership.’’

Comment: Multiple commenters

recommended that the final rule with

comment period specifically mention or

require MCOs to use the following

specified Federal Practice Guidelines:

(1) Federal ‘‘Guidelines for the Use of

Antiretroviral Agents in HIV-Infected

Adults and Adolescents,’’ (2) Federal

‘‘Guidelines for the Use of Antiretroviral

Agents in Pediatric HIV Infection,’’ and

(3) the ‘‘USPHS/IDSA Guidelines for the

Prevention of Opportunistic Infections

in Persons with Human

Immunodeficiency Virus,’’ and update

as appropriate.

Several commenters felt this section

should be clearer and more specific to

the unique health care needs of

children, for example, specifically

referencing the American Academy of

Pediatrics (AAP) immunization

guidelines.

One commenter believed that MCOs

should be required to report on

compliance with scientifically grounded

clinical practice guidelines where they

exist for persons with disabilities.

Response: Many evidence-based

practice guidelines exist that would be

beneficial for MCOs and PHPs to adopt

as tools for improving the quality of

health care provided to enrollees.

Because of the growing number of such

guidelines, the variation in the strength

of the evidence base supporting these

guidelines, and the need for ongoing

review and updating of guidelines, we

are reluctant to single out a subset of

practice guidelines as superior to all

others and preferentially require

adherence to them in this regulation.

We do, however, reference the Adult

and Pediatric Guidelines for use of

Antiretroviral Agents in Treatment of

HIV Disease as examples of the type of

guidelines that should be adopted. We

did not specifically require that the

guidelines be adopted due to the

reasons stated above. However, we have

referenced HIV guidelines in the text of

§ 438.236(b) as examples of guidelines

that could be adopted consistent with

this final rule with coment period, to

reflect our strong belief that adherence

to the HIV guidelines is essential to

providing quality HIV care. We would

continue to hold this position as long as

the guidelines continue to meet the

criteria in § 438.236(b). In addition to

the guidelines referenced in the

regulations text, we also strongly

recommend that MCOs and PHPs adopt

the following HIV guidelines if they

continue to meet the criteria in

§ 438.336(b): USPHS/IDA Guidelines for

Prevention of Opportunistic Infections

in Persons Infected with HIV, Public

Health Task Force Recommendations for

the Use of Antiretroviral Drugs in

Pregnant Women Infected with HIV–1

for Maternal Health and Reducing

Perinatal HIV–1 Transmission in the

United States, and US Public Health

Service Recommendations for Human

Immunodeficiency Virus Counseling

and Voluntary Testing of Pregnant

Women. We did not include references

to any immunizations schedules,

because current law requires State

Medicaid agencies to provide all

immunizations recommended by the

Advisory Committee on Immunization

Practices as part of the EPSDT program.

Comment: One commenter expressed

the view that practice guidelines should

take into consideration the needs of

populations with special health care

needs. One other commenter believed

that a lack of medical evidence cannot

be taken as a sign of a lack of efficacy.

People with disabilities have limited

access to clinical trials, and would

suffer if practice guidelines based on

clinical proof of efficacy were needed to

ensure coverage. One commenter felt

that guidelines should not be required

to be based on ‘‘reasonable medical

evidence,’’ because in some specialty

areas, including mental health, there is

not an established base of published

clinical trial outcomes. The commenter

also noted Federal case law, that

requires the provision of appropriate

treatment, even if the treatment is not

supported by clinical studies.

Two commenters agreed that MCOs

should use practice guidelines that are

evidence-based and developed by

clinicians with training and expertise in

a field, but they believed that some

guidelines are not developed in an

empirical framework, and if

implemented, could jeopardize both

children’s access to and types of

treatments received.

One commenter agreed that practice

guidelines can be helpful, but found

that the area of mental health has not

developed sufficient guidelines for all

courses of treatment. The commenter

believed that use of guidelines in the

area of mental health may result in the

denial of treatment as new treatment

methods are developed.

Response: Some commenters have

interpreted the regulation as requiring

practice guidelines to be based on

clinical trials, and were concerned

about the potential lack of clinical trials

including populations with special

health care needs. In fact, this regulation

does not require the use of practice

guidelines for all conditions, or restrict

the use of guidelines to those based on

clinical trials. Section 438.236(b)(1) of

the final rule with comment period

requires that the guidelines be based on

‘‘reasonable clinical evidence or a

consensus of health care professionals

in the particular field,’’ which does not

necessitate that a clinical trial have been

conducted; for example, guidelines for

Perinatal Care, developed by the

American Academy of Pediatrics and

the American College of Obstetricians

and Gynecologists.

The commenters are also concerned

over the lack of practice guidelines for

some conditions, such as mental health,

and fear that treatment may be denied.

The regulation does not specify the

number of practice guidelines that must

be adopted, nor does it mandate for

which conditions practice guidelines

must be developed. The lack of practice

guidelines for a particular condition

does not provide a basis for an MCO or

PHP to fail to treat conditions for which

there is no guidance.

Comment: Two commenters suggested

that we only permit practice guidelines

developed by licensed health care

providers in a particular field. Another

commenter wanted to give greater

weight to the requirements that

guidelines based on ‘‘reasonable

medical evidence or a consensus of

health care professionals in the

particular field (§ 438.336(a)(1)),’’ and

that they ‘‘consider the needs of the

MCO’s enrollees (§ 438.336(a)(2))’’ than

the requirement that they be developed

‘‘in consultation with contracting health

care professionals (§ 438.336(a)(3)).’’

The commenter believed that guidelines

developed in accordance with

§ 438.336(a)(3) could lead to ‘‘garden

variety’’ practice guidelines. One

commenter believed that professional

specialty organizations have adopted

many national standards and practice

guidelines that should be used.

Response: Because there is variation

in the evidence base that supports all

medical interventions, we believe we

must be flexible and accept the use of

guidelines developed both by clinical

evidence or a consensus of health care

professionals in the particular field. We

6330 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

have replaced the word ‘‘reasonable’’

with the words ‘‘valid and reliable’’ to

better describe the type of clinical

evidence that should serve as a basis for

practice guidelines that MCOs and PHPs

are to adopt. The language we have used

in the proposed rule and final rule with

comment period at § 438.236 is

consistent with industry standards.

Comment: One commenter suggested

that practice guidelines be based on

reasonable ‘‘clinical’’ evidence instead

of reasonable ‘‘medical’’ evidence. Two

commenters believe that if medical

evidence does not exist, it may be due

to the rarity of the disease, inadequate

research infrastructure, or the fact that

people with disabilities do not have as

much access to clinical trials.

Response: We agree with the

commenters. The term ‘‘medical’’

typically refers to actions and

treatments related to physician

practices, while ‘‘clinical’’ extends to

health care researchers, as well as other

health care providers, such as dentists,

pharmacists, and nurses. Because of

this, in response to this comment, we

have substituted ‘‘clinical’’ for

‘‘medical’’ in § 438.236(b)(1). By

replacing ‘‘medical’’ with the broader

term, ‘‘clinical,’’ we are also being more

consistent with the following examples.

The Institute of Medicine (IOM)

discusses practice guidelines in the

context of ‘‘clinical practice.’’ For

example, ‘‘Practice guidelines must

include statements about when they

should be reviewed to determine

whether revisions are warranted, given

new clinical evidence or professional

consensus (or the lack of it).’’ The IOM

also points out that two of the key

attributes of practice guidelines include

‘‘clinical applicability’’ and ‘‘clinical

flexibility.’’

One source of clinical practice

guidelines on a variety of topics and

that can help interested parties compare

different practice guidelines on the

same topic is the Agency for Healthcare

Research and Quality’s (AHRQ)

National Guideline Clearinghouse,

available at www.AHRQ.gov.

Comment: One commenter believed

that MCOs should be required to report

on compliance with scientifically

grounded clinical practice guidelines

where they exist for persons with

disabilities. The same commenter also

believed that the regulation should

require that the amount, duration, and

scope of coverage for covered benefits

be reasonably sufficient to achieve the

purpose of the service.

Response: We have decided not to

require reporting on, or State monitoring

of, compliance with the guidelines

adopted by each MCO and PHP due to

excessive cost and administrative

burdens. Instead we have chosen to

emphasize the adoption and

dissemination of evidence-based and

widely accepted practice guidelines by

MCOs and PHPs to their providers. We

also believe that compliance with those

practice guidelines adopted by States

and MCOs and PHPs can be monitored

through the quality assessment and

performance improvement project

requirements in § 438.240.

The commenter’s second concern

about the amount, duration, and scope

of coverage for covered benefits was

addressed in the response to comments

on § 438.310.

Comment: One commenter believed

that MCOs need to require their

providers to use practice guidelines

through a MOA or linkage agreements.

Response: We do not believe it is

appropriate for the regulation to specify

how MCOs and PHPs are to promote

adherence to the guidelines by their

contracted providers. We note that the

state-of-the-art of information

dissemination, technology transfer, and

changing provider practice patterns is

complex and continues to be the subject

of much study.

Comment: One commenter believed

that decisions about medical care

should be based on medical necessity

and medical judgement, and that these

may not in individual cases, be

consistent with the guidelines. Several

commenters stated that practice

guidelines are guidelines only, and

should not restrict access and should be

consistent with individual needs.

Many commenters expressed a

concern that no requirement exists

requiring individual coverage decisions

to conform to government practice and

care guidelines, especially in the area of

HIV/AIDS treatment.

One commenter expressed a concern

regarding how MCOs contracting with

Medicaid will apply EPSDT standards

and guidelines to children being served,

and specifically to children with special

health care needs.

Response: Our intent is not to

substitute practice guidelines for

professional judgement in the care of

individuals. Practice guidelines are

guidelines, not mandates, and should be

applied consistent with the needs of the

individual.

Comment: One commenter expressed

a concern that MCOs will not reimburse

subcontractors for services that are not

recognized as medically necessary, or

not consistent with nationally

recognized practice guidelines.

Response: As noted above, there are

many evidence-based practice

guidelines that would be helpful to

MCOs and PHPs in undertaking efforts

to improve the quality of health care

provided to enrollees. However, we are

not prescribing a uniform set of

guidelines that must be used, or

specifying that guidelines must be used

whenever they are available. Rather, we

are requiring that MCOs and PHPs

consider relevant guidelines and choose

those they find appropriate. Because it

is not practical for an MCO or PHP to

focus its quality assessment and

improvement efforts simultaneously on

all areas for which there are practice

guidelines, it is not our expectation that

MCOs and PHPs will adopt practice

guidelines for all areas of treatment.

For those clinical areas for which an

MCO or PHP has adopted a clinical

practice guideline, if an enrollee

requests services that contradict the

practice guideline, the MCO or PHP may

have grounds for withholding the

services or refusing to pay for the

service. Similarly, if an MCO or PHP

found a requested service not to be

medically necessary, the MCO or PHP

would have grounds for withholding the

service or refusing to pay for the service.

However, there are two means of

recourse for beneficiaries who believe

that they have been inappropriately

denied a service based on a practice

guideline. First, the enrollee may appeal

the denial of services on an individual

basis. Second, the enrollee may request

that the Medicaid agency review the

guideline to see that it meets the

regulation requirements that guidelines

be evidence-based and up-to-date. We

believe this will protect enrollees from

the misuse of practice guidelines.

Comment: One commenter believed

that guidelines should also be

disseminated to enrollee representative,

advocates, and the general public.

Several commenters agree that

enrollees, as well as the public, should

have a right to obtain a copy of the

practice guidelines.

In contrast, many other commenters

voiced concern over the dissemination

of guidelines to anyone other than

appropriate providers. Some stated that

the dissemination of guidelines intrudes

on the practice of medicine and exceeds

BBA requirements. One commenter

believed that the administrative effort

and expense would be too high if

guidelines were to be disseminated ‘‘as

appropriate.’’ Two commenters were

unclear about the meaning of ‘‘as

appropriate.’’ One commenter stated

that disclosure of practice guidelines to

enrollees may present problems around

inclusion of proprietary information

directly related to the conduct of

business between providers and the

MCO. Two commenters question the

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6331

value/usefulness of guidelines being

disseminated to individual enrollees, as

the information may be too confusing

for them to comprehend. Finally,

several commenters agree that

guidelines should be disseminated to

practitioners, but not to enrollees. These

commenters believed the provider could

give the guidelines to the enrollee as

part of a treatment plan.

One commenter feared that the

requirement to disseminate guidelines

to all providers may result in MCOs

collecting or creating guidelines in cases

where medical outcomes are uncertain,

expert preferences are mixed, or no

justification is needed when following a

treatment option. Another commenter

believed that guidelines should only be

disseminated to providers affected by

the guidelines.

Response: Concerns over the

dissemination of practice guidelines fell

into two opposing views. Some

commenters believed that guidelines

should be available not only to

enrollees, but also to enrollee

representatives, advocates, and the

general public. Other commenters

believed that the current dissemination

language is too broad, and that it would

create a burden on MCOs to have to

disseminate guidelines to all providers

and all enrollees. Others were simply

unclear as to what the words

disseminate ‘‘as appropriate’’ entailed.

We believe that guidelines should be

disseminated to all providers who are

likely to deliver the type of care that is

the subject of the guideline (e.g. an MCO

need not disseminate guidelines on

childhood immunizations to its adult

specialty surgeons). We also believe that

enrollees with particular health

concerns; e.g., asthma, may reasonably

want to know if an MCO or PHP has

adopted any particular guidelines on

asthma care (such as those promulgated

by the National Institutes of Health),

and if so, would want to receive a copy

of the guidelines. To clarify this section,

and the intentions of the regulatory

language regarding dissemination, we

are revising the regulation at

§ 438.236(c)to read as follows: ‘‘Each

MCO and PHP disseminates the

guidelines to all affected providers, and

upon request to enrollees and potential

enrollees.’’

13. Quality Assessment and

Performance Improvement Program

(Proposed § 438.340)

Proposed § 438.340 required each

MCO and PHP that contracts with a

State Medicaid agency to have an

ongoing quality assessment and

performance improvement program, and

specified the basic elements of such a

MCO and PHP program. Under

proposed § 438.340(b), MCOs and PHPs

were required to: (1) Achieve minimum

performance levels on standardized

quality measures, using standard

measures required by the State; (2)

conduct performance improvement

projects; and (3) have in effect

mechanisms to detect both

underutilization and overutilization of

services. Proposed § 438.340(c) provides

for minimum MCO and PHP

performance levels to be established by

the State. Proposed § 438.340(d)

established criteria for performance

improvement projects, requiring, among

other things: (1) the State to establish

contractual obligations for the number

and distribution of projects among

specified clinical and non clinical areas;

and to specify certain non clinical focus

areas to be addressed by performance

improvement projects; (2) that each

MCO and each PHP assess its

performance for each project based on

systematic, ongoing collection, and

analysis off valid and reliable data on

one or more quality indicators; (3) that

each MCO’s and each PHP’s

interventions result in improvement

that is significant and sustained over

time; and (4) that each MCO and each

PHP report the status and results of each

project to the State agency as requested.

Proposed § 438.340(e) required the State

to review, at least annually, the impact

and effectiveness of each MCO’s and

each PHP’s quality assessment and

performance improvement program; and

authorized the State agency to require

each MCO and each PHP to have in

effect a process for its own evaluation of

the impact and effectiveness of its

quality assessment and performance

improvement program.

Comment: Several commenters

believed that States could be faced with

the loss of FFP when MCOs fail to

achieve minimum performance levels,

since meeting these levels is a

requirement under proposed

§ 438.340(b)(1), and section 1903(m) of

the Act requires that requirements

under section 1932 of the Act be met as

a condition for FFP. These commenters

believed that this would give States an

incentive to set performance levels that

are low enough to be easily achieved.

The commenters felt that the States

needed the flexibility to make

exceptions for MCOs and providers with

high-risk patient caseloads.

Response: We would not expect to

deny FFP to any State that establishes

a Quality Assessment and Performance

Improvement Program that meets the

requirements in the regulations, even if

an individual MCO or PHP might not

achieve required performance levels in

a single instance. Therefore, we do not

agree that States will establish low

minimum performance levels because of

fear of loss of FFP. States are

responsible for judging MCO and PHP

performance in meeting the levels. We

intend that the minimum performance

levels be set at levels that can

realistically be achieved. We require

States to consider data and trends in

managed care and fee-for-service in

setting the levels. This is key to the

process of quality improvement that we

establish in this regulation.

Comment: One commenter believed

that phase-in of full compliance with

the imposed standards, and ongoing

improvement over time should be

allowed.

Response: As stated above, we believe

that these regulations allow for

flexibility. We believe that all MCOs

and PHPs should be responsible for

measuring their performance using

standard measures set by the State, meet

State-established minimum performance

levels and conduct performance

improvement projects. These are basic

elements of a quality improvement

program.

Comment: Several commenters were

concerned that the proposed rule did

not expressly require States to study

care across the spectrum of enrolled

populations, or to establish minimum

quality measures relevant to all

enrollees.

Response: For performance

improvement projects, the regulation

specifies four clinical areas that must be

addressed over time. We intend that

these areas (that is, prevention and care

of acute and chronic conditions, highvolume services, high-risk services, and

continuity and coordination of care) to

apply to all enrolled populations. We do

not specify that States must use

measures of performance that address

all conditions affecting all enrollees,

because the state-of-the-art and

limitations on resources do not allow

this. However, in response to this

comment, and other comments

discussed in section II. C. above, we

have added a provision at

§ 438.240(c)(2)(ii)(A) that permits us to

specify standardized quality measures

to be used by MCOs and PHPs. This

provides us with the opportunity to

specify measures for subpopulations of

Medicaid enrollees and we could use

this authority if a State failed to address

certain subpopulations of enrollees. In

addition, also in response to this and

other comments, we have added at

§ 438.240(b)(4) a requirement that MCOs

and PHPs must have in effect

mechanisms to assess the quality and

6332 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

appropriateness of care furnished to

enrollees with special health care needs.

Comment: Several commenters

believed that minimum performance

levels should not be set below

established compliance levels, for

example in EPSDT, even if the State/

MCOs are well below these standards at

present.

Response: While we permit States to

set minimum performance levels for

their MCOs and PHPs, this authority

does not diminish the responsibility of

States to meet performance levels

established by law, such as conducting

EPSDT screening and providing EPSDT

services.

Comment: Several commenters

believed that the Federal government

should develop over time performance

measures, and set minimum

performance levels, based on an

aggregation of data submitted by the

MCOs.

Response: We agree with this

comment. In the final rule with

comment period, in response to this

comment and other comments

discussed in section II. C. above, we

have added a provision (§ 438.204(c))

that requires States to include among

their strategies, performance measures

and levels prescribed by us. This does

not reduce the State’s authority to set

minimum levels for MCOs and PHPs.

We expect that States will pass on to

MCOs and PHPs responsibility to meet

Federally-established performance

levels in order for the States to meet

their own targets.

Comment: One commenter read

proposed § 438.340(c)(2)(i) to imply that

States cannot impose standards on

MCOs in addition to those specifically

allowed by this regulation. The

commenter also believed that proposed

§ 438.340(c)(6), which allows States to

require the MCO to undertake

performance projects specific to the

MCO, and to participate annually in

statewide performance improvement

projects, could be read to prevent the

State from being able to go further. The

commenter suggested deleting

§§ 438.340(c)(2)(i) and (c)(6).

Response: Section 438.240(c)(2)(i) of

the final rule with comment period

permits States to choose how many

performance measures and performance

measurement projects to require from

their MCOs and PHPs. It sets as a

minimum requirement that MCOs and

PHPs measure, report to the State, and

conduct performance improvement

projects (PIPs). This regulation does not

prohibit a State from imposing

standards in addition to those

specifically provided for in the

regulation. Neither does it prohibit the

State from imposing a greater number or

diversity of performance improvement

projects specific to a given MCO or PHP

or on a statewide basis.

Comment: One commenter believed

that the level of detail for quality

assessment and performance

improvement left little flexibility for

States to accommodate the special needs

of newly formed MCOs that may have

limited resources and experience with

such activities required during their

initial contract period.

Response: States have considerable

flexibility in determining how many

projects an MCO or PHP must conduct,

the areas to be addressed by the

projects, the scope of the projects, and

the amount of improvement expected.

We believe this latitude is sufficient for

States to address the circumstances of

new MCOs or PHPs and those with

fewer resources than others.

Comment: Several commenters were

concerned that prospectively

determined, quantifiable quality

improvement goals could be difficult for

MCOs and PHPs to achieve, as they do

not control all factors impacting such

improvement. They believed that

circumstances outside the control of the

MCO could make it difficult or

impossible to complete a study and

collect clean data. These commenters

felt that States needed flexibility to

accommodate these problems

appropriately, without facing sanctions,

when noncompliance occurs as a result

of factors beyond the control of the

MCO.

Response: As stated in the responses

to several comments above, we believe

these regulations provide States with

considerable flexibility to set

requirements for their MCOs and PHPs.

States also have flexibility in deciding

when sanctions should be imposed on

MCOs and PHPs. Also, while we agree

that some factors that affect quality

improvement may be outside of the

MCO’s or PHP’s control, we believe that

many factors are within the control of

MCOs or PHPs, and that MCOs and

PHPs should be held accountable for

quality improvement.

Comment: Several commenters

believed that we should require States

to allow MCOs sufficient time to

implement programs and systems. They

were concerned about the total

administrative burden being imposed by

the proposed rule (for example, the

requirement that MCOs maintain health

information systems that collect,

analyze, integrate, and report necessary

data).

Response: We do not agree that States

should be able to postpone the Quality

Assessment and Performance

Improvement (QAPI) provisions to give

MCOs or PHPs the time to develop

programs and systems. MCOs and PHPs

now have the responsibility to monitor

care, and to do this requires that they

have programs and data that can be used

to measure their performance.

Comment: One commenter did not

believe new requirements on MCOs

should be imposed unless specific

additional funding covering the costs of

such requirements is made available.

Response: In this final rule with

comment period we are replacing the

upper payment limit on payments to

MCOs and PHPs with a different

mechanism to contain managed care

costs. This new method will allow for

additional costs to be considered in

setting capitation rates including the

costs of complying with QAPI

requirements.

Comment: Another commenter

wanted us to review existing QI projects

that MCOs are conducting as part of

HEDIS reporting and NCQA

accreditation, so as not to duplicate

measures and increase administrative

costs.

Response: The relationship in

Medicaid is between the State and the

MCO or PHP, not between us and the

MCO or PHP. In establishing these

requirements, nothing in the regulation

prohibits States from considering other

QI projects their MCOs are conducting,

and we would encourage States to do so.

Comment: Several commenters

believed that State agencies should

consider historical MCO and FFS

Medicaid performance data and trends

to determine the appropriateness of

quality measures. They also believed

that performance levels adopted by

States should be reasonably attainable.

They asked that the following preamble

language be inserted into the regulation

text, ‘‘In establishing minimum

performance levels, the State agency

should ensure that the targets are

achievable, meaningful, and equitable.

The State agency must consider

historical plan and FFS Medicaid

performance data and trends.’’

Response: Section 438.240(c)(2)(ii)(B)

of the final rule with comment period

provides that States should ‘‘consider

data and trends for both the MCOs and

PHPs and fee-for-service Medicaid in

that State,’’ in setting minimum

performance levels. This addresses the

issues of achievability and equity.

Comment: Several commenters

believed that a predefined percentage,

like QISMC’s standard of a 10 percent

reduction in deficient care, would stifle

creative approaches to QI. They also

object to the 10 percent standard

because it is inconsistent with NCQA’s

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6333

‘‘meaningful’’ standard for

improvement, based on effort. The same

commenters also believed that the 10

percent standard could cause MCO not

to pursue QI projects for which a 10

percent reduction was difficult to

predict. The commenters would like to

see the defined percentages removed

from the preamble, and in its place have

NCQA’s ‘‘meaningful’’ improvement

standard inserted.

Response: The 10 percent reduction

rule from QISMC is in the preamble as

an example only and is not a

requirement. However, we believe that

the true test of quality improvement is

measurable improvement. This requires

that a numeric benchmark or percentage

improvement goal be in place.

Therefore, we do not agree that a

standard of ‘‘meaningful’’ improvement

is sufficient. The regulation does not

require the use of the 10 percent

reduction standard. States have the

discretion to establish specific numeric,

objective improvement levels

themselves.

Comments: Many commenters

believed that without specific

instructions from us, stating that MCOs

must identify and monitor care

delivered to populations with special

health care needs enrolled in an MCO,

it is unlikely that results from QAPI will

reflect the experiences of these groups.

They also believed that HEDIS for

Medicaid does not include many

measures specific to children or adults

with special health care needs. The

commenters would like to see specific

quality assurance activities and outcome

measures, focusing on the various

populations with special health care

needs, to be developed in conjunction

with advocates and experienced

providers in these areas.

Response: We agree that populations

with special health care needs should

not be left out of MCO and PHP quality

assessment and performance

improvement activities. Section

438.240(d)(2) of the final rule with

comment period requires that

performance measurement and quality

improvement projects address the entire

Medicaid enrolled population in an

MCO or PHP to whom the measure is

relevant. The regulation also requires

that all enrolled populations be

measured over time. As discussed

above, we have added provisions

permitting the Secretary to specify

annual quality measures and

performance improvement project

topics for MCOs and PHPs. Through this

mechanism, we have the authority to

direct States, MCOs, and PHPs to

address subgroups of enrollees should

the States fail to do so. To make explicit

the requirement that populations with

special health care be included in MCO

and PHP quality assessment and

performance improvement activities, we

have added a new item at

§ 438.240(b)(4) requiring that MCOs and

PHPs have in effect mechanisms to

assess the quality and appropriateness

of care furnished to enrollees with

special health care needs. We note

however that more effective and

plentiful quality indicators to measure

the quality of care delivered to

individuals with special health care

needs are still needed.

Comment: One commenter believed

that in addition to reporting

performance measures, States or

medical auditors should also target and

access medical records to study overall

treatment of specified conditions and

adherence with treatment protocols.

Response: We do not agree that we

should require States (in addition to

using performance measures and quality

assessment and performance

improvement projects) to separately

review medical records to study overall

treatment of specific conditions and

monitor the use of treatment protocols.

While States are free to undertake this

activity, we believe that the elements of

State quality assessment and

performance improvement strategy will

be sufficient to monitor health care

quality (including adherence to

treatment protocols).

Comment: One commenter favored

outcomes measured through both

process indicators and ‘‘quality of life’’

indicators.

Response: The term performance

measure, as we are using it, provides the

option for States to use process and

outcome measures, including quality of

life indicators.

Comment: A commenter

recommended a requirement that HEDIS

be the standardized tool for QAPI,

instead of leaving this up to States.

Response: We believe that the choice

of performance measures and

measurement tools should be left to the

discretion of individual States. Many

States now use a number of HEDIS

measures; however, we note that HEDIS

as a measurement set has limitations

and may not serve the complete needs

of States or fully address the Medicaid

population.

Comment: A commenter believed that

the statement, ‘‘projects are

representative of the entire spectrum of

clinical and non-clinical areas,’’ should

be qualified so that projects are not

required to cover the entire spectrum

every year, but should focus on one area

each year, as long as the subject varies

over time.

Response: The proposed rule did not,

and the final rule with comment period

does not, require that all areas be

addressed each year. States may specify

the number of projects its MCOs and

PHPs must conduct, and the

requirement would be met if the State

requires only one project. We have

clarified the final rule with comment

period to state at § 438.240(d)(3) that

States must require each MCO and each

PHP or more to initiate one or more

performance improvement projects per

year.

Comment: One commenter asked if a

successful NCQA review would be

acceptable in lieu of the required yearly

audit, since this would save

administrative efforts and expense.

Response: As discussed above in

section II. C., while section 1932(c)(2) of

the Act provides for external quality

review (EQR) requirements to be met

based on other accreditations, there is

no such authority for the requirements

under section 1932(c)(1) of the Act (as

is the case with respect to similar

requirements under the

Medicare+Choice program).

Comment: A commenter was

concerned about the fact that many

subpopulations served by an MCO were

small in number, and believed it may be

difficult to produce any meaningful

results for quality assurance and

performance measurement. The

commenter asked if aggregate results of

a performance project across several

MCOs of a national company would be

acceptable.

Response: States are accountable for

the quality of care for their Medicaid

beneficiaries, and must be permitted to

set the requirements for the MCOs and

PHPs with which they contract.

Therefore, we will not modify the

regulation to permit MCOs or PHPs to

aggregate data across States.

Comment: Several commenters

wanted States to publish performance

measurement tools and results of

assessments. The commenters were

concerned that no requirement exists

that requires MCOs to provide

information about quality assurance

programs to enrollees and potential

enrollees in Medicaid.

Response: While we have not

provided in this final rule with

comment period for the provision of

information on MCO or PHP quality

measures, this will be provided for in

the final EQR regulation, as it is

required under section 1932(c)(2)(A)(iv)

of the Act.

Comment: Several commenters

believed that self-reported quality

measures should be subject to external

validation by the State, and that StateVerDate 11<MAY>2000 21:50 Jan 18, 2001 Jkt 194001 PO 00000 Frm 00107 Fmt 4701 Sfmt 4700 E:\FR\FM\19JAR7.SGM pfrm01 PsN: 19JAR7
6334 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

defined measures and performance

improvement projects should be

required to use audited data.

Response: This type of external

review is provided for in section

1932(c)(2) of the Act, which is being

implemented in a separate rulemaking.

Comment: Some commenters did not

believe that the use of the word

benchmark in the preamble discussion

of proposed § 438.340(d)(9) was clear.

Yet they believed that benchmarking is

one of the key terms for QI, and needs

to be expanded in the final rule with

comment period.

Response: We agree that the term

‘‘benchmarks’’ can have many

connotations, and have deleted it from

the final rule with comment period.

Comment: A commenter requested

that we include a definition of ‘‘highvolume’’ or ‘‘high-risk’’ services. The

commenter believed this should be

defined to require the review of mental

health services, and did not believe that

mental health services would be

considered high-volume or high-risk

without these services being expressly

included in the definition.

Response: We have chosen not to

define ‘‘high-volume’’ or ‘‘high-risk’’

services, as they differ relative to

individual MCOs or PHPs and the

populations they serve. For example a

PHP behavioral health carve-out would

only include mental health services. We

believe States are in the best position to

define this for their MCOs and PHPs.

Comment: One commenter urged that

cultural competence be included as a

nonclinical area of performance

measurement in the regulation.

Response: We agree that cultural

competence is a nonclinical area that

may be a topic of a performance

improvement project. In response to this

comment, in § 438.240(d)(5)(iii) of the

final rule with comment period, we

have added ‘‘cultural competence’’ as a

non-clinical area.

Comment: Several commenters asked

that we establish a process for detailed

discussions with MCOs to better

understand the operational issues

associated with implementing the

proposed standards of the regulation.

Two of the commenters desired

discussions with us to define short- and

long-term goals for Medicaid managed

care quality oversight and to arrive at a

focused strategy. For example, they

believed that HEDIS was undermined by

the ability of States to establish an

independent system of quality

improvement strategies.

Response: We are working to provide

technical assistance tools to the States.

In turn, the States will be able to work

with MCOs and PHPs, and MCOs and

PHPs will have an opportunity to

provide public input to the quality

strategy in their respective State.

Comment: A commenter believed that

more ‘‘horizontal’’ lines of

communication regarding performance

improvement and measurement needed

to occur, in addition to the current

‘‘vertical’’ lines of communication

between the States, MCOs, and HCFA.

For example, they would like to see

communication take place across MCOs

and across State agencies.

Response: We agree that

communication across organizational

components is of considerable value,

and this function is currently addressed

through membership organizations,

such as the American Public Human

Services Association (APHSA). These

organizations can assist with the

exchange and gathering of information

through conferences and publications.

14. Health Information Systems

(Proposed § 438.342)

Section 1932(c)(1)(iii) of the Act

requires States that contract with

Medicaid managed care organizations to

develop a State quality assessment and

improvement strategy that includes

procedures for monitoring and

evaluating the quality and

appropriateness of care and services to

enrollees that reflect the full spectrum

of the population enrolled under the

contract, and that includes requirements

for provision of quality assurance data

to the State, by MCOs using the data and

information set that the Secretary has

specified for use under the

Medicare+Choice program, or such

alternative data as the Secretary

approves, in consultation with the State.

In proposed § 438.342, we provided

that the State ensure that each MCO and

PHP maintain a health information

system that collects, analyzes,

integrates, and reports data that can

achieve the objectives of this part.

Under the proposed rule, we specified

that the system should provide

information on areas including, but not

limited to, utilization, grievances,

disenrollments and solvency.

Furthermore, we proposed that the State

ensure through its contracts with MCOs

and PHPs that each MCO and PHP be

required to: (1) Collect data on enrollee

and provider characteristics, as

specified by the State, and on services

furnished to enrollees; (2) ensure that

the data received from providers are

accurate and complete by verifying the

accuracy and timeliness of reported

data, screening the data for

completeness, logic and consistency,

and by collecting service information in

standardized formats to the extent

feasible and appropriate; and (3) make

available all collected data to the State

and HCFA. An MCO or PHP was

permitted to use any method or

procedure for data collection, so long as

it could demonstrate that its system

achieves the objectives of this standard.

Comment: Several commenters

believed that the regulation should

specifically require appropriate

acquisition of data by MCOs concerning

race, ethnicity, sex, age, disability, and

primary language. These commenters

believed that without the collection of

such data, compliance and enforcement

with civil rights laws including Title VI

and the ADA would be difficult.

Response: All of the above, with the

exception of age and sex, are explicitly

addressed in this final rule with

comment period. Information on

disability will be captured through the

initial and ongoing assessment

provisions of § 438.208. Primary

language spoken is addressed in the

language requirement of § 438.10(b). As

discussed previously, race and ethnicity

are addressed in § 438.204(b)(1)(iii).

However, sex and age are fundamental

pieces of demographic information that

are essential if MCOs and PHPS are to

be able to comply with the information

system requirements in § 438.242. Age

and sex are such routinely collected

demographic information, that we do

not believe it necessary to expressly

mandate their collection in the

regulation.

Comment: Several commenters urged

that the timing and costs associated

with implementing the regulations be

evaluated. These commenters suggested

that we allow more time to comply with

the regulation, because of millennium

activities that are utilizing the majority

of State and MCO resources. Several

other commenters questioned how

funding for this activity would occur, as

they did not believe they had the

resources to meet the requirements.

Response: Given the passage of time

since January 1, 2000, ‘‘Y2K’’ activities

should no longer be utilizing State

systems resources. We will work with

States to assist them in implementation

of this final rule with comment period.

As for the funding for implementing the

requirements, new Medicaid State

agency system development design and

implementation is funded at 90 percent

and maintenance to existing systems is

matched at 50 percent.

Comment: Several commenters

questioned the logic of including

solvency information in the same

system as enrollee-specific data such as

utilization, grievances and

disenrollments. These commenters did

not believe solvency information should

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6335

be included as a mandatory element of

a health information system. The

commenters believed that a State’s

current standards for reporting and

format should be sufficient.

Response: We agree that this is not the

appropriate place to capture solvency

information. In response to this

comment, we have removed the

reference to solvency from § 438.342(a).

Comment: Several commenters found

the requirement that MCOs make all

collected data available to both the State

and HCFA excessive and redundant

since the State must also submit data to

us. The commenters noted that it is the

MCO’s business to manage their

population and to report required data

to the State. Duplicative reporting

requirements could increase the

administrative expenses of MCOs, and

make contracts with State Medicaid

programs less attractive to commercial

HMOs.

Response: We agree that it is

burdensome to request all information

to be sent to both the State and to

HCFA. In response to this comment we

have provided in § 438.242(b)(3) of this

final rule with comment period that

MCOs and PHPs make all collected data

available to the State as required in

subpart D, and to us upon request.

Comment: Several commenters

recommended that we establish national

data collection standards for States to

use for the collection of encounter data,

EPSDT, and network information. These

commenters specified that these

standards should be based on current

data elements that could be

systematically produced by providers,

and captured by MCOs and PHPs.

Response: We desire to have

consistency of information, and to have

national standards in those cases where

it makes sense to do so. However, we

must also balance that desire with

providing States with the necessary

flexibility to implement their individual

Medicaid programs. We are working on

several initiatives to standardize data

collection on a national level. The

Health Insurance Portability and

Accountability Act (HIPAA) requires us

to work toward the goals recommended

by several of the commenters.

E. Grievance Systems (Subpart F)

Background

Proposed subpart F was based on

section 1902(a)(3) of the Act (requires a

State plan to provide an opportunity for

a fair hearing to any person whose

request for assistance is denied or not

acted upon promptly), section

1902(a)(4) of the Act (authorizes the

Secretary to specify methods of

administration that are ‘‘necessary’’ for

‘‘proper and efficient administration’’),

and section 1932(b)(4) of the Act

(requires that MCOs have an internal

grievance procedure under that a

Medicaid enrollee, or a provider on

behalf of an enrollee, may challenge the

denial of coverage of or payment by the

MCO).

In this subpart, we proposed

regulations that lay out the required

elements of the grievance system

required under section 1932(b)(4) of the

Act, and how it interfaces with the State

fair hearing requirements in section

1902(a)(3) of the Act; describing what

constitutes a notice (that is, the first step

in the grievance system); addressing

complaints and grievances, including

timeframes for taking action; the process

for actions; how grievances are to be

handled; and how enrollees are to be

notified of the resolution of grievances.

In addition, the proposed rule provided

for expedited resolution of grievances

and appeals in specific circumstances;

addressed the requirement for

continuation of benefits; included the

requirement that MCOs and PHPs

clearly and fully inform enrollees of the

entire system so that they are aware of

it and how to use it; specified what

materials must be provided when

notifying an enrollee, and the

requirements for those materials; and

lay out the requirements relating to

record keeping, monitoring, and the

consequences of noncompliance.

1. Statutory Basis and Definitions

(Proposed § 438.400)

Definitions of terms that would apply

for purposes of proposed subpart F are

found in § 438.400 of the proposed rule,

in that the following terms have the

indicated meanings:

Complaint was defined as any oral or

written communication made by or on

behalf of an enrollee to any employee of

either the MCO, PHP, its providers, or

to the State, expressing dissatisfaction

with any aspect of the MCO’s, PHP’s, or

provider’s operations, activities, or

behavior, regardless of whether the

communication requests any remedial

action.

Enrollee was defined for purposes of

subpart F, as an enrollee or their

authorized representative.

Governing body was defined as the

MCO’s or PHP’s Board of Directors, or

a designated committee of its senior

management.

Grievance was defined as a written

communication, submitted by or on

behalf of a Medicaid enrollee expressing

dissatisfaction with any aspect of the

MCO’s, PHP’s, or providers’s operations,

activities, or behavior that pertains to

the following: (1) The availability,

delivery, or quality of health care

services, including utilization review

decisions that are adverse to the

enrollee; (2) payment, treatment, or

reimbursement of claims for health care

services; or (3) issues unresolved

through the complaint process provided

for under the proposed rule.

Comment: Some commenters

questioned HCFA’s statutory authority

to promulgate the detailed requirements

in proposed subpart F, given the limited

amount of text in section 1932(b)(4) of

the Act.

Response: As noted above, these rules

are based only in part on section

1932(b)(4) of the Act. We believe that

those portions of subpart F that address

an MCO’s internal grievance system

constitute a reasonable implementation

of authority under section 1932(b)(4) of

the Act. This rule is also based on our

general authority under section

1902(a)(4) of the Act, and on the State

fair hearing requirements in section

1902(a)(3) of the Act, that prior to this

final rule with comment period have not

been implemented in regulations that

apply to managed care enrollees. We

believe that the requirements in subpart

F of this final rule with comment period

are warranted in order to ensure that

MCOs have an effective and useful

internal grievance process, as required

under section 1932(b)(4) of the Act, and

in order to ensure that MCO and PHP

enrollees have access to the same State

fair hearing process that fee-for-service

enrollees have under subpart E of part

431. This final rule with comment

period applies the general rights in

section 1902(a)(3) of the Act to managed

care enrollees both in MCOs and PHPs.

In the case of PHPs, the requirements in

subpart F are based both on section

1902(a)(3)of the Act and, in the case of

longstanding PHP regulations, they are

generally on our broad authority under

section 1902(a)(4) of the Act to specify

methods necessary for proper and

efficient administration. In the case of

MCOs, we are also implementing the

requirements in section 1932(a)(4) of the

Act, and setting forth what we believe

is necessary to adequately meet these

requirements as we have interpreted

them. The analysis of key court

decisions has also guided the

development of these final regulations,

just as the Supreme Court’s Goldberg v.

Kelly decision was incorporated in the

State fair hearing regulations under part

431, subpart E to which the MCO and

PHP grievance system is linked.

Comment: Some commenters believed

that while we took case law into

account in proposed subpart F, HCFA

did not go far enough to protect

6336 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

Medicaid managed care enrollees’ rights

in the following three areas: (1)

Continuation of benefits; (2) direct

access to State fair hearings; and (3)

time frames for action.

Response: We have carefully

considered all comments on these three

issues and address each issue below in

the context of our discussion of

regulation language that pertains to the

issue. In general, we recognize that we

have a responsibility to protect

Medicaid enrollees and ensure their

rights. To meet this responsibility, we

have established a set of Federal

protections that apply to Medicaid

enrollees regardless of their State of

residence. This will ensure a minimum

degree of consistency with the level of

protection afforded Medicare

beneficiaries. States may choose to add

to these protections by exceeding the

minimum levels required by this

regulation.

In developing these regulations, we

relied heavily on the Consumer Bill of

Rights and Responsibility (CBRR). We

also examined the grievance procedures

of many States, and considered all

comments on these issues. We have

carefully documented, tracked, and

analyzed each decision we have made

with respect to our consideration of

commenters’ suggestions in light of the

guiding principles in the CBRR.

Comment: We received comments

that suggested that we specify a

different grievance process for enrollees

with addiction or mental health issues

or, at a minimum, make specific

mention of these concerns in the

regulation, and adopt the principles of

the Model Managed Care Consumer

Protection Act proposed by the

President’s Commission on Model State

Drug Laws. Under this Act, the patient,

family, or program must be permitted to

appeal directly outside the MCO or

PHP. These commenters also suggested

that there be a separate office

responsible for the addiction and mental

health grievance process and to

advocate for patients and families.

Response: We do not agree that there

should be separate grievance processes,

procedural requirements, or offices

based on diagnosis-specific or

population-specific criteria. The

grievance system set forth in this

regulation is designed to address the

needs of all Medicaid enrollees,

including those with special health care

needs. PHPs providing mental health or

substance abuse services are also subject

to these provisions, that we believe

adequately protect individuals with

these conditions.

Comment: Many commenters strongly

recommended that we eliminate the

‘‘complaint’’ category set forth in the

proposed rule, while others supported

the broad definition of ‘‘complaint’’ as

separate from ‘‘grievances’’ subject to a

State fair hearing, but recommended

changes to better distinguish these

categories. The comments advocating

the elimination of a separate complaint

category are first presented below

followed by the comments supporting

retention of the two categories but

recommending changes related to these

categories.

In support of eliminating separate

categories, one commenter contended

that it has been well documented that

Medicare+Choice organizations

misidentify what should be appeals

under the Medicare+Choice appeals

system as ‘‘grievances,’’ are not subject

to external administrative and judicial

review under that system. The

commenter believed that HCFA should

eliminate the ‘‘complaint’’ level,

because the commenter saw it as the

equivalent of ‘‘grievances’’ under

Medicare+Choice, and in order to avoid

confusion and prevent the potential

mishandling of appeals. One commenter

noted that under the proposed rule, an

MCO or PHP could fail to acknowledge

an appeal and provide the required

notice to enrollees simply because the

enrollees failed to ‘‘use the magic

words’’ when filing their dispute.

Another commenter believed that

because the NPRM does not require that

complaints be monitored and tracked as

closely as grievances, MCOs and PHPs

have an incentive to categorize a dispute

as a complaint. The commenter stated

that this could benefit the MCO or PHP

because complaints would not be

reflected in the MCO’s or PHP’s

performance ratings, and MCOs and

PHPs should not be given the authority

to decide whether an issue is a

complaint or grievance.

Another commenter expressed the

view that a complaint process does not

protect the enrollee and, therefore,

should be deleted from the regulation.

This commenter believed that MCOs

and PHPs would be able to resolve

complaints on a more informal basis

through the customer service

department, while enrollees’ rights to a

formal appealable grievance would

remain.

One commenter noted that many

States have a single definition for a

‘‘grievance’’ in order to avoid confusion

for MCOs, PHPs and enrollees. The

commenter felt that this simplifies

reporting and facilitates the resolution

of a complaint. One commenter said

that all issues should be tracked as

grievances whether submitted orally or

in writing. Another said that enrollees

should be able to address any problem

that they have with the MCO, PHP, or

a provider without getting trapped or

confused by a labeling and tracking

process. Several commenters said the

documentation of all complaints as well

as grievances should be required.

A commenter felt that allowing both

an informal complaint and a formal

grievance process has led to confusion

of enrollees, MCOs and PHPs, as well as

to inappropriate transfers and

unnecessary delays. This commenter

believed that there have been many

instances of MCOs and PHPs reclassifying grievances as ‘‘complaints’’

in order to evade review or to slow the

dispute resolution process, and that an

enrollee’s rights may hinge on this

classification process.

One commenter believed that

enrollees should be given the right to

request expedited resolution of

complaints and these should be treated

in the same manner as grievances were

under the proposed rule, for when

expedited resolution is requested by the

enrollee or the provider.

One commenter noted that under

existing fee-for-service regulations, all

disputes are dealt with in a uniform

manner and all that is required to obtain

a hearing is a ‘‘clear expression by the

applicant or recipient, or his authorized

representative, that he wants the

opportunity to present his case to a

reviewing authority.’’ According to this

commenter, this [42 CFR 431.201]

definition allows for differences in

presentation of disputes and does not

require beneficiaries to refer to rules and

definitions when presenting them. In

the commenter’s opinion, many

beneficiaries do not have the capacity to

distinguish between a ‘‘complaint’’ and

a ‘‘grievance.’’

Other commenters agreed that there

should be distinct categories for

complaints and grievances subject to

appeal, but suggested changes to how

these categories are defined and the

provisions applying to each. These

comments follow.

One commenter believed that

complaints that are not resolved to the

beneficiary’s satisfaction within 30 days

after filing should automatically become

appealable grievances.

Another commenter stated that if the

complaint process is not eliminated, it

should be regulated to the same extent

as the grievance process was under the

proposed rule. The commenter

suggested that the regulation should

provide more guidance on how

complaints are to be handled. The

regulation should also specify who

distinguishes a complaint from a

grievance and the qualifications of this

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6337

decision-maker. The distinction

between a complaint and grievance, as

used in the proposed rule, needed to be

clarified with examples, in the

commenter’s view. Matters do not

always squarely fit within one category.

One commenter said that the terms

‘‘complaint’’ and ‘‘grievance’’ should be

clarified in the regulation, and that the

complaint process would address those

communications that were not

grievances under the proposed rule. The

commenter provided examples of topics

that would likely be addressed as

complaints in this process for example,

waiting times, operating hours,

demeanor of health care personnel, and

the adequacy of facilities.

A commenter noted that the

preamble’s characterization of

complaints differs from the regulatory

definition. The commenter stated that

the regulation defines complaints but

includes no guidance on how they are

to be handled. One commenter noted

that the preamble says that complaints

include problems involving waiting

times and operating hours. However, the

commenter noted, if a beneficiary must

wait three weeks for an appointment

during limited afternoon hours, this

clearly is an availability and quality

problem which should be defined as an

appealable grievance.

One commenter believed that the

distinction made in the proposed rule

between complaints and grievances was

subjective and suggested that the

proposed rule’s requirement that

grievances be in writing would greatly

reduce the number of disputes handled

through the grievance process, because

of the difficulty enrollees may have in

filing a written appeal. The commenter

further noted that some problems

require immediate response, which a

telephone communication allows.

One commenter thought that

grievances which result from

unresolved complaints should apply

only to unresolved complaints that are

related to service delivery or treatment.

This commenter believes that appeals

should be available only for ‘‘actions’’

(that is, the denial, reduction, or

termination of services), and that

frivolous complaints not resolved to the

enrollee’s satisfaction should not be

entitled to a State fair hearing. This

commenter was concerned that the

proposed regulation opens up the State

fair hearing process to virtually any

expression of dissatisfaction with the

operation of the MCO or PHP.

A final commenter recommended that

we use the terms used in the

Medicare+Choice regulations to

simplify MCO and PHP documentation,

and MCO and PHP enrollee education.

According to the commenter, consistent

use of terms would also make life easier

for providers and for enrollees who

participate in both the Medicare and

Medicaid programs.

Response: We agree with the

commenters who were confused by the

way the term ‘‘grievance’’ was used in

the proposed rule, particularly in light

of Medicare+Choice’s use of the term

‘‘grievance’’ as a complaint that is not

subject to external review or a State fair

hearing. Our use of the term ‘‘grievance’’

in the proposed rule was based on the

fact that the Congress, in section

1932(b)(4) of the Act, referred to an

internal ‘‘grievance procedure under

that an enrollee could challenge a denial

of payment or coverage.’’ The Congress

used the term ‘‘grievance’’ to refer to a

type of appeal that under the

Medicare+Choice program was subject

to appeal and was under that program’s

terminology not a grievance. It was for

this reason that we used the term

‘‘complaint’’ to refer to the type of

problem labeled a ‘‘grievance’’ in the

Medicare+Choice program. In order to

adopt an approach more consistent with

Medicare’s (to avoid confusion for

organizations that participate in both

programs). In this final rule with

comment period, we are deleting the use

of the word ‘‘complaint,’’ and using the

term ‘‘grievance’’ to refer to the same

types of enrollee problems. Also, in this

final rule with comment period, like in

the Medicare+Choice program, we

establish two mutually exclusive

categories: (1) a ‘‘grievance,’’ that is not

subject to the State fair hearing process

(called a ‘‘complaint’’ in the proposed

rule), and (2) an ‘‘appeal,’’ that is subject

to a State fair hearing (encompassed in

the term ‘‘grievance’’ in the proposed

rule). Because the Congress employed

the term ‘‘grievance procedure’’ in

section 1932(c)(4) of the Act, we

continue to use the term ‘‘grievance

system’’ to refer to the overall grievance

and appeal system provided for in

subpart F.

Specifically, in response to the above

comments, we have in this final rule

with comment period: (1) dropped the

definition of ‘‘complaint;’’ (2) changed

the definition of ‘‘grievance’’ to roughly

track the definition of ‘‘complaint’’ used

in the proposed rule; and (3) added a

new definition of ‘‘appeal’’ to § 438.400

so that grievance and appeal are two

mutually exclusive categories. We agree

with the commenters favoring the

employment of two distinct categories

because we believe that certain

disagreements between the MCO or PHP

and its enrollees should have a higher

standard of review, and should be

subject to a State fair hearing if the MCO

or PHP decision is adverse to the

enrollee. The term ‘‘appeal’’ also is used

by most States for State fair hearing

requests. In this final regulation, the

term ‘‘appeal’’ is used to refer to

requests for an MCO or PHP hearing, as

well as, for a State fair hearing. As just

noted, it is also the term used in

Medicare and will reduce the burden on

MCOs and PHPs for educating providers

and dually-eligible enrollees.

To clearly distinguish between a

grievance and an appeal, in this final

rule with comment period, we have

added a definition of ‘‘action’’ as the

event that entitles an enrollee to file an

appeal and defined a grievance as

involving a matter other than an action.

An action includes the following: (1) the

denial or limited authorization of a

requested service; (2) the reduction,

suspension, or termination of previously

authorized services; (3) the denial of

payment, in whole or in part for a

service, for a resident of a rural area

with only one MCO or PHP; (4) the

denial of a Medicaid enrollee’s request

to exercise their right to obtain services

out of network; (5) the failure to either

furnish, arrange or provide for payment

of services in a timely manner; and (6)

the failure of an MCO or PHP to resolve

an appeal within the timeframes

provided in the regulation. In addition,

for a State agency, the denial of a

Medicaid enrollee’s request to disenroll

is an action.

In response to comments that we

should set out additional requirements

for MCOs and PHPs when they are

addressing complaints (now called

grievances), we have added several

requirements. In this final rule with

comment period, we require that MCOs

and PHPs ensure correct classification

of grievances. We also provide examples

of grievance issues in the regulation text

(in a parenthetical in the revised

definition of grievance). We specify

maximum timeframes for MCOs and

PHPs to dispose of grievances. We

provide in § 438.406(a)(7)(ii) that

grievances involving clinical issues and

those regarding denials to expedite

resolution of appeal be decided by a

health care professional with

appropriate clinical expertise. We also

provide that while grievances are not

subject to review at the State fair

hearing level, they are subject to further

review by the State at the request of the

enrollee. We also provide that MCOs

and PHPs must work with the State to

dispose of grievances if the State

considers the MCO or PHP response to

be insufficient. In addition, the State

must monitor these processes and

incorporate that monitoring into its

overall quality improvement strategy.

6338 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

Overall, we believe that this new

approach will streamline the grievance

and appeal process, eliminate confusion

on the part of enrollees and providers,

be more consistent with Medicare, and

provide protection for enrollees.

Comment: Some commenters believed

that the grievance and appeals

provisions should apply to PCCMs, as

well as, to MCOs and PHPs.

Response: We do not agree with the

commenter’s suggestion that the

grievance and appeal provisions should

apply to PCCMs. PCCMs are often

individual physicians or small group

practices and can not be expected to

have the administrative structure to

support a grievance process. Because

PCCMs that are not capitated (capitated

PCCMs would be subject to subpart F as

PHPs) are reimbursed through the feefor-service system, they are subject to

the State fair hearing process described

in 42 CFR 431 Subpart E. Moreover, as

noted above in section II. D. with

respect to the quality requirements in

section 1932(c)(1) of the Act, the

Congress made a conscious decision in

section 1932(b)(4) of the Act to apply

the grievance requirements only to

MCOs in that section, notwithstanding

the fact that other requirements in

section 1932 of the Act apply to PCCMs.

We believe it would be inconsistent

with Congressional intent to apply

grievance requirements to PCCMs. In

the case of PHPs, the Congress was

silent in section 1932 of the Act. We

believe that because PHPs are paid on

a risk basis like MCOs and have a

financial incentive to deny care like

MCOs, grievance and appeal protections

are as important for PHP enrollees as

they are for MCO enrollees.

Comment: One commenter urged that

grievances and appeals be classified

according to the type of denial (for

example, a clinical determination

should be subject to appeal). The

commenter stated that this

differentiation is important because

denials of service may have a critical

impact on the patient’s health, unlike

denials of payment and general

grievances.

Response: In this final rule with

comment period (§ 438.400(b)) the

definition of ‘‘action’’ distinguishes

what is subject to appeal from what is

addressed as a grievance. In addition,

we also distinguish between grievances

involving quality of care issues and

other grievances. Section

438.406(a)(7)(ii) of this final rule with

comment period provides that

grievances involving a clinical issue or

a grievance of a denial of a request for

expedited appeal must be decided by a

health care professional who has

appropriate clinical expertise in treating

the enrollee’s condition or disease.

2. General Requirements (Proposed

§ 438.402)

Proposed § 438.402 stated the general

requirements of the MCO and PHP

grievance system, and required MCOs

and PHPs to have a grievance system

that includes a complaint (now referred

to as grievance) process, a grievance

(now called appeal) process, and a link

to the State’s fair hearing system.

Proposed § 438.402 required the MCO

and PHP to—

• Base its complaint (now grievance)

and grievance (now appeal) process on

written policies and procedures that, at

a minimum, meets the conditions set

forth in this subpart.

• Obtain the State’s written approval

of the grievance (now appeal) policies

and procedures before implementing

them.

• Provide for its governing body to

approve and be responsible for the

effective operation of the system;

• Provide for the governing body to

review and resolve complaints (now

grievances) and grievances (now

appeals) unless it delegates this

responsibility to a grievance committee.

• Provide through its grievance (now

appeal) process clearly explained steps

that permit the enrollee to appeal to the

MCO, PHP, and to the State.

• Allow the enrollee a reasonable

time to file an appeal, include for each

step timeframes that take into

consideration the enrollee’s health

condition and provide for expedited

resolution of grievances (now appeals)

in accordance with § 438.410, not

substitute for the State’s fair hearing

system.

• Permit enrollees to appear before

the MCO and PHP personnel

responsible for resolving the grievance

(now appeal), and provide that, if the

grievance (now appeal) resolution

decision is wholly or partly adverse to

the enrollee, the MCO or PHP submits

the decision and all supporting

documentation to the State as

expeditiously as the enrollee’s health

condition requires but no later than the

following for—

++A standard resolution, no later than

30 days after receipt of the grievance

(now appeal) or the expiration of any

extension; and

++An expedited resolution, no later

than 24 hours after reaching the

decision.

Additionally, the State must either

permit the enrollee to request a State

fair hearing on a grievance (now appeal)

at any time, or provide for a State fair

hearing following and MCO or PHP

adverse decision on the matter that gave

rise to the grievance (now appeal).

Comment: Given the provision in

proposed § 438.402(a) requiring a link

between the grievance system under

section 1932(b)(4) of the Act and the

State fair hearing system, the right

under proposed § 438.402(d) to a fair

hearing (either directly, or following an

adverse MCO or PHP decision), and

language in the preamble to the

proposed rule requesting comments on

whether fair hearing timeframes should

be revised, several commenters were

prompted to comment generally on the

State fair hearing process. Many of these

commenters recommended substantial

revisions to HCFA’s State fair hearing

regulations, and requested that HCFA

convene a meeting to discuss proposed

changes to those recommendations. The

commenters agreed that the State fair

hearing process needs to be revised, but

there was no consensus on how it

should be revised. Several commenters

wanted Medicaid to adopt the same

standards for the State fair hearing

process that were proposed for the MCO

and PHP internal grievance process.

Other commenters wanted an expedited

State fair hearing. Commenters

suggested various timeframes which

ranged from 24 hours to 15 days.

Finally, one commenter wanted HCFA

to eliminate extensions for State fair

hearings provided for in the Medicaid

manual.

Response: We have decided to

postpone consideration of major

modifications to the State fair hearing

regulations generally and to develop an

NPRM to propose changes to the State

fair hearing rules. At that time we will

also review the provisions in the

Medicaid Manual related to fair

hearings. We will consider using the

negotiated rule-making process in

developing this NPRM.

In response to these and other

comments, however, this final rule with

comment period does require, under

§§ 438.408(j)(3)(ii) and 431.244(f)(2),

expedited State fair hearings when a

service has been denied and a delay in

receipt of that service could jeopardize

the enrollee’s health. States must

conduct a State fair hearing and issue a

final decision on these cases as

expeditiously as the enrollee’s health

condition requires, but no later than 72

hours from receipt of the appeal.

Comment: Several commenters

requested modifications to the State fair

hearing regulations to allow MCOs and

PHPs to become a party to the hearing.

The commenters believed that the MCO

or PHP should have an opportunity to

present its position on the dispute at the

hearing. Other commenters noted that

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6339

several States have not recognized

MCOs and PHPs as parties to State fair

hearing.

Response: We agree that MCOs and

PHPs should be parties to the State fair

hearing and in response to this

comment, have provided for this in the

final rule with comment period at

§ 438.408(j)(2). As parties to the hearing,

we believe it is clear that MCOs and

PHPs are subject to the hearing decision.

As parties to the hearing it will also be

clear that an MCO or PHP can present

its position at a State fair hearing which

we think is appropriate because the

MCO or PHP will be liable for providing

and paying for a service if the State fair

hearing officer overturns the decision.

Comment: Several commenters noted

that some State fair hearing officers do

not believe that they have jurisdiction

over MCOs and PHPs and believe they

lack authority to order MCOs and PHPs

to take a particular action. These

commenters believed it would be very

helpful for the regulations to provide

that both the agency and the State fair

hearing officer have authority to order

the MCO or PHP to provide a required

service or perform a corrective action,

including reimbursing for services.

Response: We agree with commenters

that State fair hearing officers should

have jurisdiction over Medicaid MCOs

and PHPs. As just noted, we have

provided at § 438.408(j)(2) that MCOs

and PHPs are parties to a State fair

hearing appealing their decisions. With

this addition, we think it will be clear

that the presiding officer of the

proceeding has jurisdiction over a party

to the hearing.

Comment: One commenter

recommended that an expedited State

fair hearing be available to Medicaid

beneficiaries who are not enrolled in

managed care. The commenter noted

that increasingly, fee-for-service

arrangements use prior authorization

processes, and as in managed care, the

care under review may be urgently

needed.

Response: While we believe there is

merit in the commenter’s suggestion

from a policy perspective, we are not

amending the State fair hearing

regulations to provide an expedited

hearing in fee-for-service situations,

because the proposed regulation

addressed Medicaid managed care, not

the fee-for-service delivery system. We

plan to develop an NPRM to revise the

State fair hearing regulations as they

pertain to fee-for-service and managed

care. When this NPRM is published, the

public will be invited to comment on

these proposed rules. In this final rule

with comment period we revise the

State fair hearing regulation only to

provide an expedited timeframe for

resolution of appeals involving MCO or

PHP denials of services in situations

that require expedited resolution. This

matter was put before the public in our

proposed rule.

Comment: Several commenters

recommended that HCFA establish more

specific standards for the State fair

hearing processes, including specific

standards regarding the qualifications of

hearings officers. Commenters were

concerned with State use of hearing

officers who lack adequate

understanding of clinical issues when a

hearing involves a denial based on lack

of medical necessity.

Response: We have not addressed this

concern in this final rule, comment

period. As with judicial review, the

presiding officer is usually not

medically trained. It is the

responsibility of both parties to explain

the matter in a way that can be

understood by the adjudicator. Parties

may retain experts to present technical

issues. In addition, as provided in

section 431.420, provides that if the

hearing officer finds it necessary, they

may order an independent medical

assessment to be performed at State

expense.

Comment: Several commenters

recommended that we require States to

consult with beneficiaries, advocates,

and the State MCAC when developing

State grievance requirements.

Response: In § 438.202(c) we require

that States provide for the input of

beneficiaries and stakeholders in the

development of their quality strategies.

Grievance and appeal procedures must

be addressed as part of State quality

strategies. This provides an opportunity

for beneficiary and stakeholder input.

We are not specifying the mechanisms

States must use to receive input.

Therefore, States may, but are not

required to, consult with their MCAC on

grievance requirements.

Comment: Several commenters

supported the requirement in proposed

§ 438.402(b)(3) that the MCO and PHP

grievance process must be approved by

the MCO’s or PHP’s governing body.

Other commenters were concerned that

requiring the governing body to approve

and be responsible for the operation of

the process was unnecessary and

inefficient. They believed that the State

should determine whether MCOs and

PHPs have appropriate staff to handle

the grievance process.

Response: Our intent is to ensure the

involvement of individuals with

authority to direct corrective action

should systemic changes be required.

The regulations at § 434.32, that this

regulation replaces, required that the

MCO ensure the participation of

individuals with authority to require

corrective action. We retain this

requirement in this final rule with

comment period. The actual processing

of grievances and appeals can be

delegated to a grievance committee of

less senior employees.

Comment: Several commenters

thought that the 90-day period for filing

appeals following the notice of action

was burdensome to MCOs and PHPs,

because MCOs and PHPs need more

timely filing by enrollees in order to

assess their potential payment

liabilities. Another commenter noted

that § 431.221 of the current regulation,

that is cited in proposed

§ 438.402(c)(1)(ii) provides that the State

must allow for a reasonable time, not to

exceed 90 days for beneficiaries to file

an appeal. One commenter implied that

the proposed rule states that the State

must allow a minimum of 90 days for

filing of appeals is inconsistent with the

current regulation and that application

of the proposed rule would result in

different standards for managed care

and fee-for-service appeals.

Response: Our intent in the NPRM

was to mirror the filing timeframes for

the State fair hearing, that is, a

reasonable amount of time up to 90

days. This is reflected in the

parenthetical in proposed

§ 438.402(c)(1)(ii) stating ‘‘as provided

under the fair hearing process at

proposed § 431.221.’’ Our reference to

90 days was incorrect because it did not

reflect the fact that the regulation we

intended to incorporate provided for

‘‘up to’’ 90 days. We therefore have

revised this final rule with comment

period to mirror § 431.221. In addition,

we have incorporated in the regulation

the longstanding policy at § 2901.3 of

the Medicaid Manual that beneficiaries

be given a minimum of 20 days to file

an appeal. We believe that this policy

more specifically defines the

requirement in the current regulation

that beneficiaries be given ‘‘a reasonable

amount of time’’ to file an appeal. We

believe that placing this requirement in

this final rule with comment period will

increase public awareness of this

standard.

In the notice of action, MCOs and

PHPs must include information on the

deadline for filing an appeal. Further, in

States that do not require that enrollees

appeal first through the MCO or PHP

grievance system, the notice of action

must also state that the enrollee may

appeal directly to the State for a fair

hearing.

Comment: We received several

comments concerning the manner in

6340 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

which grievances and appeals may be

filed.

One commenter recommended that an

enrollee be permitted to submit a

grievance or appeal either orally or in

writing. If the decision is made to

require that grievances and appeals be

submitted in writing, the commenter

urged that MCOs and PHPs be required

to provide assistance in the process. The

commenter believed that requiring

Medicaid enrollees to submit grievances

and appeals in writing may deprive

some beneficiaries of their rights if they

are not proficient in English, have little

formal education or a low level of

literacy, or have disabilities that prevent

or make writing difficult.

Another commenter suggested that

staff designated to receive and resolve

grievances or appeals (proposed

§ 438.406(a)) be charged with reducing

to writing any oral request for official

review or remedial action. The

commenter felt that the regulations

should require MCOs and PHPs to

record oral grievance and appeal

requests.

One commenter suggested that we

clarify whether the enrollee or the MCO

or the PHP must put in writing the

request for expedited resolution.

Another commenter noted that the

requirement for written confirmation of

an oral request for expedited resolution

can be a barrier to an enrollee who has

severe and persistent mental illness, and

who is in a period of cognitive deficit.

This commenter recommended that an

oral request should be allowed to suffice

in this circumstance.

One commenter stated that we should

delete all reference to oral requests

because information received orally may

be misconstrued. Another commenter

stated that the regulation should include

language requiring MCOs and PHPs to

record oral grievances.

Response: For standard appeals, as is

the case for State fair hearing requests,

in this final rule with comment period,

we are providing in § 438.402(c)(2) that

enrollees may start the appeal clock

with an oral request but must follow it

with a written request. A written appeal

best documents the issue being

appealed. This requirement cannot be

used to limit enrollees’ rights. MCOs

and PHPs are required in § 438.406(a)(3)

to provide reasonable assistance to

enrollees who file grievances or appeals,

including assistance with the

completion of forms. Our requirement

should not preclude Medicaid enrollees

with legitimate claims from pursuing

those claims because of language or

physical barriers. In expedited

situations, this final rule with comment

period provides that the enrollee is not

required to place the appeal in writing.

In § 438.410(c)(3) we require that MCOs

and PHPs record all expedited oral

appeals in writing.

Comment: Some commenters

interpreted the NPRM to require that all

denials of service authorization be

automatically transferred to the MCO

and PHP grievance system for

processing as an appeal. They believed

that a requirement would be too

burdensome.

Response: We did not intend that all

service authorization denials

automatically become appeals. Proposed

§ 438.402(c)(1)(i) provides for the

‘‘enrollee to appeal’’ to the MCO and to

the State. Even the expedited appeal

process under proposed § 438.410

provided in paragraph (a)(1) apply only

when ‘‘an enrollee makes the request’’.

In this final rule with comment period,

we continue to provide that the enrollee

must appeal service authorizations

denial.

Comment: We received many and

varied comments on proposed

§ 438.402(c)(4), that required MCOs and

PHPs to forward information to the State

on appeal decisions that were adverse to

the beneficiary (in whole or part).

Several commenters believed that the

regulation should not only require the

transfer of information to the State, but

that this should automatically start the

process for a State fair hearing.

Similarly, several commenters

thought that HCFA should provide that

a denial of a request for expedited

appeal be automatically appealed to the

State agency for a fair hearing. Several

commenters noted that the 90-day limit

for completion of the State fair hearing

would be difficult to meet unless the

State starts the fair hearing process upon

receipt of the information from the MCO

or PHP. Other commenters felt that this

requirement would create an

overwhelming amount of paperwork

and that States would prefer to receive

the information at the time a State fair

hearing is requested. Several

commenters thought that the 24-hour

turnaround timeframe for an MCO or

PHP to forward the paperwork for an

expedited hearing decision is too short

and unrealistic given holidays. Several

commenters believed that a complex

system would be costly and prone to

error. One commenter supported the

practice of one State that requires MCOs

to report only those grievances that are

unresolved after 30 days, noting that the

State reviews other grievances as part of

the annual MCO audit process. One

commenter thought that beneficiaries

should have to affirmatively request a

State fair hearing and that this is

sufficient to guarantee the appeal rights

of enrollees. One commenter noted that

the States are already able to get this

type of information through the audit

process.

Response: We have revised the

requirement for MCOs and PHPs to

automatically forward information to

the State on appeal decision adverse to

the beneficiary to require this only in

the case of decisions that are expedited.

For these cases, we believe that it is

necessary for the State to receive the file

and supporting documentation so that it

can begin the State fair hearing process

as soon as an appeal is filed. Because we

have included a requirement for States

to expedite the fair hearing process in

these cases and decide the appeal

within 72 hours of receiving the request,

it is essential that they not lose time by

needing to request the appeal file from

the MCO or PHP. Also, because of the

requirement for an expedited fair

hearing, we continue to require that the

file be forwarded within 24 hours.

For standard appeals, we have

removed the requirement that the file be

forwarded automatically. We are

persuaded by the comment that this

requirement would be burdensome on

MCOs, PHPs, and States, and is not

necessary to protect beneficiaries. In

this final rule with comment period, we

require MCOs and PHPs to forward

within 72 hours files requested by the

State. States will request these files

upon receipt of a request for a fair

hearing or for a standard appeal.

Comment: Several commenters

expressed the view that in proposed

§ 438.402(c), HCFA has taken an

important step by recognizing the need

for uniform timeframes across managed

care programs, and that setting

timeframes recognizes the need for

MCOs and PHPs to conclude their

reviews promptly. However, these

commenters recommended that the final

rule with comment period should

explicitly provide that MCOs and PHPs

must resolve appeals within a timeframe

that would allow the State agency to

proceed with a State fair hearing, if

applicable, and ensure a final decision

within 90 days of the initial appeal. The

commenter believes that this is needed

so that beneficiaries, States, and MCOs

and PHPs will clearly understand that

the timeframe for final administrative

action is not affected by the appeal

process at the MCO and PHP level. One

commenter expressed the opposite view

and requested that the regulations

clarify that the time allowed for State

fair hearing decisions under 42 CFR

431.244(f) does not begin until a

Medicaid beneficiary requests a State

fair hearing following the conclusion of

the MCO and PHP appeal process. This

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6341

commenter expressed the opinion that if

both the MCO and PHP appeal process

and the State fair hearing process are to

have sufficient time to meet all the

requirements imposed on each of them,

then both should not have to be

completed in the time allowed for one.

Response: We believe that it is

important to maintain a total maximum

time period for appeals to be resolved at

the MCO and PHP level and by the State

at the fair hearing level. However, we

recognized that the 90-day timeframe for

the completion of both reviews

discussed in the preamble of the

proposed rule is not workable because

the time allowed the MCO or PHP to

complete action (30 days with a possible

14 day extension), together with the

time allowed by the State for a

beneficiary to file a fair hearing request

(up to 90 days), may exceed 90 days.

Therefore, in this final rule with

comment period, we have retained a

total of 90 days for consideration of an

appeal, but we are providing that this

period be interrupted between the time

the MCO issues its notice of decision

and the beneficiary files for a State fair

hearing. We provide that the State has

90 days to complete the State fair

hearing process minus the number of

days taken by the MCO or PHP to

resolve the initial appeal. In addition, in

order to ensure that MCO and PHP

review does not unduly delay the

appeal process, we have provided that

if an MCO or PHP does not complete its

review within the required timeframes

that this becomes an adverse action.

Comment: Several commenters agreed

with our statement that the MCO and

PHP grievance process is not a

substitute for the State fair hearing

process.

Response: We agree with the

commenter that it is critical that all

beneficiaries, including those enrolled

in MCOs or PHPs, have access to the

State fair hearing process rights

provided for under section 1902(a)(3) of

the Act.

Comment: Several commenters

wanted specific mention of members’

right to a second opinion, and would

like that right mentioned in adverse

action notices. The commenters

believed that members should have a

right to out-of-plan, unbiased second

opinions.

Response: In response to this and

other comments, we explicitly provide

in § 438.206(d)(3) of this final rule with

comment period for the right to a

second opinion in the network, or

outside the network if an appropriate

provider is not available within the

network, and this right is referenced in

§ 438.100(b)(3). We do not provide the

right to a second opinion out of network

if there is another provider within the

network qualified to provide a second

opinion. We believe that this is

consistent with the concept of holding

the MCO or PHP accountable for

services to their enrollees. This final

rule with comment period provides that

enrolles must be informed of the right

to a second opinion as part of

enrollment information and we

therefore, do not believe it is necessary

to require that it be included in the

notice of action.

Comment: Several commenters

supported allowing the State to choose

whether to require that enrollees

exhaust MCO and PHP grievance

procedures prior to appealing to the

State for a fair hearing. Other

commenters believed that the

regulations should not permit States to

require the exhaustion of the internal

MCO and PHP grievance process prior

to permitting access to the State fair

hearing process. These commenters felt

that requiring the exhaustion of an

MCO’s and PHP’s internal grievance

process would inevitably lead to delays,

confusion about timing, and a denial to

the right to a timely State fair hearing.

Commenters also believed that the

internal MCO and PHP process was not

impartial because the MCO or PHP has

a financial interest in the outcome.

Finally, one commenter argued that

forcing individuals with disabilities to

navigate the administrative procedures

of the grievance process would be

inconsistent with the provisions of the

Americans with Disabilities Act (ADA),

because in this commenter’s view, the

ADA prohibits requiring qualified

individuals with disabilities to complete

administrative processes that cannot be

directly linked to the provision of the

services offered.

Response: We continue to believe that

a State should be permitted to require

Medicaid managed care enrollees to

exhaust MCO and PHP appeal remedies

prior to accessing the State fair hearing

process. This not only gives the MCO or

PHP an opportunity to reconsider its

decision, if the decision is reversed, it

reduces the burden on the fair hearing

system. We do not understand the

commenter’s contention that requiring

exhaustion in the case of people who

have disabilities necessarily would

violate the ADA. While we would agree

that exhaustion would not be required

in the case of a claim under the ADA

itself, the exhaustion requirement at

issue here involves an appeal of an

‘‘action’’ (for example, a denial of

payment or coverage). It is true that the

ADA requires that reasonable

accommodations be made for people

who have disabilities in the conduct of

the MCO or PHP level grievance

process, and the extent of an obligation

is based on the facts and circumstances

of the individual case. It is not clear,

however, why it would be any more of

a burden for an individual who has a

disability to file an appeal with their

MCO or PHP than it would be to file a

request for a State fair hearing. If

anything, it might be easier, because the

enrollee would have an existing

relationship with the MCO or PHP.

MCOs and PHPs should be aware of

their obligations under the ADA to

accommodate people who have

disabilities in the grievance process. We

do not believe that requiring enrollees

who have disabilities to use the same

process as other enrollees violates the

ADA.

Comment: One commenter questioned

HCFA’s statutory authority for the

requirement that the State fair hearing

process be available to review MCO and

PHP determinations. This commenter

noted that the BBA does not mention

the State fair hearing process and infers

that the Congress intended that the

MCO and PHP appeal process alone

address enrollee appeals. Another

commenter believed that open access to

State fair hearings essentially would

negate the grievance procedures within

an MCO or PHP.

Several commenters applauded HCFA

for providing detailed guidance to

MCOs and PHPs on establishing

grievance processes. One commenter

felt that there also is currently little, if

any, link between the MCO and PHP

appeal process and the State fair hearing

process. Beneficiaries are informed of

both options, but are not advised as to

whether they must exercise these

options in a particular order or whether

one ‘‘trumps’’ the other. One commenter

believed that allowing the State to

choose to provide a fair hearing only

after running the course of the MCO’s

and PHP’s grievance system could be

the equivalent of denying a fair hearing,

which is a beneficiary right. This

commenter stated that better

mechanisms to coordinate simultaneous

participation in both the MCO and PHP

and State systems should be devised.

Response: As discussed above, the

requirements in subpart F are based

only in part on the internal grievance

requirements in section 1932(b)(4) of the

Act. To the extent these regulations

apply to the MCO internal grievance

process, they are grounded on section

1932(b)(4) of the Act. To the extent

these regulations involve the State fair

hearing process, however, including the

requirement that MCO and PHP internal

grievance processes interface with the

6342 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

State fair hearing process, they are based

on the fair hearing requirements in

section 1902(a)(3) of the Act. The State

fair hearing process guarantees all

Medicaid beneficiaries an independent

hearing. At the time the original fair

hearings regulations were promulgated,

beneficiaries were not enrolled in

managed care arrangements as they are

today. Even if the BBA had never been

enacted, there would have been a need

to promulgate regulations applying the

fair hearing rights that all beneficiaries

have in the managed care context. We

took the opportunity to do so in the

proposed rule implementing the

grievance requirements in section

1932(b)(4) of the Act. We believe that

these regulations are clearly authorized.

With respect to the commenter’s

argument that allowing States to require

exhaustion could be ‘‘the equivalent’’ of

denying a fair hearing, which is a

beneficiary right, this is clearly not the

case. As noted above, in cases that

exhaustion is required, if the MCO or

PHP does not favorably resolve the case

by the timeframe provided, the case is

automatically forwarded to the State for

a fair hearing, and a decision must be

made within the same 90-day timeframe

that would apply if the fair hearing was

requested directly. States should work

with MCOs, PHPs, and enrollees to

ensure that enrollees understand the

linkage between the MCO and PHP

grievance processes and the State fair

hearing process.

Comment: Several commenters

thought that the proposed regulations

should preserve beneficiaries’ State fair

hearing rights, not expand them to

include appeals from unresolved

complaints, that these commenters saw

as a burden on State fair hearing

systems. They requested that proposed

§ 438.402(d) be amended to restrict the

right to a State fair hearing to enrollees

appealing MCO and PHP decisions

denying, reducing, or terminating

medical care for an enrollee. Other

commenters requested that HCFA

confirm that the State fair hearing

process applies only to issues that

involve claims for services or denials of

coverage. These commenters noted that

current regulations at § 431.200 provide

that the hearing right arises when the

‘‘Medicaid agency takes action to

suspend, terminate, or reduce services.’’

In the commenter’s view, quality or

access grievances that do not also

involve the denial of services should not

be appealed through the State fair

hearing process and should be pursued

through the MCO’s and PHP’s internal

grievance process or with the External

Quality Review Organization with

which the State contracts. These

commenters also stated that medical

treatment decisions made by providers

should not be subject to the State fair

hearing process.

Response: We agree that the scope of

issues subject to the State fair hearing

process should not be as broadly

defined as in the NPRM. This final rule

with comment period specifies that

actions, as defined in the regulation, are

subject to appeal at the MCO or PHP,

and to the State for a fair hearing. This

includes a denial of a service, a

limitation on receipt of a service, or the

reduction, suspension, or termination of

a service. We recognize that a provider

may deny a requested service for a

variety of reasons, including that the

provider does not believe the service is

medically appropriate for the enrollee.

However, because of the financial

arrangement that provides a capitated

payment to an MCO or PHP for services

provided to an enrollee, we believe that

the enrollee needs to have recourse

through an appeal if a requested service

is not provided.

Comment: One commenter contended

that the option for the State to require

exhaustion at the MCO and PHP level or

allow for direct appeal to a State fair

hearing could be interpreted to allow an

enrollee to file an appeal after the

conclusion of the 90-day timeframe for

filing.

Response: As discussed above, this

final rule with comment period clearly

provides that the enrollee has a

reasonable time period specified by the

State, not less than 20 days and not to

exceed 90 days, to file an appeal with

the MCO or PHP, or with the State

following an unsuccessful appeal to the

MCO or PHP, or initially with the State

if the State does not provide for

exhaustion. If an enrollee does not file

an appeal with the MCO, PHP or State,

the enrollee would have waived their

right to an appeal.

Comment: Several commenters asked

for clarification on how MedicareMedicaid dual eligible enrollees would

access the Medicare and Medicaid

external hearing processes.

Response: As in the fee-for-service

system, dually eligible MedicareMedicaid beneficiaries have the appeal

rights provided for under both

programs, to the extent the particular

program has paid for the service in

question. If a dually-eligible enrollee is

enrolled in a Medicare+Choice plan,

then the Medicare+Choice appeals

process would apply to benefits covered

under that program, including otherwise

non-Medicare benefits covered under

the Medicare+Choice plan. When a

dually eligible beneficiary is enrolled in

a Medicaid MCO or PHP, and is denied

a service covered by Medicare, the

beneficiary similarly has Medicare

appeal rights, as well as Medicaid rights

to the extent that Medicare applies a

different standard from Medicaid. In the

case of an MCO or PHP denial of a

Medicaid service not covered by

Medicare, the appeal rights in subpart F

apply. In all cases, the notice of action

will inform the beneficiary of how to

file an appeal.

Comment: Commenters requested that

HCFA amend the language in the

regulation to say that the MCO and PHP

must ‘‘have,’’ rather than ‘‘provide for,’’

a link to the State fair hearing process.

Response: In this final rule with

comment period at § 438.402(a) we

define ‘‘grievance system’’ as including

the MCO and PHP grievance and appeal

processes, and access to the State’s fair

hearing system. We believe this change

clearly establishes the link from the

MCO and PHP processes to the State fair

hearing process.

Comment: Several commenters asked

that HCFA require States to allow

providers the right to challenge MCO

and PHP decisions on behalf of

enrollees.

Response: Section 1932(b)(4) of the

Act expressly requires that MCOs have

a grievance procedure in place under

that an enrollee ‘‘or a provider on behalf

of an enrollee’’ can ‘‘challenge the

denial of coverage or payment’’ by an

MCO. We agree with the commenters

that States are required to allow

providers the right to do so, on behalf

of an enrollee. In response to this

comment, we have added at

§ 438.402(c)(1) a provision to permit the

provider to file a grievance or appeal or

request a State fair hearing on behalf of

an enrollee with the enrollee’s written

consent. This condition that the enrollee

provide written consent for the provider

to act on their behalf reflects policy

communicated in a letter to the State

Medicaid Directors dated February 20,

1998 that stated, the enrollees’ consent

is needed if a provider submits an

appeal on their behalf. We note that

enrollees may be financially liable for

the costs of services when provided as

a continued benefit during appeal.

Therefore, it is important that enrollees

understand the possible implications of

an appeal and consent to the appeal.

Comment: Commentators urged that

HCFA require States to establish a

system for administrative appeals that

providers could appeal adverse network

selections, payments, or other

administrative actions that directly

affect providers but that only indirectly

affect beneficiaries.

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6343

Response: The Congress spoke to

issues involving MCO relationships

with subcontracting providers in

provisions: (1) regulating physician

incentive arrangements in section

1903(m)(2)(A)(x) of the Act, (2)

prohibiting discrimination based on

licensure in section 1932(b)(7) of the

Act, prohibiting restrictions of providerenrollee communications in section

1932(b)(3) of the Act, and in section

1932(b)(4) of the Act providing for a

provider to file a grievance on behalf of

an enrollee. We believe that if the

Congress had intended that providers

have specific appeal rights under

Federal law, these would have been

provided for in section 1903(m) or

section 1932 of the Act. We believe that

this is best left for providers and MCOs

or PHPs to negotiate. However, this

regulation does not prohibit a State from

granting providers the right to challenge

MCO and PHP decisions affecting them.

Comment: One commenter suggested

that if a decision to deny an item or

service is reversed, the MCO or PHP

should be required to review all

similarly situated beneficiaries and

make the item or service available to

them as well, regardless of whether the

beneficiaries have filed appeals.

Response: We believe that decisions

on appeals are so fact-specific that it

would not be practical to apply an

across the board rule. However, where

a State requires MCOs and PHPs to

extend the benefit of a hearing decision

or court order to individuals in the same

situation as those directly affected by

the decision or order. Under

§ 431.250(d), FFP may be claimed for

such expenditures.

3. Notice of Intended Action (Proposed

§ 438.404)

Under proposed § 438.404, MCOs and

PHPs were required to provide enrollees

timely written notice of a decision to

deny, limit, reduce, delay or terminate

a service, within timeframes specified in

§ 438.310, and in the notice explain the

action the MCO or PHP intends to take,

the reasons for the action, any laws and

rules that support the action, the

enrollee’s right to file a grievance with

the MCO or PHP, the enrollee’s right to

request a State fair hearing, the

circumstances under which expedited

grievance review is available and how to

request it, how to file grievances (called

complaints in proposed § 438.404),

appeals (called grievances in proposed

§ 438.404), and State fair hearing

requests; that if an appeal is filed, the

enrollee has a right to appear in person

before the MCO or PHP personnel

assigned to resolve the appeal; the

circumstances under which benefits

will continue pending resolution, how

to contact the designated office

described in § 438.406(a), and how to

obtain copies of enrollee’s complete

records.

Comment: We received many

comments regarding notice to enrollees.

Several commenters believed that a

strict application of this principle

would be burdensome, especially if

applied to the following: (1)

Prescription drugs; (2) decisions of

primary care physicians (PCPs) made

without involvement of the MCO or

PHP utilization control unit; (3) MCO

and PHP decisions to authorize a

limited number of visits; and (4) denials

of payment to a specialist when the visit

was without a referral by a PCP. One

commenter pointed out that denials are

typically the result of provider

administrative issues involving coding

practices, contractual fee schedules, and

timely filing. The commenter

recommended that the regulation not

require that notice be sent to members

as a result of provider administrative

issues.

One commenter found this provision

fairly consistent with current Medicaid

fee-for-service requirements, except for

the requirement to give notice of a

‘‘delay of service.’’ This commenter

expressed concern that a notice would

be required when a utilization

management representative asks for

additional information or tests prior to

approving a service, as this would

confuse the member and create an

administrative burden for the MCO or

PHP. Several commenters strongly

agreed that notice should be provided in

all instances when an enrollee’s

authorization is denied or limited or a

service already provided to the enrollee

is reduced, terminated, suspended, or

delayed.

Several commenters wanted the

definition of grievance in the proposed

rule (containing grounds for a grievance

now included in the definition of

‘‘action’’ in this final rule with comment

period) to be expanded to include a

determination by the MCO or PHP to

deny a service because the MCO or PHP

believes that the service is not included

in its contract. Similarly, the

commenters wanted a State’s denial of

a service included if the State’s reason

for denial is because the service is to be

provided by the MCO or PHP.

Response: In this final rule with

comment period, we define ‘‘action,’’

and specify that notice must be sent to

enrollees any time an action occurs. We

believe that it is an essential enrollee

protection that they be sent a notice of

all actions, including those that the

commenter believes to be burdensome

to the MCO and PCP. We define

‘‘action’’ as a denial or limitation of a

service authorization request; a

reduction, suspension, or termination of

a service previously authorized; a denial

of payment for a service by an MCO,

PHP, or its providers; the failure to

furnish, arrange, or provide for payment

in a timely manner; or a decision by the

State not to grant an enrollee’s request

to disenroll from the MCO or PHP. In

addition, an action includes, for

residents of rural areas with only one

MCO or PHP, the denial of an enrollee’s

request to go out of plan. Actions may

be taken by the MCO, PHP, or its

providers.

The terms ‘‘deny or limit’’ apply

when the service requested by the

enrollee or provider on behalf of the

enrollee is not yet authorized or referred

by either the MCO’s or PHP’s primary

care physician, or otherwise authorized

by the MCO or PHP in whole or in part.

Under this final rule with comment

period, a notice of service denial must

be sent to the enrollee even if the MCO

or PHP believes that its contract does

not require that it provide the service.

Without this requirement, the enrollee

would have no recourse if the MCO or

PHP denied the service in error. In this

final rule with comment period, we

have deleted the reference to a ‘‘delay’’

in service. We provide in § 438.210 that

requested services must be approved or

denied within 14 days. A request not

acted on within this timeframe is

considered a denial and a notice of

denial must be sent to the enrollee.

Extensions to the 14-day time period to

act on a service authorization can be

requested by the enrollee or by the MCO

or PHP when taking additional time is

in the best interest of the enrollee. The

terms ‘‘reduction, suspension, or

termination of services or denial of

payment’’ are the same as the traditional

fee-for-service definitions of those

terms, that is, when a service has been

authorized or is being provided and the

MCO, PHP, or its provider reduces the

number or frequency of the service,

stops providing the service prior to the

end of the time that was originally

authorized, stops providing the service

for a period of time, or refuses to pay for

a covered or authorized service. The

final two criteria in the definition of an

action give managed care enrollees a

remedy when the State denies a request

for disenrollment or the State, MCO or

PHP denies the request of an enrollee

who is enrolled in a single rural MCO

or PHP to go out-of-plan.

Comment: Some commenters

contended that MCOs and PHPs do not

always know when their providers deny

6344 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

services, making it difficult for them to

comply with the notice requirements.

Response: MCOs and PHPs must have

a system in place to identify these

situations, and to ensure that notice is

provided. In this final rule with

comment period, we allow providers of

MCOs and PHPs to provide only general

information in the notices they give to

enrolles. When this option is chosen,

the MCO or PHP must send the enrollee

another notice that provides information

specific to the enrollee’s situation. (See

§ 438.404(d)(2)). To meet this

requirement, MCOs and PHPs will need

to have systems in place to find out

from their providers when an enrollee

has been denied a service or had a

service reduced, suspended, or

terminated.

Comment: Several commenters

believed that Medicaid beneficiaries do

not file grievances and appeals very

often because of the complex

requirements imposed by States, MCOs

and PHPs. These commenters further

stated that a system established to

facilitate resolution of grievances or

appeals should ensure that beneficiaries

are encouraged to voice their

dissatisfaction without fear of reprisal or

consequences of any kind.

Response: To ensure beneficiary

rights to appeal, in response to this

comment, in this final rule with

comment period at § 438.404(b), we

specify what must be included in the

notice of action. This includes

information about the right to appeal,

how to file an appeal, how to obtain

assistance with filing, and that filing an

appeal will not negatively affect the way

enrollees are treated by MCOs, PHPs,

their providers, or the State.

Comment: Several commenters were

concerned that enrollees’ rights to

notice may be violated if HCFA did not

prohibit States from delegating

responsibility for State fair hearing

notices to MCOs and PHPs. They

believed that until States, MCOs, and

PHPs can better ensure timeliness in

processing appeals as well as full

constitutional protections, there should

be no delegation of the State’s

responsibility for providing a due

process notice to beneficiaries.

Response: We have not accepted this

recommendation because we believe

that States may find MCO or PHP

issuance of State fair hearing notices the

most efficient and timely way to get the

information about State fair hearing

rights to enrollees when an action is

taken by the MCO or PHP.

Comment: Several commenters

requested that § 438.404 be amended to

specifically address situations in which

an MCO or PHP intends to deny, limit,

reduce, delay, or terminate a service, or

deny payment for a service in whole or

in part.

Response: The current appeal notice

requirements require a notice any time

there is an ‘‘action’’, that can include

the reduction of services for a Medicaideligible individual. Similarly, the notice

requirements in this regulation apply

when MCOs or PHPs intend to deny,

limit, reduce, suspend, or terminate a

service, or deny payment for a service

in whole or in part. The terms ‘‘reduce’’

and ‘‘limit’’ were included in the notice

requirements to cover instances in

which already authorized services or

requested services, respectively, were

decreased or diminished in part.

Comment: Several commenters noted

that they do not believe that the

expiration of an approved number of

visits should be considered a

termination. They noted that the

enrollee is free to request that the

service be continued, but that this

request should be treated as a new

request for a service. Other commenters

expressed the opposite view, and noted

that they believe that re-authorization of

a service at a lower level than

previously received, or a denial of reauthorization is a termination or

reduction of the service and should

require notice and the continuation of

benefits pending appeal. Several

commenters requested that the

regulation clarify how continuation of

benefits applies to prescription

medications.

Response: We believe that the

expiration of an approved number of

visits does not constitute a termination

for purposes of notice and continuation

of benefits. When a prescription

(including refills) runs out and the

enrollee requests another prescription,

this is a new request not a termination

of benefits. In these circumstances, the

MCO or PHP would not need to send a

notice or continue benefits pending the

outcome of an appeal or State fair

hearing. If the enrollee requests a reauthorization that the MCO or PHP

denies, the MCO or PHP must treat this

request as a new request for service

authorization and provide notice of the

denial or limitation. However, in this

situation, if the enrollee appeals the

action, benefits would not be continued.

Comment: Several commenters

pointed out that HCFA exclusively

relies on a written notice to meet the

enrollees’ needs. They found this policy

insufficient, given language, literacy,

and disability barriers. Other

commenters noted that some States

require MCOs and PHPs to send notices

by certified mail, and believed that this

was very costly, and often unsuccessful

in reaching enrollees.

Response: We recognize that

Medicaid beneficiaries often face

language, literacy, and disability

barriers. To address this issue, we have

applied the information requirements

found at § 438.10, including the

language requirements in § 438.410(b) to

the notice requirements. We also require

that MCOs and PHPs mail notices to an

authorized representative designated by

the enrollee. We are not requiring States

to provide notice in formats other than

in writing, except in the case of notices

about expedited hearings, that must be

provided orally due to time

considerations. In this final rule with

comment period, we do not prohibit

States from setting additional

requirements for MCOs and PHPs

concerning notices.

Comment: One commenter believed

that HCFA has underestimated the true

burden associated with MCO and PHP

notices.

Response: We address this issue

under the Collection of Information

Requirements section of this preamble.

Comment: One commenter requested

that we adopt the notice timeframes in

part 431, subpart E for the situations

covered by those sections, and allow

States to set other notice timeframes.

Several commenters disagreed with the

use of a 10-day notice period prior to

the date of action. They found that

period to be too long because the

medical condition of the enrollee may

require quicker action. They also

suggested that HCFA disregarded the

exceptions to the 10-day rule set forth

in § 431.213(h). That regulation allows

for notice to be sent on the date of the

action when a change in the level of

medical care is prescribed by the

beneficiary’s physician. This exception

should be interpreted to give MCO’s and

PHP’s the flexibility to give notices, in

specified cases, immediately prior to the

action being taken.

Response: This final rule with

comment period does not change the

current regulation at § 431.213 and is

consistent. Under § 438.404(c)(1) of this

final rule with comment period,

timeframes for notices for the reduction,

suspension, or termination of previously

authorized services are governed by the

State fair hearing regulations found in

42 CFR 431 subpart E. While some

MCOs and PHPs may find the advance

notice requirement inappropriate, there

are exceptions to advance notice, that

allow notice to be given on the date of

the action (see § 431.213). These

exceptions would cover situations that a

provider believes an immediate change

in care is appropriate for the health

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6345

condition of the enrollee, for example,

the reduction in dosage of a prescription

drug.

Comment: We received several

comments regarding the elements of a

notice. Several commenters suggested

that the written notice requirements of

proposed § 434.404 be modified to

mirror the existing State fair hearing

regulations. Other commenters pointed

out that HCFA is requiring a great deal

of information in the notices required

under proposed § 434.404. They

suggested deleting some of the

requirements. One commenter believed

that information on continuation of

benefits should be provided if a service

is terminated or reduced. Commenters

requested that information be provided

in the notice about how to contact the

MCO or PHP to receive help in filing an

appeal. One commenter requested that

the rule require MCOs and PHPs to

notify the enrollee of their right to

expedited review.

Several commenters wanted the

content and time line requirements

clarified in the notice and a full

explanation to be provided of the laws

and rules that support the action, rather

than a citation to a particular statute or

regulation. These commenters requested

clarification that the enrollee has a right

to obtain other relevant information

germane to the resolution of the

enrollee’s issue. These commenters

further requested a clarification that

notices must specify the reasons or

criteria used in determining that the

request was not medically necessary.

Response: We agree that notices given

by MCOs and PHPs should, at a

minimum, contain the information

required by the State fair hearing

notices. We have provided for this in

this final rule with comment period.

However, we have retained the

requirements specified in the NPRM

concerning the content of the notice,

including information about the

circumstances under which an enrollee

may receive expedited review, and the

reason for the action. We believe that

requiring the inclusion of the reason for

the action will provide the enrollee with

information to understand why it

occurred, and help the enrollee to

decide whether to appeal. We made one

change to the NPRM requirements to

remove the requirement that the notice

specify that the enrollee may appear

before the person assigned by the MCO

or PHP to resolve the appeal, as we have

deleted this requirement for MCOs and

PHPs in this final rule with comment

period.

In response to the commenter who

favored inclusion of information in the

notice about continuation of benefits

when benefits are being terminated or

reduced, we have added a requirement

that the notice state that an enrollee may

be held liable for payment for services

if the enrollee requests continuation of

benefits during appeal. This provides

the enrollees with a more complete

picture of what the continuation of

benefits provision means to them. We

also agree with the commenter favoring

a requirement that the notice contain

information on how to obtain assistance

from the MCO or PHP in filing an

appeal, and have provided for this in

§ 438.404(b)(8) of this final rule with

comment period.

Comment: Several commenters

believed that we should require MCOs

and PHPs to provide enrollees with

copies of their records within 24 hours

of the request and, if the member (or

authorized representative) is unable to

pick up the copies, that they be mailed

the next business day.

Response: In § 438.224 we provide

that MCOs and PHPs must ensure that

enrollees may request and receive a

copy of their medical records and

information. MCOs and PHPs should

allow members to obtain copies of their

medical records in a timely manner to

allow the enrollee to submit information

in support of their appeal. However, we

have not accepted the commenter’s

suggested deadline, as we believe that

this would be impractical and create too

great a burden for MCOs and PHPs. We

believe that States should have the

flexibility to decide whether to establish

deadlines in this area.

Comment: Several commenters

believed that the notice should explain

that the enrollee may be represented by

counsel or a legal representative during

the grievance process and include the

address and phone number for free legal

assistance. They noted that the right to

be represented by counsel is required

under the Goldberg v. Kelly ruling and

that this right is given to fee-for-service

Medicaid beneficiaries in the State fair

hearing process.

Other commenters believed that it is

sufficient to provide enrollees

information regarding free legal services

in a Medicaid brochure or other enrollee

notification materials. Another stated

that providing this information on a

routine basis would be burdensome and

that it may not be accurate because

assistance is not available in all areas.

Response: In response to these

comments at § 438.404(b)(1) of this final

rule with comment period, we provide

that the notice must inform the enrollee

of the right to represent themselves or

to use legal counsel, a relative, a friend,

or other spokesperson. We do not

believe it is necessary to require that the

notice itself include information about

free legal assistance, and we leave it to

States to decide how this information is

to be made available to beneficiaries.

Comment: Several commenters urged

us to require each State to develop a

uniform notice to be used by MCOs and

PHPs. They contended that requiring

use of a State-developed uniform notice

is a simple, common sense way to

assure consistency in the grievance and

State fair hearing process across MCOs

and PHPs, and would best protect the

constitutional rights of the beneficiary.

Response: We believe that due

process and notice requirements can be

observed without requiring each State to

develop a uniform notice for MCO and

PHP use. States are expected to review

MCO and PHP notices to ensure that all

required elements, including those

listed in § 431.200 et seq., are included.

Nothing in our regulations prohibits

States from developing a uniform notice

for use by their MCOs and PHPs if they

choose.

Comment: Several commenters

suggested that the notice should

explicitly inform the beneficiary that

filing an appeal or State fair hearing

request would not affect the way the

member is treated by the provider,

MCO, PHP, or the State.

Response: In response to this

comment, we have provided under

§ 438.404(b)(11) of this final rule with

comment period that the notice must

inform the enrollee that filing an appeal

or requesting a State fair hearing (where

an enrollee is permitted to do so

directly) will not negatively affect or

impact the way the MCO or the PHP and

their providers, or the State agency, treat

the enrollee.

Comment: Several commenters

believed that providing for an in-person

hearing before the MCO or PHP would

significantly increase the time and

expense involved, without substantially

improving the quality of the system.

They also questioned if this requirement

is realistic for appeals that are

expedited. Finally, commenters noted

that the appearance of disgruntled

enrollees before MCO and PHP

personnel may pose a security risk to

MCO and PHP staff.

Response: We agree that due process

does not require an in-person hearing at

the MCO and PHP. However, we believe

that enrollees should have an

opportunity to present evidence and

allegations of fact or law related to the

issue in dispute, in person as well as in

writing. In this final rule with comment

period (§ 438.406(b)(4)), we provide

enrollees the opportunity to present

their cases in person but do not require

a formal hearings process. We have also

6346 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

removed the requirement that the inperson presentation must be before the

decision maker for the MCO or PHP. We

do this because of the burden this

would place on MCOs and PHPs.

Appeals requiring expedited resolution,

MCOs and PHPs must notify enrollees

of the limited time available for them to

appear in person.

4. Handling of Complaints (Grievances)

(Proposed § 438.406)

Proposed § 438.406 set forth how

grievances or appeals (called complaints

and grievances in the proposed rule)

must be handled. The general

requirement for handling grievances and

appeals required MCOs and PHPs to

have an adequately staffed office,

acknowledge receipt of each grievance

and appeal, give enrollees any

assistance with completing forms or

taking other steps necessary to obtaining

resolution at the PHP level, and conduct

appeals using impartial individuals who

were not involved in any previous level

of review. Proposed § 438.406(d)

required that in the case of a denial

based on lack of medical necessity, the

individual must be a physician with

appropriate expertise in the field the

encompasses the enrollees condition.

Comment: One commenter advocated

deleting proposed § 438.406 altogether.

Other commenters believed that

requirements should be added to those

in § 438.406. Among the suggested

additions, one commenter wanted the

regulation to prohibit MCOs and PHPs

from using internal appeal timeframes

and procedures to avoid the medical

decision process, or to discourage or

prevent members from receiving

medically necessary care in a timely

manner. Another commenter asked that

we include a clear explanation of the

role of personnel provided by the MCO

or PHP to advocate for the enrollee,

provide customer service, or assist in

resolving grievances. Another suggested

that we require MCOs and PHPs to give

consumers written notice of a hearing

and a description of the hearing

procedures, at least fifteen days in

advance. One suggested that we require

MCOs and PHPs to hold internal

hearings at mutually convenient times.

Another said we should require MCOs

and PHPs to postpone hearings at the

request (for just cause) of the enrollee.

When enrollees have cause, one

commenter wanted us to provide that

enrollees need not appear at a hearing

and that the hearing be conducted in the

same manner regardless of the

consumer’s presence. Another asked

that we forbid all ex parte discussions.

One commenter wanted us to require

MCO and PHP staff to attempt,

whenever possible, to resolve grievances

informally pending a decision, but that

resolution should not permit the MCO

or PHP to consider the grievance

‘‘withdrawn’’ in order to evade State

review. Another asked that formal rules

of evidence not be used, but rather that

enrollees be allowed to submit written

information in support of their claims,

arrange for a physician or other expert

to testify on the enrollee’s behalf, and

compel the appearance of MCO or PHP

staff to answer questions concerning the

dispute. Commenters believed that if the

MCO or PHP has an attorney present at

the hearing, the role of the attorney

should be to ensure that a

fundamentally State fair hearing takes

place and all issues in dispute are

adequately addressed. The attorney

should not, in these commenters’ view,

be permitted to argue the MCO or PHP

position in the dispute. These

commenters believed that consumer

representatives should be trained and

certified by the State on a periodic basis,

that MCOs and PHP should be required

to document how they select the

consumer representatives on the

internal hearing committee, and that

this selection process should be

approved by the State on a yearly basis.

Response: The proposed rule did not

propose to require a formal hearing at

the MCO and PHP level. We believe that

commenters misconstrued the provision

in the proposed regulation concerning

the in-person appearance of the enrollee

to be a requirement for a formal hearing.

This was not our intent. The proposed

rule only addressed the presentation of

evidence by the enrollee in person to

the MCO or PHP. We do not believe a

hearing is necessary at the MCO and

PHP level and therefore, do not require

it in this final rule with comment

period. Because we did not propose a

hearing and are not providing for a

hearing before the MCO or PHP in this

final rule with comment period, we are

not addressing the comments relating to

the nature of a hearing. We believe that

the provisions remaining in this section

strike an appropriate balance between

proscribing sufficient provisions to

protect beneficiaries and retaining some

flexibility for MCOs and PHPs to design,

with State approval, the procedures for

their appeal processes.

Comment: One commenter was

concerned that proposed § 438.406(b)

did not specify a time period within that

the MCO or PHP must transmit its

acknowledgment of receipt of a

grievance or appeal. The commenter

believed that an enrollee who files a

grievance or appeal needs to know in a

timely manner whether the MCO or PHP

has received it. Consequently, the

commenter suggested that § 438.406(b)

indicate that the MCO or PHP must

acknowledge receipt within a specified

time period, perhaps 24 hours after

receiving a grievance or appeal. One

commenter believed that the regulation

was intended to require the MCO or

PHP to acknowledge receipt of

grievances or appeals in writing.

Response: We require MCOs and

PHPs to acknowledge the receipt of

grievances and appeals, but we do not

specify that the acknowledgments be in

writing, nor do we specify the

timeframes in which they must be

provided. We believe that requirements

would be burdensome for MCOs and

PHPs. States, at their option, may

consider adding these requirements.

Section 438.416(b) of this final rule

with comment period requires that

MCOs and PHPs track the date of

acknowledgment and report it to the

State as part of the annual disclosure

report under § 438.416(d). State

monitoring should include tracking this

activity.

Finally, if the appeal was oral and is

not expedited, the acknowledgment

must tell the enrollee that although the

timeframe for resolution has begun, the

appeal must be submitted in writing.

The MCO or PHP must assist the

enrollee with the written request, if

asked.

Comment: Several commenters

requested that HCFA modify the

language in proposed § 438.406(c) to

change the requirement that MCOs and

PHPs must provide enrollees ‘‘any

assistance’’ to ‘‘reasonable assistance’’

with the completion of forms or other

procedural steps in the grievance

process. These commenters were

concerned that the phrase ‘‘taking other

steps necessary to obtain resolution of

the grievance’’ may require the MCO or

PHP to pay for a second opinion on the

disputed service in order to ‘‘obtain

resolution.’’ Other commenters wanted

this provision clarified so that MCOs

and PHPs would not be required to pay

for attorney representation or other

unreasonable assistance.

Other commenters urged that the

following be required elements of MCO

and PHP assistance to beneficiaries

during the grievance process: (1) A tollfree number with adequate interpreter

capability including TTY; (2) outreach

to beneficiaries with limited English

proficiency, in accordance with Title VI

of the Civil Rights Act of 1964; (3) an

ombudsman program; and (4) a State

established consumer assistance

program to assist enrollees (especially

homeless persons) to navigate the

grievance process.

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6347

Response: In response to the above

comment, we have revised the language

to require MCOs and PHPs to provide

‘‘any reasonable assistance’’ for the

completion of forms or other procedural

steps in the grievance and appeal

process. Also in response to the above

comments, we have deleted the phrase

‘‘to obtain resolution of the complaint or

grievance at the MCO level,’’ as we do

not intend for this provision to require

MCOs and PHPs to do more than assist

enrollees during the grievance process.

In response to the above suggestions

to specify required elements of

assistance, in § 438.406(a)(3) of this final

rule with comment period, we require

MCOs and PHPs to make interpreter

services available to enrollees, as well

as, toll-free numbers that have adequate

TTY/TTD and interpreter capability. By

including these as examples of types of

assistance required to meet certain

needs, we do not intend that other

reasonable assistance need not be given.

We believe, for example, that MCOs and

PHPs are required by this provision to

provide reasonable assistance to meet

other needs of enrollees, and assisting

enrollees who have low-literacy

abilities.

In this section, we do not address

outreach to beneficiaries with limited

English proficiency, but we note that the

information requirements in § 438.10(b)

and (c), in the section on Notice of

Action (§ 438.404), and in the section on

Information about the Grievance System

(§ 438.414) require that information and

assistance be provided to these

enrollees.

The remaining comments relate to

State responsibilities. This section

addresses MCO and PHP requirements.

We have not revised § 438.404 to

address these points.

Comment: One commenter urged

HCFA to create an affirmative duty of

the provider to assist the enrollee in

registering an appeal.

Response: We do not agree that the

provider should be required to assist the

beneficiary in filing a grievance or an

appeal. We believe that this is

appropriately the responsibility of the

MCO and PHP, and we are requiring in

this regulation that they provide this

assistance. They are free, however, to

use their contracting providers to

provide this assistance on their behalf.

Comment: Several commenters

commended HCFA for specifying that

individuals making decisions on

appeals must not have been involved

previously in the claim, but requested

that § 438.406 omit the word

‘‘impartial’’ when referring to

individuals employed by a MCO or PHP

who serve as decision makers. These

commenters believed that MCO and

PHP employees involved in appeal

decisions can never be impartial.

Response: The requirement is that the

MCO and PHP decision makers not have

played a role in the original decision.

Therefore, the term ‘‘impartial’’ is

unnecessary and in response to this

comment, we have removed it in

§ 438.406(a)(7) of this final rule with

comment period.

Comment: Several commenters

requested that enrollees receive access

to hearings presided over by

independent panels of clinical peer

professionals. One commenter believed

that enrollees should be able to seek

review by an external panel and receive

a de novo determination if the decision

denies or limits a covered benefit,

denies payment of services deemed not

medically necessary or experimental,

involves services that exceed a

significant threshold, or puts the

patient’s life or health in jeopardy.

Response: The regulations provide for

external review through the State fair

hearing process that is available to all

beneficiaries as required under section

1902(a)(3) of the Act. These regulations

link the internal grievance procedures

required under section 1932(b)(4) of the

Act with the existing State fair hearing

process that implements section

1902(a)(3) of the Act. Under the State

fair hearing process, Medicaid

beneficiaries are guaranteed due process

through an independent hearing

meeting the standards set forth in the

Supreme Court’s Goldberg v. Kelly

decision. While the hearing officer is

not required to be a health professional,

we would expect medical evidence to be

presented by clinicians to support an

enrollee’s appeal.

While the State fair hearing provides

beneficiaries with an independent

review of their appeals and is a

beneficiary right that cannot be denied,

we are aware that some States have

established independent panels to

review MCO and PHP decisions

unfavorable to enrollees, and have made

these available to Medicaid managed

care enrollees. This regulation does not

prohibit use of this review process by

Medicaid enrollees. However, any

process cannot be substituted for the

grievance process and fair hearing

process that is required under this final

rule with comment period and the

regulations at 42 CFR part 431, subpart

E. If an enrollee chooses to appeal

through the grievance and State fair

hearing process, the decisions under

this process would be controlling over

any inconsistent determination made by

another State body.

Comment: We received several

comments concerning our decision,

stated in the preamble, not to require

the establishment of ombudsman

programs. One commenter suggested

that an enrollment broker may

effectively serve as an initial unbiased

contact for grievances and appeals and

assist beneficiaries through the

grievance process or refer them for

appropriate assistance from an

ombudsman or other outside source.

One commenter suggested that States

should establish centralized advocacy

and customer service programs available

to all citizens enrolled in MCOs (not just

Medicaid enrollees).

Several commenters requested that

ombudsman programs be established

and have sign language, interpreters,

and TTYs. The commenters stated that

the need for an external agency, as an

ombudsman program, is well proven

and should be required by the

regulation.

Commenters noted that the Medicaid

population includes individuals with

limited education, linguistic and

cultural barriers to care, and frequent

negative experiences in accessing

entitlements and challenging

bureaucratic institutions. They stated

that enrollees should have designated

points of contact to receive counseling

on grievances or appeals if managed

care is to be successful as a quality

health delivery system for the Medicaid

program.

Response: We encourage States to

establish consumer assistance programs

to assist enrollees in navigating the

grievance and appeal system. After

careful consideration, we have decided

not to include a requirement that MCOs,

PHPs, or State agencies establish

ombudsman programs to assist

beneficiaries. We believe that each State

agency should establish its own

approach to how enrollees obtain

assistance during the grievance process,

including the State fair hearing process.

We require that MCOs and PHPs assist

enrollees in completing forms and

taking other procedural steps. Other

assistance could be provided through a

more comprehensive ombudsman

program. We encourage States, MCOs,

and PHPs to work with the ombudsman

programs currently operating through

State Medicaid Agencies, Departments

on Aging, and Insurance

Commissioners. In many instances,

States may be able to expand existing

State ombudsman programs with few

additional resources. As noted in 42

CFR 431.250, FFP is available for

transportation costs and other expenses

of Medicaid enrollees during the

appeals process.

6348 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

Comment: One commenter pointed

out that the word ‘‘contracts’’ in the first

paragraph of the preamble to proposed

§ 438.406 should be ‘‘contacts’’.

Response: This commenter is correct.

However, because this language did not

appear in proposed regulations text, and

the preamble to this final rule with

comment period controls the meaning of

the final regulations, no action was

required in response to this comment.

Comment: Several commenters

suggested that all appeals be filed by

enrollees on a form developed by the

State. They further suggested that MCOs

and PHPs submit these to the State

Medicaid agency, and that the Medicaid

agency log in the appeals and return

them to the MCO and PHP within 72

hours.

Response: We do not agree with this

suggestion. We are not requiring use of

a State-developed form for filing

appeals, as this would require that

enrollees obtain these forms, possibly

delaying the process, and may be an

impediment to enrollees wishing to file

appeals. We note that States may wish

to develop forms to guide and assist

enrollees in filing appeals. However,

their use must be at the option of the

enrollee. As for filing appeals with the

State, we are aware that a similar

process is required by the State of

Tennessee. We are concerned that the

central log-in system used by that State

agency would not work well in other

States. A log-in procedure would

require a well-developed infrastructure

that could be costly and burdensome to

many States, and that would add

another layer (and, even under the

commenter’s proposal add 72 hours) to

the appeals process. Furthermore, we

believe that other parts of this rule will

result in many of the same benefits

noted by advocates of the approach used

by Tennessee. For example, under

§ 438.416, we require that MCOs and

PHPs keep a log of grievances and

appeals and that its contents be reported

to the State. This will provide the State

the same information obtained through

the commenters’ suggested approach.

Additionally, State on-site reviews can

monitor appeal processes to determine

if MCOs and PHPs are meeting required

timeframes.

Comment: Several commenters

requested that the person investigating

the grievance should receive training on

the Medicaid statute, regulations, and

contractual provisions; on

confidentiality and patient protections;

and on the grievance process.

Response: We agree that MCOs and

PHPs should provide this training to

their personnel. States should consider

making this a requirement of their

MCOs and PHPs. However, we do not

think it necessary to require specific

MCO and PHP training programs in

Federal regulations.

Comment: Several commenters urged

that this final rule with comment period

require that grievances and appeals

involving application of medical

standards should be reviewed by an

appropriately trained physician.

Response: This final rule with

comment period at § 438.406(a)(7)(ii)

provides that the individual making a

decision must be a health professional;

with appropriate clinical expertise in

treating the enrollee’s condition or

disease for—(1) an appeal of a denial

that is based on lack of medical

necessity, (2) a grievance regarding

denial of expedited resolution of an

appeal, and (3) a grievance or appeal

that involves clinical issues.

Comment: Several commenters

pointed out that the NPRM referred to

‘‘physicians’’ when describing

individuals with appropriate medical

expertise to make decisions on

grievances and appeals concerning

clinical issues. They noted that other

health care professionals, not just

physicians, are competent to make

decisions and commonly perform these

services in the private market. They

stated that Medicaid beneficiaries are

best served by having service denials

reviewed by qualified health care

professionals with appropriate

expertise.

Response: We agree that health

providers, other than physicians, may

be appropriate to make decisions when

the area of expertise required is other

than a physician (for example, a

dentist). In § 438.406(a)(7)(ii) of this

final rule with comment period we have

removed the term ‘‘physician’’ and

replaced this with ‘‘health care

professionals who have the appropriate

clinical expertise in treating the

enrollee’s condition or disease.’’

5. Grievance (Appeal): Resolution and

Notification (Proposed § 438.408)

Proposed § 438.408 required MCOs

and PHPs to investigate each appeal

(called grievance in the proposed rule)

to base the decision on the record of the

case, including any MCO or PHP

hearing provided under § 438.402(c)(3),

and relevant program laws, regulation

and policies; and to resolve each as

expeditiously as the enrollee’s health

condition requires, within State

established time-frames, but no later

than 30 days after it receives the appeal.

The MCO or PHP would be permitted to

extend the 30 day timeframe by up to

14 days if the enrollee requests the

extension, or if the MCO or PHP justifies

a need for additional information on

how the delay is in the interest of the

enrollee. For an appeal that requires an

expedited resolution under § 438.10,

proposed § 438.408(a)(3) required that it

be resolved as expeditiously as the

enrollee’s health condition requires,

within timeframes established by the

State, but no later than 72 hours after it

receives the appeal. The MCO or PHP

again would be permitted to extend the

timeframe by up to 14 days if the

enrollee requests the extension, or if the

MCO or PHP justified a need for

additional information or how the delay

is in the best interest of the enrollee.

Proposed § 438.408 also set forth

requirements for notification if the

decision is adverse or partially adverse

to the enrollee. For a standard

resolution the timeframe was no later

than 30 days after it received the appeal,

and for an expedited resolution, no later

than 24 hours after it reaches the

decision. The content of the notice must

include the name of the MCO or PHP

contact, the results of the appeal and the

date competed, a summary of the steps

taken on behalf of the enrollee to resolve

the issue, a clear explanation of the right

to a State fair hearing, circumstances

under which benefits would continue if

a State fair hearing request was filed,

and the potential for enrollee liability

for services furnished during the

pending appeal if an adverse decision is

reached.

Comment: One commenter believed

that HCFA underestimated the burden

associated with the grievance system

timeframes.

Response: We address the burden

imposed by this provision elsewhere in

this preamble, in the section titled

Collection of Information Requirements.

Comment: Several commenters

believed that extensions to the appeals

timeframes benefit the MCOs and PHPs

more than the enrollee, and

recommended that we eliminate them.

Response: We believe that extensions

may be necessary to provide additional

time to decide appeals when

information necessary to the decision

cannot be obtained in time to meet the

timeframes, and that extensions may be

in the enrollee’s interest In expedited

cases, however, we agree with the

commenter that giving MCOs and PHPs

the discretion to extend timeframes may

be problematic because this is by

definition a case that the enrollee’s

health is at risk. Therefore, we believe

that unless the enrollee actually has

determined that an extension is in their

interests and requests an extension,

there should be no extensions in

expedited cases, and we accept the

commenters’ recommendation that

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6349

extensions be eliminated to this extent.

In this final rule with comment period,

therefore, for appeals that are expedited,

only the enrollee may request an

extension. This is an added protection

for enrollees who are appealing to

receive services without which their

health may be jeopardized.

Comment: Several commenters

strongly favored the adoption of

standardized timeframes for Medicaid

that conform with those for Medicare.

Response: We have retained the same

timeframes for Medicaid that are used

for Medicare. Appeals must be resolved

as quickly as the enrollee’s health

condition requires, or no later than 30

days for standard appeals, and 72 hours

for expedited appeals. As under the

Medicare+Choice program, we permit

14 day extensions for both standard and

expedited appeals when requested by

the enrollee. In the case of a standard

appeal a 14-day extension may also be

obtained if the MCO or PHP justifies to

the State Medicaid agency that it is in

the enrollee’s interests. As noted in

response to the previous comment, we

have eliminated extensions in expedited

cases unless requested by the enrollee.

In response to the above comment

favoring the adoption of Medicare

timeframes, we are extending the extent

to which this final rule with comment

period follows Medicare timeframes by

providing in §§ 438.408(j)(3)(ii) and

431.244(f)(2)(ii) and (iii), for an

expedited State fair hearing in cases of

expedited appeals. Specifically, we

require that the State fair hearing

decision be made within 72 hours, that

is the same timeframe used for Medicare

for expedited appeals to the Center for

Health Dispute Resolution (CHDR), the

current Medicare contractor for external

independent review under

Medicare+Choice. The fair hearing

process is the Medicaid counterpart of

CHDR review, in that in both cases it is

the first ‘‘independent’’ and ‘‘external’’

review of a managed care organization’s

decision.

Comment: Comments on standardized

timeframes differed. Some commenters

believed that consistent timeframes are

especially important in expedited

appeals when the enrollee’s health

condition needs to be taken into

consideration. Other commenters

supported the adoption of standardized

timeframes, but called for them to be

shorter. One commenter believed that

the timeframes in the proposed rule

might violate Constitutional due process

because the timeframes outlined do not

adequately protect beneficiaries.

Other commenters criticized the

standardized timeframes. Several

commenters found the timeframes

unreasonable, unrealistic, subjective,

and too prescriptive and asked for more

State flexibility to set timeframes. One

commenter wanted the timeframes to

begin when all documentation is

received from providers. One

commenter noted that most States

already have expedited timeframes and

changing these requirements may be

confusing for beneficiaries and may not

provide any additional protections to

enrollees. One commenter found the

extensive and varying timeframes for

resolutions confusing and believed that

it would be difficult to administer.

Response: We continue to believe that

the regulation should establish

timeframes for steps in the internal

appeal process and that an expedited

timeframe is necessary when the use of

standard timeframes may jeopardize the

enrollee’s health. This is an important

beneficiary protection and is necessary

to ensure that the overall timeframe of

90 days for a decision at the State fair

hearing (excluding the time the

beneficiary takes to file for a State fair

hearing) can be met in all cases. In

§ 438.408(a) we provide for States to

establish timeframes that ‘‘may not

exceed’’ the timeframes specified in this

final rule with comment period. States

may establish shorter timeframes.

Comment: Several commenters

believed that mandatory timeframes

might be difficult to meet if enrollees

fail to submit timely information, or are

not available for an in-person

presentation to the MCO or PHP. These

commenters asked that a limit be placed

on the number of days MCOs and PHPs

are responsible for providing continued

services pending final determination.

Response: We believe that the

timeframes included in the regulation

will result in timely decisions on

appeals. Enrollees must be informed of

the timeframes, and provided an

opportunity to present evidence and

appear in person before an MCO or PHP

representative. However, if they do not

provide information to support their

appeal, the MCO or PHP is responsible

for deciding the appeal on the basis of

available information within the

timeframes set out. Continuation of

benefits for already authorized services

must continue throughout these periods

until the final decision at the MCO,

PHP, or State is made, whichever is

later. Given the limits on timeframes for

decision in this rule, we do not believe

that ‘‘time limits’’ are necessary. We

note that there are no such limits under

fee-for-service Medicaid.

Comment: Several commenters

thought that MCOs and PHPs should be

required to receive written approval

from the State before extending the

timeframes.

Response: We are not requiring that

MCOs and PHPs receive prior approval

from the State for extensions, as we do

not believe that this would be practical,

given the number of cases and the

timeframes involved. However, States

are required to monitor MCO and PHP

use of extensions and may require that

MCOs and PHPs provide justification

for any extension.

Comment: Several commenters

believed that the enrollee should be

forwarded a concurrent copy of the

MCO’s or PHP’s written request given

the opportunity to respond to the MCO’s

or PHP’s request for a time extension,

and provided a concurrent copy of the

State’s response. One commenter

warned that requiring prior approval

would be burdensome.

Response: We agree that enrollees

should be informed when an MCO or

PHP grants an extension, and in

response to this comment have provided

for this in § 438.408(d)(2) of this final

rule with comment period. The MCO or

PHP notice must include the reasons for

the delay and inform the enrollee of the

right to file a grievance if the enrollee

disagrees with the decision to extend

the timeframes. We do not believe that

this requirement will unduly burden

MCOs and PHPs, as we believe that

most appeals will be decided within the

time period allowed before an extension

is needed. We note that our decision to

not permit MCOs or PHPs to extend the

timeframe for an expedited appeal

absent a request by an enrollee is also

responsive to the commenters’ concerns

about an enrollee being informed of

extensions and having the opportunity

for input.

Comment: One commenter requested

that we require the MCO or PHP to give

a written justification to the enrollee

whenever the MCO or PHP extends the

14-day timeframe, and that a copy be

included in the case file. Another

commenter noted that the MCO or PHP

does not need to obtain prior approval

before granting itself an extension, and

as currently drafted, the enrollee

appears to have no recourse other than

to file a grievance with the MCO or PHP,

even in situations when the enrollee’s

life may be jeopardized. They believe

that due process and fundamental

fairness require MCOs and PHPs to

provide notice to the enrollee, and that

the enrollee should have the right to

object and have the dispute immediately

decided by an impartial decision maker.

A delay in decision making constitutes

a delay in providing the service. and is

subject to Constitutional requirements

6350 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

and Goldberg v. Kelly in this

commenter’s view.

One commenter also requested that

physicians (in addition to enrollees)

should have a right to request a 14-day

extension.

Response: We agree that MCOs and

PHPs, upon granting themselves an

extension, should notify the enrollee in

writing of the extension and of the

enrollee’s right to file a grievance if the

enrollee disagrees with an extension of

the timeframes. We do not believe that

providers need to be given the right to

seek an extension. The provider is

associated with the MCO or PHP that

can grant itself an extension in a nonexpedited case if the standard is met.

The MCO or PHP must also provide

justification for the extension to the

State, if required. We note that the

commenter’s concern about ‘‘situations

when the enrollee’s life may be

jeopardized’’ by an MCO or PHPinitiated extension has been addressed

by our decision to eliminate the

opportunity for the MCO or PHP to

extend the deadline in expedited cases

absent an enrollee request.

Comment: One commenter believed

that the timeframes should begin when

the appeal initially is made, not when

it is submitted in writing.

Response: We agree that timeframes

should begin when the enrollee first

appeals the action, regardless of

whether the appeal is made orally or in

writing. When setting the timeframe for

resolving appeals in § 438.406(b)(3) of

this final rule with comment period, we

refer to the date that the MCO or PHP

first ‘‘receives’’ an oral or written appeal

as the point that the time for resolving

the appeal has begun. We note,

however, that the enrollee must follow

a standard oral appeal for a request with

a written request.

Comment: Several commenters

recommended that the timeframe for

making a decision on a request to

authorize a service should be less than

the 14 days proposed.

Response: We continue to believe that

14 days is an appropriate outer limit for

the time allowed for an MCO or PHP to

authorize a service. We have retained

the provision of the NPRM that requires

this decision to be make more quickly

if required by the enrollee’s health

needs. In addition, in this final rule

with comment period, when a

determination is made that a case meets

the standards for an expedited appeal,

the MCO or PHP must decide an appeal

of this decision no later than 72 hours

after the appeal is filed.

Comment: One commenter agreed

with our decision stated in the preamble

to the proposed rule not to require

MCOs and PHPs to automatically

resolve any dispute in the enrollee’s

favor that the MCO or PHP did not

resolve within a defined timeframe.

Other commenters supported requiring

that appeals be resolved automatically

in the favor of the enrollee if not

completed within a specific time period.

These commenters reported ongoing

problems of MCOs and PHPs denying

services for months while multiple

requests for information are made.

Several commenters reported that

some State laws provide safeguards

when decisions on medical care are not

made within required timeframes,

including deeming the failure to make a

timely decision an adverse decision

subject to appeal or automatic approval

of the service.

Several commenters pointed out that

in HCFA’s Medicare+Choice

regulations, the failure of a

Medicare+Choice organization to meet

initial determination and

reconsideration timeframes is

automatically considered an adverse

decision and automatically referred to

the next level of review.

Response: We are not requiring that

appeals be resolved automatically in the

favor of the enrollee if not completed

within a specific time period. Instead,

non-compliance will be considered an

adverse decision, and automatically

referred to the next level of review (the

State fair hearing process). For service

authorization requests, an MCO or PHP

not completing authorizations within

the specified timeframes would be

required to send a notice of adverse

action explaining the enrollee’s appeal

rights. As the commenters noted, this is

consistent with Medicare’s policy for

reconsiderations not acted upon within

the required timeframes. That is, the

Medicare+Choice organization’s failure

to act is considered an affirmation of its

adverse decision and the file must be

sent to the independent entity for an

independent outside review. This first

level of independent review under

Medicare+Choice is analogous to fair

hearing review under this final rule

with comment period.

Comment: One commenter asked that

the words ‘‘title of staff person’’ be

substituted for ‘‘name of staff person’’ to

protect MCO and PHP staff members

from possible retaliation by enrollees.

Response: We agree and have changed

‘‘name’’ to ‘‘title’’ in this final rule with

comment period.

6. Expedited Resolution of Grievances

and Appeals (Proposed § 438.410)

Proposed § 438.410 required that each

MCO and PHP establish and maintain

an expedited review process for appeals

(called grievances in the proposed rules)

and set forth requirements for the

resolution of expedited grievances and

appeals including, responses to oral or

written requests if the MCO or PHP

determines, or the provider indicates

that the time for a standard resolution

could seriously jeopardize the

enrollees’s life, health, or ability to

regain maximum function.

Comment: Some commenters

applauded our inclusion of an

expedited grievance process similar to

that under Medicare+Choice and-thenproposed the Department of Labor

regulations. Others argued for State

flexibility and contended that

prescriptive Federal requirements

preclude States from taking into account

other expedited processes that they have

implemented with respect to clinical

aspects of appeals, for example,

preauthorizations.

Response: We believe that expedited

resolution is necessary to ensure that

appeals of situations that potentially

place an enrollee’s health in jeopardy

are not delayed. The Consumer Bill of

Rights and Responsibilities (CBRR) and

beneficiary advocates have both

recommended the adoption of expedited

procedures. Although States have

historically instituted different

processes to protect beneficiaries, HCFA

believes that standardized expedited

appeal processes are needed to protect

beneficiaries in a capitated health care

delivery system.

Comment: One commenter requested

that ‘‘retain function’’ be added to the

criteria for expedited grievances and

appeals. The commenter stated that

retention of less than full function is

often the goal for beneficiaries with

long-term disabilities who cannot

expect to regain full function but should

be protected against further loss of

function. Other commenters wanted the

expedited process to apply when the

enrollee has significant pain or side

effects, and for children with special

health care needs.

Response: In response to this

comment, we have revised the language

for expedited appeals to include all

instances for which the time needed for

standard resolution could ‘‘seriously

jeopardize the enrollee’s life or health,

or the ability to attain, maintain, or

regain maximum function.’’ With this

revision, the Medicaid criteria are more

inclusive than those for Medicare. We

believe that these criteria are sufficient

to address situations that the enrollee is

in significant pain or is having

significant side effects. Finally, we do

not agree that children with special

health care needs should automatically

receive expedited appeals in all cases

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6351

solely on the basis of being in that

category. We believe that the criteria we

have established will ensure that

expedited appeals will be available

when they are needed.

Comment: Several commenters

suggested that the regulations allow the

beneficiary to obtain an expedited

review based on the beneficiaries’ own

attestation that the standard for

expedited review has been met. They

believed that MCOs and PHPs should

not be given control over the situation

because their financial arrangements

with physicians may provide an

incentive to deny services. One

commenter supported the ability of an

enrollee to obtain an expedited

resolution if the enrollee obtains the

support of a physician.

Response: We do not agree that an

enrollee’s attestation should be

sufficient to require an expedited

appeal. The enrollee may not be

objective in this determination or may

not have the knowledge to draw a

correct conclusion. It is not clear what

would preclude enrollees under this

approach from attesting that the

standard is met in every case simply to

get faster action on all appeals. We are

including in this final rule with

comment period a provision that if a

provider makes the request, or supports

the enrollee’s request for expedited

review, the review must be expedited.

We believe this sufficiently protects

enrollees.

Comment: Several commenters noted

that the rule should prohibit retaliation

by the MCO or PHP against physicians

who support their patients’ requests for

expedited appeals.

Response: We intend that providers

who advocate on behalf of their patients

should be protected against retaliation

by MCOs and PHPs in all

circumstances. In response to this

comment, we expressly prohibit any

retaliation in § 438.402(b)(5) of this final

rule with comment period.

Comment: One commenter expressed

concern regarding the logistics of

requiring MCOs and PHPs to give

prompt oral notice to an enrollee of any

denial of an expedited request. They

noted that some Medicaid enrollees may

not be accessible by telephone.

Response: We are aware that some

Medicaid enrollees may not have

telephones. Nevertheless, MCOs and

PHPs must make reasonable efforts to

notify enrollees orally of decisions not

to expedite the appeal and follow up

with a written notice within two

calendar days. MCOs and PHPs should

request information from enrollees

about how and where they can be

contacted.

Comment: Several commenters

recommended that the State Medicaid

agency be required to hear all expedited

appeals and issue decisions within

specified timeframes. One commenter

recommended we include a requirement

that decisions be made within 24 hours;

another suggested two days.

Response: This final rule with

comment period requires the State to

conduct a fair hearing and make its

decision within 72 hours for service

authorization denials that meet the

criteria for expeditious handling. We

have limited this requirement to initial

denials of authorization for a service

because in the case of a decision to

reduce or terminate benefits, benefits

continue through the State fair hearing

decision. The enrollee’s health is

protected during the time it takes for the

State fair hearing decision to be made.

We have chosen to use the same 72-hour

standard that applies to MCO or PHP

review in expedited cases because we

do not believe it would be reasonable to

expect the State to complete review of

all expedited cases in 24 hours. We also

note that this 72-hour timeframe is

employed in Model guidelines

established by the National Association

of Insurance Commissioners (NAIC), in

Department of Labor regulations

governing Retirement Income Security

Act (ERISA) health plans, and at both

the Medicare+Choice organization and

independent external review levels in

the Medicare+Choice program.

Comment: Several commenters

pointed out that proposed § 438.410

(c)(2) allowed a physician to request an

expedited appeal. They suggested that

we broaden this provision to allow other

health care professionals to make these

requests.

Response: We agree that all health

care professionals who provide services

to Medicaid beneficiaries should be

permitted to request expedited appeals.

As discussed above, we have made this

change in this final rule with comment

period.

7. Information About the Grievance

System (Proposed § 438.414)

Proposed § 438.414 required that

MCOs and PHPs provide information

about the grievance system to enrollees,

potential enrollees (as provided by the

State), and all providers at the time they

enter into a contract with the MCO and

PHP. It also specified that the content of

the information include a description of

the grievance process that is developed

or approved by the State, and that it

include the following: (1) specification

of what constitutes grounds for a

complaint (now grievance) grievance

(now appeal) or State fair hearing; (2) an

explanation of how to file for each; (3)

an explanation of the assistance

available; (4) toll-free numbers (with

TTY and interpreter capability) for

enrollees to register grievances and

appeals; (5) titles and telephone

numbers of persons responsible for the

functioning of the grievance process and

with authority to require corrective

action; (6) assurance that filing an

appeal or requesting a State fair hearing

will not negatively affect or impact the

way the MCO or PHP, their providers,

or the State agency treat the individual;

and (7) information on how to obtain

care or services during the grievance or

fair hearing processed. Section 438.414

also requires that the MCO or PHP to

provide enrollees and potential

enrollees with aggregate information

regarding the nature of enrollee appeals

and their resolution.

Comment: One commenter believed

that we underestimated the true burden

associated with MCO and PHP

grievance information requirements.

Response: We address the issue of

burden in the Burden Statement to this

final regulation.

Comment: Several commenters

requested that we explicitly require

notices and information about the

grievance system to be written at a

fourth grade level, translated into

prevalent languages, and accessible to

persons with hearing and sight

impairment.

One commenter requested us to

require MCOs, PHPs, and PCCMs to use

at least one of the following reference

materials: (1) Fry Readability Index; (2)

PROSE: The Readability Analyst; (3)

Gunning FOG Index; or (4) McLaughlin

SMOG Index.

Response: In this final rule with

comment period, we require that notices

meet the formatting and language

requirements at § 438.10. We believe

that it is appropriate that we include a

general requirement for material to be

written in easily understood language

and formatted likewise. We also provide

that material must be translated into the

prevalent languages in the MCO’s or

PHP’s service area. In the preamble to

the proposed rule, we provided

examples of standards States can use to

determine prevalence. We are not

requiring that material be written at a

specific grade level because no single

level is possible or appropriate for all

material.

Comment: One commenter believed

that additional State flexibility was

necessary regarding how and when

information should be distributed to

enrollees. Another commenter asked for

more clarification about the detail of the

information that must go to all enrollees

6352 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

and the time that information must be

sent. One commenter requested that

States develop standard language that

MCOs and PHPs be required to use in

their member handbooks. Several

commenters supported the amount of

detail in the regulation regarding

information because it ensures that

information about beneficiary

protections is provided more uniformly

to enrollees.

Response: We are not mandating that

States require the use of standard

language because, we believe that States

should be permitted to decide this based

on State circumstances. With respect to

the timing of the provision of

information, § 38.10(d), (e), and (f) set

forth requirements as to when

information about the grievance system

must be provided to enrollees and

potential enrollees. With respect to the

information on grievances and appeals

addressed in § 438.414, for enrollees,

§ 438.10(e)(1) requires that this

information (referenced in

§ 438.10(e)(2)(x)) be provided within a

reasonable time after the MCO or PHP

receives notice of enrollment, and once

a year thereafter. In the case of potential

enrollees, § 438.10(f)(7) requires that the

information described in paragraphs (d)

and (e) of § 438.10 (including the

grievance information described in

§ 438.10(e)(2)(x)) be provided only upon

request. In § 438.414(a)(1) and (3), we

require MCOs and PHPs to provide

information about the grievance system

to enrollees, and to providers and

subcontractors (at the time of entering

into a contract). In section 438.414(a)(2),

we require that the State, a State

contractor, or MCOs and PHPs provide

this information to potential enrollees.

In § 438.404 we require that information

about the grievance system be sent to

enrollees as part of the notice of action.

Comment: One commenter believed

that the State fair hearing process

should be explained clearly to enrollees

at the time of enrollment, and annually

thereafter. Several commenters asked

that MCOs and PHPs be required to give

enrollees information on the right to be

represented by counsel, and the

availability of free legal assistance. One

commenter requested that beneficiaries

be informed of their rights during the

grievance process at every stage.

Response: We have revised this

regulation to clarify that the

beneficiary’s State fair hearing rights

must be explained, including the fact

that enrollees have the right to represent

themselves, or be represented by legal

counsel, a relative, a friend, or other

spokesperson. We do not require MCOs

and PHPs to inform beneficiaries about

the availability of free legal counsel.

This is consistent with the current

policy in fee-for-service. In the State

Medicaid Manual (SMM 2900.3), we

require States to maintain a list of

available free legal services and to notify

beneficiaries of their right to legal

assistance, including free legal

assistance. States may, at their option,

require MCOs and PHPs to maintain

copies of this list and make it available

to enrollees.

Comment: Several commenters

thought that we should require MCOs

and PHPs to provide grievance, appeal,

and State fair hearing information to

potential enrollees, upon request, and to

enrollees upon initial enrollment, and

whenever the grievance system is

changed by the MCO, PHP, or the State.

Several commenters wanted aggregate

information on grievances and their

resolution to be given to consumers as

part of their initial and annual

enrollment choice information. Several

commenters wanted grievance data to be

available to the general public, as well

as, to enrollees and potential enrollees.

One commenter encouraged us to have

consistent requirements for Medicaid

and Medicare.

Response: As noted above, we require

the State to ensure that information on

grievances and appeals is provided to

potential enrollees upon request, either

by the State or its contractor (for

example, an enrollment broker), or by

the MCO or PHP. MCOs and PHPs also

are required to provide this information

to enrollees at the time of enrollment,

and annually thereafter. Information

will also be provided as part of notices

of actions. We believe that this will

provide enrollees with the information

they need to exercise their rights.

We agree with the commenter that

MCOs and PHPs should provide

aggregate information on grievances and

appeals to enrollees, potential enrollees,

and the general public upon request. In

response to this comment, § 438.414(d)

of this final rule with comment period

provides that aggregate information be

released to the public upon request.

Comment: One commenter requested

that HCFA require that information

about the grievance system be provided

to subcontractors as well as to

contracting providers.

Response: In § 438.414(a)(3) of this

final rule with comment period, we

specify that this information must be

provided to subcontractors as well as to

contractors.

8. Recordkeeping and Reporting

Requirements (Proposed § 438.416)

Proposed § 438.416 required that

MCOs and PHPs comply with specified

record keeping requirements, that also

had to be done in compliance with

confidentiality requirements in

§ 438.324. Specifically, MCOs and PHPs

were required to—

• Maintain a log of all grievances and

appeals (called complaints and

grievances in the proposed rule).

• Track each appeal until its final

resolution.

• Record any disenrollment and the

reason for it, even if it occurs before the

appeal process is complete.

• Retain the records of grievances and

appeals (including their resolution) and

disenrollments for three years, and

make them accessible to the State or if

any litigation, claim negotiation, audit

or other action is started before the end

of this three year period, the MCO or

PHP must retain the records until

completion of the action and resolution

of the issues, if later than three years.

• Analyze the collected information

and prepare and send to the State a

summary as often as the State requests,

but at least annually—

++ The number and nature of all

complaints and grievances.

++ The timeframes within which they

were resolved, and the decisions.

++ A listing of all grievances that have

not been resolved to the satisfaction of

the affected enrollee.

++ The number and nature of

grievances for which the MCO or PHP

provided expedited resolution, and the

decisions.

++ Trends relating to a particular

provider or a particular service.

Comment: One commenter believed

that HCFA underestimated the true

burden associated with MCO and PHP

record keeping and reporting

requirements.

Response: We address the issue of

burden in the section of the preamble

titled Collection of Information

Requirements.

Comment: Several commenters

suggested that the State be allowed to

determine the specific data elements to

collect on grievances and appeals, and

how and when reports are to be

submitted to the State. Other

commenters supported the inclusion of

the elements included in the proposed

rule.

Response: We believe that a minimum

set of data should be available from all

MCOs and PHPs to facilitate monitoring.

We have changed this final rule with

comment period to remove the

requirement in proposed § 438.416(e)(3)

that MCOs and PHPs submit a list of all

appeals not resolved to the satisfaction

of the enrollee. We believe that this

requirement is unnecessary now that

MCOs and PHPs will be required to

forward all appeals not resolved to the

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6353

satisfaction of the enrollee to the State

for a fair hearing. We note that States

have the flexibility, at their option, to

set record keeping and reporting

requirements in addition to these

Federal minimums. For example, States

may establish a minimum number of

categories of grievances and appeals that

MCOs and PHPs must report (for

example, delays in receiving referrals,

delays in access to specialists or

services, dissatisfaction with quality of

care, and waiting times for

appointments).

Comment: Several commenters

wanted the regulation to specify that

MCOs and PHPs should collect and

report information on the number and

nature of requests for expedited review.

Response: We agree that we should

require that MCOs and PHPs collect and

report information on the number of

requests for expedited review, and in

response to this comment have provided

in § 438.416(b) of this final rule with

comment period that grievances and

appeals must be classified in terms of

whether the disposition was standard or

expedited. We have retained the

requirement in proposed § 438.416(e)(1)

(now § 438.416(d)(1)) that information

be reported on the ‘‘nature of all

grievances and appeals,’’ whether

expedited or standard.

Comment: Several commenters

wanted grievances to be tracked, sorted

by type, number and resolution, and

reported to the same extent as appeals.

They believed that this would be useful

in identifying problems with education

and outreach.

Response: This final rule with

comment period requires that

grievances, as well as appeals, be

tracked and reported. In response to the

comment favoring additional tracking,

we have added a requirement to the

regulation that MCOs and PHPs must

track and report on the time frames for

acknowledging to the enrollee the

receipt of grievances and appeals.

Comment: Several commenters

objected to the requirement in proposed

§ 438.416(c) that MCOs and PHPs record

any disenrollments and the reason for

them, because these commenters

believed that the State controls the

disenrollment process and maintains

data regarding disenrollments.

Therefore, these commenters believed

that States, not MCOs and PHPs, should

be required to maintain disenrollment

records. One commenter noted that

requiring the collection of disenrollment

information is good and that it should

also be classified

Response: We have removed the

requirement for an MCO or PHP to

‘‘record any disenrollment and the

reason for it’’ from the proposed

provisions at § 438.416 because this was

duplicative of the requirement at

proposed § 438.342(a) that the State

ensure that each MCO and PHP

maintain a health information system

that collects, integrates and reports data

on areas including disenrollments.

However, in response to this comment,

we recognize that there is a distinction

between disenrollments from an MCO

or PHP due to loss of Medicaid

eligibility and other disenrollments

initiated by the enrollee of the MCO or

PHP. Given that information regarding

disenrollments due to loss of Medicaid

eligibility is not typically known by

MCOs or PHPs, in response to this

comment, we have modified the

reference to disenrollment in § 438.242

to refer to ‘‘disenrollment for other than

loss of Medicaid eligibility.’’

Comment: One commenter requested

that we clarify that the regulation

requires MCOs and PHPs to provide the

State only with information about

grievances and appeals of Medicaid

enrollees, not all enrollees.

Response: We believe that the

regulation is clear that this information

must be supplied only for Medicaid

enrollees, as it references grievance and

appeal mechanisms that are only

available to enrollees.

Comment: We received several

comments regarding the annual

disclosure of information. One

commenter believed that annual

disclosure of aggregate data was

appropriate, but that reporting trends

relating to a particular provider or

particular service was not. Commenters

urged us not to require such information

to be reported. They were very

concerned that these reports would have

a detrimental effect on existing quality

improvement and peer review

processes.

Response: We agree that Federal

reporting of trends relating to particular

providers may not be appropriate, and

in response to this comment have

deleted this requirement from this final

rule with comment period. States, at

their option, may develop provider

grievance and appeal profiling

requirements consistent with State laws.

Comment: Several commenters asked

that State Medicaid agencies and

ombudsman programs have access to

MCO and PHP logs. In addition,

commenters urged that the regulation

require States to provide members of the

public, upon request, with MCO and

PHP summaries. Another commenter

recommended that HCFA require MCOs

and PHPs to identify trends on

grievances and appeals for particular

enrollee sub-populations. One

commenter wanted the regulation to

require MCOs and PHPs to computerize

their grievance and appeal logs and

report to the State on a quarterly rather

than annual basis.

Response: States have the authority to

require that MCOs and PHPs make

available to the State grievance and

appeal logs or other MCO and PHP

grievance system documents. In the

final regulation we are requiring that

States must make information on MCO

and PHP grievances and appeals

available to the public. We do not agree

that we should be more prescriptive in

the regulation about reporting

requirements. States, at their option,

may require MCOs and PHPs to provide

ombudsman programs access to

grievance and appeal logs, to include

information about all systemic issues

that emerged from grievances and

appeals, to report on their response to

systemic problems, to report grievance

and appeal data on particular

subpopulations of enrollees including

persons with special needs, to

computerize logs, or to report on a more

frequent basis. In designing their quality

strategies, States should consider what

additional information they or others

will need to support those strategies.

9. Continuation of Benefits Pending

Resolution of a State Fair Hearing

Decision (Proposed § 438.420)

Proposed § 438.420 set forth

requirements for MCOs and PHPs, in the

case of an appeal from the termination

or reduction of services currently being

provided to continue services upon a

timely appeal while the MCO or PHP

considers the appeal, and through the

end of any State fair hearing. As used in

this section, ‘‘timely’’ means filing on or

before the time limit specified by the

State and communicated in the notice of

intended action, or before the effective

date of the MCO’s or PHP’s proposed

action, whichever is later. Although the

benefit is to be continued during the

resolution process, enrollees who lose

their appeal at either the plan or State

fair hearing levels will be liable for the

cost of all appealed services from the

later of the effective date of the Notice

of Intended Action or the date of the

timely filed appeal, through the date of

the denial of the appeal.

Comment: Commenters expressed

concern that the regulation may be read

to permit benefits to be stopped after the

appeal to the MCO or PHP, but before

the State fair hearing.

Response: We intend for benefits to

continue through the enrollee’s final

appeal at the State fair hearing when

requested by the enrollee. Section

438.420(d)(1) of this final rule with

6354 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

comment period makes it clear that

benefits must continue without

interruption, if elected by the enrollee,

through the conclusion of the State fair

hearing process if the case is not

favorably resolved at the MCO or PHP

level.

Comment: One commenter thought

that requiring continuation of benefits

through the State fair hearing decision

was inappropriate because the enrollee

may be liable for payment for services

provided during this period if the

appeal is ultimately denied at the State

fair hearing.

Response: We provide that enrollees

must request to have benefits continue

during the appeal process because of

their potential financial liability in the

event that they are unsuccessful. In

§ 438.404(b)(7) of this final rule with

comment period, we require that the

notice of action inform the enrollee of

the potential financial liability for

services continued during appeal.

Likewise, in § 438.408(g)(4)(iii), we

require a written notice to the enrollee

that the enrollee may request that

benefits be continued and of the

potential financial liability if the

benefits continue.

Comment: We received many

comments regarding enrollees’ rights to

continuation of benefits during the MCO

and PHP appeal process. Several

commenters thought that the regulations

should include a provision to require

MCOs and PHPs to continue benefits

when the appeal involves services that

are being terminated or reduced. Several

commenters felt that continuation of

benefits pending resolution of an appeal

or State fair hearing without financial

risk, is one of the most important

protections needed for managed care

enrollees.

Several commenters were opposed to

extending continuation of benefits to the

MCO and PHP appeal process. One

contended that this requirement would

have significant cost implications.

Another believed that benefits should be

continued only at the point when an

enrollee requests an external fair

hearing.

One commenter thought that

requiring MCOs and PHPs to continue

benefits would place them in an

untenable position with their providers,

compromising their ability to manage

care and cost. They expressed concern

that this provision may damage

managed care programs and believed it

unnecessary given the requirement of

expedited review of appeals in cases in

which a delay could jeopardize health.

One commenter argued that requiring

continuation of benefits during an MCO

or PHP appeal, as opposed to a State fair

hearing, was not consistent with this

commenter’s interpretation of the

statute and case law. It appeared to this

commenter that a beneficiary would

obtain double benefits in this situation.

The commenter requested clarification

to explain the duration of continuation

of benefits when they are provided

during the MCO and PHP appeal

process. The same commenter also felt

that continuation of benefits would

make it difficult for the State to track the

case and determine the beneficiary’s

eligibility for continuation of benefits at

the point of the State fair hearing.

Response: Because we allow States to

require exhaustion of the MCO and PHP

appeal before receiving a State fair

hearing, we believe that, in order for the

right to continued benefits during a fair

hearing to be meaningful, that

continuation of benefits must begin with

the filing of the appeal and continue

until the State fair hearing decision.

Continuation of benefits at the MCO and

PHP level thus is not a ‘‘double’’ benefit,

but part of the same longstanding right

to continuation of benefits that has

existed for Medicaid beneficiaries when

services are reduced or terminated.

As in fee-for-service, under managed

care, the right to continuation of

benefits is not exercised without

financial risk to the beneficiary of

payment for services provided should

he or she lose the appeal. The enrollee

may choose not to request continuation

of benefits because of the potential

liability. The notice of adverse action

must include an explanation of this

choice.

While expedited appeals will

decrease the amount of time MCOs and

PHPs are liable to continue benefits for

enrollees with pending appeals, the

expedited appeal process does not

substitute for the protection provided to

Medicaid beneficiaries of the right to

continuation of benefits pending the

outcome of a State fair hearing decision.

If the benefit is a Medicaid covered

service, but not a MCO or PHP covered

service, the State, not the MCO or PHP

is responsible for providing those

services pending the outcome of the

State fair hearing.

It is not clear why the last commenter

believes that providing continued

benefits through the fair hearing level is

inconsistent with the statute or case

law. We believe that it simply gives

MCO and PHP enrollees the same

Medicaid fair hearing rights that all

other enrollees have under the program.

To the extent that we are aware of case

law on this issue, courts have supported

continuation of benefits in the managed

care context.

Comment: One commenter requested

that this section should make clear that

re-authorization of a service at a lower

level than previously received, or a

denial of re-authorization, is a

termination or reduction of the service

requiring the continuation of benefits

pending appeal.

Response: We believe that the

expiration of an approved number of

visits does not constitute a termination

for the purposes of notice and

continuation of benefits. If an enrollee

requests re-authorization for services

and the MCO or PHP denies the request

or re-authorizes the services at a lower

level than requested, the MCO or PHP

must treat this request as a new service

authorization request and provide

notice of the denial or limitation. The

MCO or PHP is not obligated to provide

continuation of benefits in this

circumstance. This policy is consistent

with that in fee-for-service.

Comment: One commenter objected to

requiring MCOs and PHPs to cover the

service pending appeal if the enrollee is

no longer eligible for Medicaid and

there is no emergency.

Response: The policy for continuation

of benefits does not apply when an

enrollee loses Medicaid eligibility.

Comment: We received many

comments regarding the requirements in

proposed § 438.420(b) that a MCO or

PHP physician with authority under the

MCO or PHP contract must have

authorized the enrollee’s services in

order for them to be continued.

Several commenters believed that

benefits should be continued in all cases

in which a dispute involves a service

covered under the Medicaid State plan.

They argued that conditioning

continuation of benefits on the benefits

having been authorized was

inconsistent with constitutional due

process requirements. They contended

that the rule could lead to an

interruption in services when services

are prescribed by an out-of-plan

emergency room physician or by an outof-network provider who is treating a

Medicaid beneficiary because the MCO

or PHP does not have an available

provider in the network; the MCO or

PHP pays for the service although it is

prescribed by an out-of-network

provider; a beneficiary is receiving outof-network family planning services; or

an enrollee, while continuously eligible

for Medicaid, either changes MCOs or

PHPs or joins an MCO or PHP (from feefor-service or PCCM) during a course of

treatment.

Several commenters recommended

that the regulation be amended to trigger

continued services regardless of

whether the provider requests the

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6355

service. They contended that there is a

direct financial conflict of interest

between a provider employed by a MCO

or PHP (or contracting with a MCO or

PHP) and the patient. These

commenters also said that MCO and

PHP doctors base treatment decisions,

in part, on MCO and PHP guidelines

and receive bonuses if they meet

performance goals that may include

utilization criteria.

Response: For continuation of

services to apply, the services must have

been previously authorized. This final

rule with comment period uses the term

‘‘authorized provider’’ rather than

‘‘MCO or PHP physician’’ to address

some of the concerns expressed by the

commenters. We note, with respect to

the example of emergency services cited

by the commenters, that in section

1932(b)(2)(A)(ii) of the Act, the Congress

has provided MCOs with the right to

decide whether to authorize out of

network ‘‘post-stabilization services’’

once an emergency medical condition

has been stabilized. The Congress

contemplated that services would only

be covered by Medicaid if authorized by

the MCO, or covered under the poststabilization guidelines in cases in

which the MCO does not respond timely

to a request for coverage authorization.

To the extent the MCO or PHP does not

authorize continued services by a nonnetwork provider, it must assume

responsibility for the services through a

network provider, so there would be no

interruption in needed services.

Where services were not covered in

the first place because they were not

authorized or covered as emergency

services or post-stabilization services,

there could be no ‘‘right’’ to

continuation of coverage, even if the

services would be covered under the

State plan for a beneficiary not enrolled

with an MCO or PHP. We therefore

disagree with the commenters who

suggested that it violated due process to

require MCOs and PHPs to provide

continuation of services only when the

services in question were authorized in

the first place.

However, if services are covered

under Medicaid, under this final rule

with comment period, benefits must be

continued if the beneficiary timely

appeals a decision to terminate, reduce

or suspend the services, regardless of

whether or not the beneficiary is

enrolled in a MCO or PHP. We note that

this includes instances in which the

services were begun by a provider under

the fee-for-service system, but a MCO or

PHP made a decision to terminate,

reduce, or suspend them. These

beneficiaries’ rights to continued care

are addressed under regular fee-forservice rules, and it is the State that is

obligated to ensure that these rights are

enforced. States should specify in their

contracts with MCOs and PHPs whether

the MCO, PHP, or the State will assume

financial responsibility for these

services under these circumstances. We

note that § 438.62(b) requires that States

have a mechanism in effect to ensure

continued access to services when an

enrollee with ‘‘ongoing’’ health care

needs is transitioned from fee-forservice to managed care.

Benefits must be continued by the

MCO or PHP in the following situations,

(this assumes that the benefits are

included in the MCO or PHP contract):

(1) the MCO or PHP pays for services

prescribed out-of-plan; (2) services are

prescribed by an outside specialist who

is treating the enrollee with the MCO’s

or PHP’s knowledge and consent; (3)

family planning services are being

received from a provider who is not part

of the MCO or PHP network, and family

planning services are covered under the

MCO or PHP contract; and (4) in rural

areas, where individuals are, by law,

permitted to seek out-of-network

services/providers, for example when

the service or provider is not available

within the MCO or PHP. If the benefit

is not included in the MCO or PHP

contract, the State must pay to continue

the benefits.

Comment: Several commenters

requested that we delete the

requirement that the beneficiary must

request continued benefits. They

contended that this requirement was

constitutionally defective in that they

believed continued benefits, without

pre-requisites to obtaining them, to be a

cornerstone of due process.

The commenters noted that the

existing regulation at 42 CFR 431.230(b)

provides for the possibility of

recoupment, yet benefits are continued

when an appeal is filed timely. The

commenters found no reason to change

this long-standing rule for beneficiaries

who are receiving services through an

MCO or PHP.

Response: We do agree with the

commenters view that beneficiaries

should not be required to specifically

request continuation of benefits. We

continue to believe that beneficiaries

should have to request continuation as

they may be held liable for services if

the final decision is not in their favor.

We have provided that enrollees be

notified that they may incur a financial

liability if their appeal is unsuccessful.

As in the case of the fee-for-service

regulations, benefits will only be

continued if the enrollee files a timely

appeal. This is a ‘‘prerequisite’’ to

obtaining them which has been upheld

in the courts as consistent with due

process.

Comment: Several commenters

expressed concern that beneficiaries

may request continuances of State fair

hearings, and extend the period during

which benefits will continue. They

recommended that the final regulation

specify the grounds on which an

enrollee may request a hearing

continuance. If a continuance is granted

for reasons other than good cause, these

commenters believed that the MCO or

PHP should not be obligated to continue

to provide services during the period of

the continuance.

Response: We do not agree that we

should specify when a State fair hearing

officer may grant a continuance, as we

believe that this should be left to the

hearing officer’s discretion, as is the

case under fee-for-service Medicaid. The

State Medicaid Manual at 2900 permits

the State fair hearing officer to grant one

continuance of up to 30 days.

Comment: Several commenters

recommended that we establish

parameters for the liability of MCOs and

PHPs for care provided pending the

outcome of the hearing. Commenters

wanted to work with HCFA to develop

this provision. They stated that MCOs

and PHPs should be compensated

appropriately if they are required to

provide services, and the hearing

decision upholds the MCO’s or PHP’s

determination.

Some commenters believed that it

would be unrealistic to assume that an

MCO or PHP would be able to collect

payment for services from an enrollee if

the final decision is not in their favor.

They noted that Medicaid beneficiaries

generally do not have the financial

resources to pay, and MCOs and PHPs

thus should be able to recoup payment

from a provider, with the provider then

billing the enrollee. They believed that

this process would add to the

administrative burden of the MCO or

PHP and the provider.

One commenter recommended that

MCOs and PHPs should be paid their

costs for providing services during the

hearing process if the enrollee is

unsuccessful at the State fair hearing

and the MCO or PHP is unsuccessful in

collecting from the enrollee.

Another commenter recommended

that MCOs and PHPs be reimbursed on

a fee-for-service basis for services

provided during the time taken for the

appeal and State fair hearing.

One commenter asked that this

section be amended to limit the

responsibility of enrollees for services

provided that are the subject of the

appeal, rather than all services provided

during this time period.

6356 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

Several commenters were concerned

that MCOs and PHPs would use the

requirement that enrollees be told of

their potential liability for payment for

services continued to intimidate

enrollees from using the grievance

process. These commenters noted that,

under the fee-for-service system, States

seldom try to recover the cost of services

from a beneficiaries, but under a

managed care system, the MCOs and

PHPs are more likely to attempt

recovery to avoid financial losses.

Response: States, in their contracts

with MCOs and PHPs, have the

flexibility to determine what entity is

responsible to cover costs of services

continued through an appeal. We

believe that States are in the best

position to decide what entity should

pay. They may prefer to take this into

account in setting capitation rates for

MCOs and PHPs or may prefer to pay for

these services directly.

The current requirement in the

Medicaid fee-for-service program is that

beneficiaries who lose their appeal at

the State fair hearing level are liable for

the costs of the services continued

during the appeal. Enrollees must be

told of their potential liability in order

for them to make an informed choice

about whether or not to accept

continued services. Section

438.408(i)(4) of this final rule with

comment period thus requires written

notice of this potential liability, and the

option to refuse continued benefits.

Enrollees are not liable for all services

provided during this time period, but

only for services continued because of

their appeals. We have clarified the

language on this point in the regulation

(§ 438.420 (e)). FFP is available to States

for payments for services continued

pending a State fair hearing decision.

Likewise, if the MCO or PHP is unable

to collect from the enrollee after a good

faith effort, FFP is available to the State

under § 431.250(a) for payments for

services continued pending a hearing

decision.

10. Effectuation of Reversed Grievance

Resolutions (Proposed § 438.421)

Proposed § 438.421(a) provided that if

the MCO or PHP decides an appeal

(called a grievance in the proposed rule)

in favor of the enrollee, the MCO or PHP

was required to authorize or provide the

service under dispute as expeditiously

as the enrollee’s health condition

requires, but no later than 30 calender

days after the date the MCO or PHP

receives the request for reconsideration.

Furthermore, under proposed

§ 438.421(b), if the MCO’s or PHP’s

decision on a appeal was reversed under

the State fair hearing process, the MCO

or PHP must authorize or provide the

disputed service as expeditiously as the

enrollee’s health condition requires

within time frames established by the

State, but no less than 60 calendar days

from the date the MCO or PHP receives

notice reversing the MCO’s or PHP’s

decision to deny.

Comment: Several commenters

disagreed with the time frames in the

proposed rule for providing a service,

which depended on whether the

beneficiary won the appeal at the MCO

or PHP (30 days to provide the service),

or at the State fair hearing (60 days to

provide the service). Another

commenter believed that the time

frames should take into consideration

the appropriateness of the procedure or

treatment for the individual, as there

may be cases in which providing the

service within 30 days may not be

clinically appropriate for the enrollee.

The commenter further noted that

external factors for example, scheduling

and bed availability may affect the time

frame for providing treatment. Several

commenters supported the elimination

of time frames because in the view of

these commentators, beneficiaries with

successful appeals should not have to

wait at all following the decision.

Response: We agree that MCOs and

PHPs should remove barriers to receipt

of the services and take into account the

needs of the individual. Therefore, in

response to the above comments, we are

eliminating the time frames in proposed

§ 438.421 (§ 438.424 in this final rule

with comment period), and requiring

that the services be provided as soon as

required to meet the needs of the

beneficiary. This is consistent with the

State fair hearing policy in 42 CFR

431.246.

Comment: One commenter asked that

we hold States, MCOs, and PHPs

financially responsible for the cost of

services inappropriately withheld if the

enrollee obtains them outside the

network and their appeal is upheld. The

commenter believed that failure to

provide for this remedy could encourage

States, MCOs, and PHPs to refuse

expensive care until after an appeal is

resolved.

Response: We agree with these

commenters. In response to this

comment, we have provided in

§ 438.424(b) of this final rule with

comment period that the State, MCO, or

PHP must pay for services denied to an

enrollee when the enrollee received the

services and later won an appeal of the

denial.

11. Monitoring the Grievance System

(Proposed § 438.422)

In proposed § 438.422, we required

the MCO, PHP, and the State to use the

grievance and appeal logs (called

complaint and grievance logs in the

proposed rule) and annual appeal

summary required under § 438.416 for

contract compliance and quality

monitoring. At a minimum, proposed

§ 438.422 required that the contract

between the State and the MCO or PHP

require that logs be reviewed and

summarized for trends in grievances

and appeals by provider or by service,

and the requirement that MCOs and

PHPs conduct follow up reviews, report

results to the State, and take corrective

action when necessary.

Comment: One commenter requested

that HCFA either define the term

‘‘undesirable trend’’ or delete the term.

Response: We agree that the term

‘‘undesirable trend’’ is vague. We now

require in § 438.426(b) that when the

MCO or PHP identifies through trends

in the data collected in § 438.416(b) that

systemic changes are needed, the MCO

or PHP must investigate, report the

results to the State, and take corrective

action.

Comment: One commenter requested

that we mandate that States conduct

random reviews of service denial

notifications to ensure that MCOs and

PHPs are notifying members in a timely

manner.

Response: We agree that States should

monitor service denial notifications to

ensure that MCOs and PHPs are

notifying members in a timely manner.

This should be an integral part of each

State’s Quality Improvement Strategy

and contract compliance monitoring.

We believe that States are in the best

position to determine the timing for this

monitoring.

Comment: Several commenters

requested that we modify this section to

require States to require MCOs and

PHPs to take corrective action if

numerous grievances are filed

concerning the same issue.

Response: As part of the State’s

quality strategy, which includes

monitoring MCO and PHP grievances

and appeals, States are required to take

corrective action when needed to

remedy problems.

Comment: Several commenters felt

that the requirement to identify trends

by provider constitutes a serious breach

under State law of the peer review

processes and legal privileges. They

believed that these issues can be

monitored appropriately by the States

without requiring reports.

Response: We agree that Federal

requirements that require MCOs and

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6357

PHPs to report on undesirable trends

relating to providers is not appropriate,

and we have revised the rule to delete

this requirement. States, at their option,

may develop provider grievance and

appeal profiling requirements that are

consistent with State laws concerning

peer review.

12. Consequences of Noncompliance

(Proposed § 438.424)

Comment: We received many

comments that this section confused

readers, particularly with respect to the

types of sanctions States could impose

on MCOs and PHPs.

Response: We have eliminated this

proposed section from this final rule

with comment period. This section was

intended to emphasize the importance

of MCOs’ and PHPs’ compliance with

the provisions of this Subpart. It did not

convey any authority or responsibility

to the States, MCOs, or PHPs.

F. Certifications and Program Integrity

Protections (Subpart H)

Background

We believe it is important for MCOs

to develop effective internal controls to

fight fraud and abuse and to ensure

quality of health care services to

Medicaid beneficiaries. Administrative

and management procedures, including

a compliance plan, address specific

areas of concern or potential areas of

risk for MCOs. It is in the best interest

of MCOs, State agencies, and HCFA to

make a commitment to an effective

administrative and management

arrangement that will significantly aid

in the elimination of fraud and abuse.

By requiring certification of the

accuracy of data used to determine

payments, of information contained in

contracts, proposals, and other related

documents submitted to State agencies,

and of administrative and management

procedures designed to prevent fraud

and abuse, we are working to promote

program integrity, protect Medicaid

managed care enrollees, and protect

Medicaid government funds.

Subpart H of proposed part 438,

Certifications and Program Integrity

Provisions, contains safeguards to

promote program integrity within

Medicaid managed care programs. We

have proposed that these rules apply

only to MCOs, as they were not made

applicable to PHPs under proposed

§ 438.8.

Proposed § 438.600 sets forth the

statutory basis for the requirements in

subpart H, which is based on section

1902(a)(4) of the Act. Proposed

§ 438.600 permits us to find methods of

administration that are ‘‘necessary for

proper and efficient administration’’ of

the plan. The requirements in subpart H

are also based on section 1902(a)(19) of

the Act, which requires that States

provide safeguards necessary to ensure

that eligibility will be determined and to

provide services in a manner consistent

with simplicity of administration and

the best interests of recipients.

Proposed § 438.602 requires that

when State payments to an MCO are

based on data submitted by the MCO,

which include enrollment information

and encounter data, the MCO must, as

a condition for receiving payment, attest

to the data’s accuracy, completeness,

and truthfulness. Proposed § 438.606

requires that an entity seeking an MCO

contract have administrative and

management arrangements or

procedures designed to prevent fraud

and abuse, which include reporting to

the State, HCFA, or OIG (or both)

credible information on violations of

laws by the MCO or its subcontractors

or enrollees. In the case of enrollee’s

violations, this proposed requirement

only applies if the enrollee’s violations

pertain to his or her enrollment, or to

provision or payment for health

services.

Proposed § 438.608 sets forth a

separate certification requirement,

requiring that MCOs certify the

accuracy, completeness, and

truthfulness of information in contracts,

requests for proposals, and other related

documents specified by the State.

Comment: One commenter suggested

that the program integrity requirements

in subpart H apply to all MCOs/primary

care case managers (PCCMs), not just

MCOs.

Response: We agree with the

commenter that the requirements in

subpart H should have applicability

beyond MCOs. The commenter

suggested that primary care case

managers should be subject to these

requirements. We agree with this

recommendation to the extent the PCCM

is paid on a risk basis as the MCOs that

were the subject of subpart H. In this

case, payments may also be based on

encounter data submitted by the entity,

and the same types of incentives and

potential for fraud and abuse apply.

However, in the case of a PCCM paid a

fixed monthly case management fee,

payments for services furnished to an

enrollee are paid under the existing

State plan payment process, which is

subject to existing fraud and abuse

protections that apply generally to

providers that bill Medicaid. In order to

identify only those PCCMs and other

non-MCO entities that are paid on a risk

basis, we are revising § 438.8 to require

that PHPs comply with the program

integrity requirements in subpart H.

Comment: One commenter requested

clarification as to whether subpart H

applies only to MCOs operated under a

State plan option or to both those

operated under a State plan option and

those operated under a waiver program.

Response: The requirements of

subpart H apply to MCOs, whether the

MCO or PHP operates under a waiver

program, a mandatory managed care

program, or a voluntary program.

Comment: Several commenters

believe that requiring certification of

data as 100 percent accurate and

complete is unworkable and not

customary. The commenters suggested

that this provision does not recognize

the impossibility of meeting an absolute

standard, that this provision should be

changed to correlate with more

commonly accepted standard language

on certifications and to correlate with

the language adopted by the

Medicare+Choice program.

Response: We recognize that requiring

attestation that data is 100 percent

accurate may not be feasible. We believe

that it is important to ensure accurate

data submissions. Because this

information may directly affect the

calculation of payment rates, we are

amending the regulation to be consistent

with the current language being adopted

in the Medicare+Choice provisions; that

is, we will require that attestations be

‘‘based on best knowledge, information,

and belief.’’ We have restructured and

recodified some of the provisions of

proposed subpart H. The revised

certification requirement containing the

Medicare+Choice language is now in

§ 438.606(b). These certifications will

assist HCFA, State agencies, and OIG in

combating fraud and abuse and in

investigating and prosecuting suspected

cases of fraud as authorized by the False

Claims Act.

Comment: One commenter believes

that the relationship between the

submission of data and Medicaid

payments is neither clear nor uniform

and that there may be a tenuous

connection between the State’s reliance

on the substance of the data and its

payments to the MCO. The commenter

also believes that certification of data

fails to address incentives for

underutilization and permits Medicaid

payment for coverage of services that

the MCO may not actually be providing.

This commenter recommended that the

MCO’s payments be based upon filing a

‘‘claim’’ for these payments, certifying

the data on which payments may be

based, and whether the MCO

substantially meets its contract

requirements.

6358 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

Response: Not all States base

payments to MCOs on encounter data or

on enrollment data submitted by the

MCO. In this case, the certification

requirement in proposed § 438.604(a)

would not apply as it only applies to

data when payments are based on the

data. If it is not clear that there is a

connection between given data and

payment, those data may not have to be

certified. We believe it is important that

data are certified as accurate, at least to

the best of the MCO’s belief, if payment

to that MCO will be based on these data.

Submission of data that are complete

and accurate will provide the State with

information needed to set actuarially

sound capitation rates. We disagree with

the commenter that underutilization is

not addressed at all, as encounter data

can be used by States to identify and

address underutilization and the

potential for payments made for services

not furnished. While we do not require

States to collect encounter data from

MCOs, we believe this is becoming a

State requirement. It is unclear how the

commenter’s first recommendation

concerning basing payment on filing a

claim and certifying data associated

with the claim relates to the

commenter’s concern for

underutilization or how the

recommendation differs from the

requirements in subpart H. We agree

with the commenter that MCOs should

be required to certify that services are

being provided in substantial

compliance with their contracts, since

under § 438.802(c) of this final rule

(discussed in section II.H of this final

rule) FFP is only available in contract

payments if the MCO is in substantial

compliance with its contract. We have

revised §§ 438.604 and 438.606 to

provide for this certification.

Comment: Several commenters

believe the data should be certified by

the Chief Executive Officer (CEO) or the

Chief Financial Officer (CFO) whom

they believe would have actual

knowledge of the accuracy,

completeness, and truthfulness of the

data and believe that this requirement

would force the MCOs to establish

procedures and protocols to ensure that

the information is correct. These

commenters believe that problems arise

when the person signing the

certification may not have direct

information concerning these facts, and

that the CEO or CFO should certify the

accuracy of the data on a document, a

requirement similar to that in the

Medicare+Choice program.

Response: We agree with these

commenters that an accountable

individual such as the CEO or CFO

should sign the certification, and we

accept the commenters’ suggestion that

the Medicare+Choice requirement be

adopted. Under § 422.502(l) of the

Medicare+Choice regulations,

certifications must be signed by ‘‘the

CEO, CFO, or an individual delegated

the authority to sign on behalf of one of

these officers, and who reports directly

to such officer.’’ We have adopted this

language in § 438.606(a)(2) of this final

rule.

Comment: Several commenters urged

that related entities, contractors, or

subcontractors that generate these data

should be required to certify the

accuracy, completeness, and

truthfulness of the data.

Response: We agree with these

commenters, and we are providing (1) in

§ 438.602 that an MCO ‘‘and its

subcontractors’’ must comply with the

certification requirements in subpart H;

and (2) in §thnsp;438.606(a)(1) that

MCOs must require subcontractors to

certify the data they submit to MCOs if

the data are used in determining the

MCO’s payment.

Comment: Another commenter

believes that the large majority of data

on which payment is based is

determined by the State agency and not

by the MCO. Regardless of the billing

data submitted by the plan, the

commenter believes the State

determines the payment to the MCO

based on information within the State

system and the certification of the

accuracy of the data should be applied

equally to the State agency.

Response: The purpose of the

certification requirement with respect to

data submitted to the State by the MCO

is to ensure that MCOs do not submit

false or inaccurate data that might result

in inappropriate higher payment

amounts. It is a protection for the State

and HCFA against being defrauded, or

paying an MCO more than the amount

to which it should be entitled. The State

has no incentive to pay more than the

amount dictated by accurate

information, and has existing incentives

to use accurate data. A major purpose of

the certification requirement is to

facilitate possible cases under the False

Claims Act. States are not subject to the

False Claims Act. States are subject to

detailed requirements in § 438.6(c)

requiring that payments are accurate

and appropriate. We do not believe that

States should have to certify data.

However, if payment is based solely on

State data, and an MCO does not submit

any data upon which its payment is

based an MCO would not have to sign

certifications under subpart H.

Comment: One commenter believes

that data integrity is critical but was still

unclear on certification requirements.

Response: We believe that this final

rule clearly spells out which data must

be certified (§ 438.604), who must

certify the data (§ 438.606(a)), and to

which data the certifying individual is

attesting (§ 438.606(b)). We believe that

the requirements of these regulations are

clear. We believe that imposing more

detailed requirements than already set

forth in this final rule would be overly

prescriptive and that States should have

flexibility in applying these

requirements.

Comment: One commenter believes

that the State Medicaid Fraud Control

Units (MFCUs) should be added to the

list of parties to whom the MCO must

submit the reports required in § 438.606.

Response: We did not identify the

MFCUs as a recipient of the reports on

the violations of law because States are

already required under 42 CFR 455.21 to

refer to the MFCU all cases of suspected

provider fraud, including such materials

as records or information kept by the

State Medicaid Agency or its

contractors, computerized data stored

by the Agency, and any information

kept by providers to which the State

Medicaid Agency is authorized access.

States already have established

relationships with MFCUs relative to

referring cases of suspected fraud and

abuse. We believe this requirement is

already sufficiently addressed, and we

have not revised this aspect of the

proposed rule.

Comment: One commenter suggested

that administrative and management

arrangements or procedures should

include specific plans for the method by

which the MCO intends to discover and

discourage fraud and abuse and that

these specific plans should be submitted

to the State Medicaid Agency for review

and prior approval before execution of

any contract. The commenter believes

that specific plans would eliminate

subjective determinations by each MCO

of that which constitutes effective

arrangements and management

procedures.

Response: We believe that it is

appropriate to allow States flexibility in

determining their requirements for

MCOs in this regard. We also note that

States may have laws that govern this

authority, and we wish to respect those

laws.

Comment: One commenter noted

differences between the language in

proposed § 438.606 requiring only that

MCOs have a process for reporting

violations of law and language in

§422.501(b)(3)(vi) of the

Medicare+Choice interim final rule

published on June 28, 1998 requiring

that Medicare+Choice organizations

have a comprehensive compliance plan

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6359

that includes an ‘‘adhered-to’’ process

for reporting credible information to

HCFA and/or OIG. The commenter

recommended that HCFA adopt the

Medicare+Choice language in

§422.501(b)(3)(vi). The commenter

believes consistency between Medicare

and Medicaid will reduce the regulatory

burden on managed care plans that elect

to participate in both programs by

eliminating any uncertainty as to what

standard of conduct applies. A few

commenters raised concerns about the

general requirement that MCOs have

‘‘administrative and management

arrangements or procedures designed to

guard against fraud and abuse.’’ Instead

of imposing Federal requirements in

this area, such as self-reporting, the

commenter believes the rule should

allow States to take the lead in working

with MCOs to combat fraud and abuse

in the Medicaid program.

Response: We agree with the first

commenter that maintaining

consistency with Medicare+Choice will

eliminate unnecessary burden on plans

and that administrative and

management procedures that include a

compliance plan will work toward that

end. We have included a compliance

plan that includes the same elements as

those listed in the Medicare+Choice

final rule published on June 29, 2000

(65 FR 40170). We disagree with the

second commenter that there should be

no Federal requirements, but, consistent

with the commenter and consistent with

the Medicare final rule, which deleted

the mandatory self-reporting

requirement in§422.501(b)(3)(vi)(H), we

have deleted this requirement. The

Medicaid MCO requirements and

Medicare+Choice requirements are now

consistent on this issue.

Comment: A few commenters raised

concern over the term ‘‘credible’’

information. One commenter believes

the word ‘‘credible’’ should be replaced

with the standard contained in § 455.15,

specifically that if there is ‘‘reason to

believe that an incident of fraud or

abuse has occurred,’’ MCOs are required

to report this to the State. One

commenter believes the word ‘‘credible’’

should be eliminated entirely so that

MCOs are not penalized for reporting in

good faith information that is later

found not to be credible.

Response: We have deleted the

Federal self-reporting requirement

containing the word ‘‘credible,’’ so these

comments are moot.

G. Sanctions (Subpart I)

Section 1932(e)(1) of the Act requires,

as a condition for entering into or

renewing contracts under section

1903(m) of the Act, that State agencies

establish intermediate sanctions that the

State agency may impose on an MCO

that commits one of six specified

offenses: (1) Failing substantially to

provide medically necessary services;

(2) imposing premiums or charges in

excess of those permitted; (3)

discriminating among enrollees based

on health status or requirements for

health care services; (4) misrepresenting

or falsifying information; (5) failing to

comply with physician incentive plan

requirements; and (6) distributing

marketing materials that have not been

approved or that contain false or

materially misleading information. In

the case of violation number 6, the

statute imposes sanctions against

PCCMs as well as MCOs. Proposed

§ 438.700 contains the above provisions

from section 1932(e)(1)of the Act.

In section 1932(e)(2) of the Act, the

Congress provided specific sanction

authority under which State agencies

may impose civil money penalties in

specified amounts for specified

violations, take over temporary control

of an MCO, suspend enrollment or

payment for new enrollees, or authorize

enrollees to disenroll without cause.

These provisions are reflected in

proposed § 438.702(a). Given the

extraordinary nature of the sanction of

taking over management of an MCO, we

proposed in § 438.706 that this sanction

be imposed only in the case of

‘‘continued egregious behavior,’’ in

situations in which there is ‘‘substantial

risk’’ to enrollee health, or when the

sanction is ‘‘necessary to ensure the

health of enrollees.’’

Although these sanctions are

referenced in section 1932(e)(1) of the

Act as sanctions to be imposed on

MCOs and on PCCMs only in the case

of marketing violations, section

1932(e)(2)(C) of the Act refers to a

‘‘managed care entity,’’ while

paragraphs (D) and (E) that follow refer

to ‘‘the entity’’ and provide for

suspension of enrollment or suspension

of payment after the date the Secretary

notifies ‘‘the entity’’ of a determination

that it has violated ‘‘section 1903(m) or

* * * section [1932].’’ While only an

MCO could violate section 1903(m) of

the Act, a PCCM could violate

requirements of section 1932 of the Act

that apply to MCOs and PCCMs

generally or to PCCMs specifically. In

proposed § 438.702(b)(2), we interpret

the foregoing language to mean that the

sanctions in sections 1932(e)(2)(D) and

(E) of the Act are available in the case

of a PCCM that violates ‘‘any

requirement’’ in section 1932 of the Act.

The general intermediate sanction

authority in paragraphs (D) and (E) of

section 1932(e)(2) of the Act is reflected

in § 438.702(b)(1) with respect to MCOs.

In light of the foregoing interpretation,

paragraphs (b)(4) and (b)(5) of § 438.702

use the term MCO or PCCM rather than

MCO only, even though the only

‘‘determinations’’ that apply to PCCMs

are terminations under proposed

§ 438.700(a)(6) (marketing violations) or

the general violations of section 1932 of

the Act that are addressed in

§ 438.702(b)(2). Under the codification

in the proposed rule, these latter

determinations technically are not

‘‘determinations under § 438.700,’’ and

are not included under paragraphs (b)(4)

and (b)(5) of § 438.702. As recodified in

this final rule, these determinations are

addressed in § 438.700(d).

Section 1932(e)(3) of the Act requires

that, for MCOs with chronic violations,

the State impose temporary

management and allow disenrollment

without cause. This provision is

implemented in proposed § 438.706(b).

Section 1932(e)(4) of the Act

authorizes State agencies to terminate

the contract of any MCO or PCCM that

fails to meet the requirements in

sections 1932, 1903(m), or 1905(t) of the

Act. This authority is implemented in

proposed § 438.708. Under section

1932(e)(4)(B) of the Act, before

terminating a contract, the State is

required to provide a hearing. Proposed

§ 438.710 sets forth this hearing

requirement as well as procedures for

the hearing. Under section 1932(e)(4)(C)

of the Act, enrollees must be notified of

their right to disenroll immediately

without cause in the case of any

enrollee subject to a termination

hearing. Proposed § 438.722 reflects this

provision.

Section 1932(e)(5) of the Act contains

a general requirement that States

provide ‘‘notice’’ and ‘‘such other due

process protections as the State may

provide’’ in the case of sanctions other

than terminations, which are governed

by section 1932(e)(4)(B) of the Act.

Section 1932(e)(5) of the Act also

provides that ‘‘a State may not provide

a managed care entity with a * * *

hearing before imposing the sanction’’

of temporary management. Proposed

§ 438.710(b) reflects this statutory

language.

In proposed § 438.724, we proposed

that States be required to notify HCFA

whenever they impose or lift a sanction.

The new sanction authority in section

1932(e) of the Act represents the first

time that the Congress has granted

Medicaid sanction authority directly to

State agencies. Under section

1903(m)(5) of the Act, which the

Congress has left in place, HCFA has

authority to impose sanctions when

Medicaid-contracting MCOs commit

6360 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

offenses that are essentially the same as

those identified in section 1932(e)(1) of

the Act. In proposed § 438.730, we

retain the existing regulations

implementing section 1903(m)(5) of the

Act, which is currently codified at

§ 434.67.

Comment: A few commenters

recommended that we add the

requirement: ‘‘States shall develop

criteria to guide them in their

determinations of when and how to use

specific sanctions individually or in

conjunction with each other.’’

Response: While section 1932(e) of

the Act mandates that States establish

intermediate sanctions, it grants States

flexibility to determine which sanctions

to impose and when to impose them,

stating that State sanctions ‘‘may

include’’ those identified in section

1932(e)(2) of the Act and that the State

‘‘may impose’’ these sanctions. We

believe that the Congress intended to

give States discretion and flexibility in

this area. While we would expect that

most States would establish specific

criteria to guide their exercise of

sanction authority, we believe it should

be a State decision whether or to what

extent it imposes sanctions. We are not

including the suggested Federal criteria

requirement.

Comment: One commenter suggested

that we provide expressly in subpart I

that sanctions be imposed for violations

of proposed § 438.100, which require

that contracts specify what services are

included in the contract and require that

States make arrangements for those not

covered through the contract. The

commenter believes that this would

help ensure access to all Federally

mandated benefits and services,

including nurse-midwifery services.

Response: The Congress intended that

States have flexibility in imposing

sanctions, requiring only that States

have sanctions in place for the specific

violations in paragraphs (i) through (v)

of section 1932(e)(1)(A) of the Act. Our

authority under section 1903(m)(5) of

the Act is similarly limited. Even under

our broad interpretation of paragraphs

(D) and (E) of section 1932(e)(2) of the

Act, under which States may impose

intermediate sanctions for any violation

of sections 1903(m) or 1932 of the Act,

the sanctions suggested by the

commenter would not be provided for

since neither of these sections mandate

the inclusion of the contract terms

required under proposed § 438.100(a) or

impose the obligation on States under

proposed § 438.100(b). If services that

are included in the contract are not

provided, sanctions are authorized

under § 438.700(a)(1).

Comment: One commenter supported

the provisions in subpart I but suggested

that misrepresentation to any member of

the public should also be cause for

sanction.

Response: Sections 438.700(b)(4) and

(5) allow States to impose sanctions on

MCOs for misrepresenting or falsifying

information that they furnish to HCFA,

the State, an enrollee, potential enrollee,

or health care provider. This provision

implements section 1932(e)(1)(A)(iv) of

the Act, which specifies these entities.

It is not clear how a misrepresentation

to a member of the public who is not a

provider, enrollee, or potential enrollee

would be relevant. We believe that this

list covers any individual, government

agency, or entity that could be affected

by a misrepresentation. States are free to

develop, under State law, a policy to

require sanctioning for

misrepresentation to any member of the

general public.

Comment: One commenter had

serious concerns about what the

commenter perceived to be the absence

of adequate Federal, as opposed to State,

standards on the rights to be afforded to

MCOs to contest sanctions. Although

this aspect of the rule reflects section

1932(e)(5) of the Act, which leaves the

decision on what due process

protections to provide to MCOs to the

States, the commenter believes that

States should be encouraged to provide

MCOs the same procedural protections

that HCFA has provided to

Medicare+Choice organizations before

HCFA imposes sanctions.

The commenter was also concerned

about potential conflicts between the

intermediate sanctions required under

the Act and the provisions of State law.

This commenter also applauded the

proposed rule allowing MCOs to be

sanctioned for not providing medically

necessary services to Medicaid

enrollees. Regarding discrimination

among enrollees on the basis of health

status or need for health care services,

the commenter recommended that all

health insurance policies fulfill the

following requirements: (1) no waiting

periods for enrollment; (2) no limitation

of coverage or reimbursement because of

severe chronic or common recurring

illnesses; (3) no premium rate increases

based on experience only on community

rating; and (4) guaranteed renewability

and portability.

Response: The statute requires timely

written notice, a hearing before

terminating an MCO contract, and in the

case of other sanctions for ‘‘such other

due process protections as the State may

provide.’’ The commenter recognizes

that the Congress has expressly granted

States the discretion to determine what

procedures to afford to MCOs in the

case of intermediate sanctions and civil

money penalties. We agree with the

commenter that States should be

encouraged to consider offering the

types of procedures offered to

Medicare+Choice organizations under

the Medicare regulations. We do not

agree that there is a risk of conflict

between the intermediate sanctions

authority in subpart I and provisions of

State law, because these sanctions have

to be established only if State law does

not cover the specified situations. With

regard to the commenter’s suggestion

concerning discrimination, we believe

that the regulations address these issues.

In the case of the ‘‘waiting period’’

issue, § 438.6(c)(1) requires that

enrollees be accepted in the order in

which they apply without restrictions.

With respect to the issues of coverage

limits or premium increases based on a

health condition, § 438.6(c)(1) addresses

the provision prohibiting discrimination

based on health status or need for health

services. Section 438.6(c)(1) also

addresses the issue of renewability to

the extent that the individual remains

Medicaid eligible and the contract

remains in place. Since Medicaid only

covers people who meet financial

eligibility requirements, it is impossible

to guarantee renewability. ‘‘Portability’’

of Medicaid benefits is similarly

impossible.

Comment: A commenter suggested

that subpart I should address the issue

of inadvertent balance billing of

Medicaid enrollees. There are no

guidelines that would enable the State

agency or contracting MCOs to

differentiate minor technical violations

from those that should result in

sanctions and fines of several thousand

dollars. The regulations should develop

criteria to guide this kind of decision

making and to protect MCOs from

arbitrary State action.

Response: Under section 1932(e) of

the Act, imposition of sanctions is

almost entirely at a State’s discretion,

other than termination and temporary

management rules. We believe that

States are in the best position to develop

criteria for when they will impose

sanctions for balance billing violations,

which could be sanctioned under

section 1932(e)(1)(A)(ii) of the Act and

§ 438.700(b)(2) (codified at

§ 438.700(a)(2) in the proposed rule) as

‘‘charges on enrollees’’ in ‘‘excess of’’

the charges permitted under title XIX.

Comment: A commenter stated that

section 438.700, which specifies the

basis on which States may impose

intermediate sanctions on an MCO,

should include discrimination based on

race, ethnicity, or language. This would

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6361

be in keeping with Title VI of the Civil

Rights Act which states that ‘‘no person

in the United States shall, on ground of

race, color or national origin, be

excluded from participation, be denied

the benefits of, or be subjected to

discrimination under any program or

activity receiving Federal financial

assistance.’’ Several of the commenters

stated that the omission of Title VI

requirements from the list of

sanctionable activities reduces the

likelihood that MCOs will comply with

cultural competency requirements. It is

also very important that the rules

strengthen the requirements for both

State Medicaid agencies and their

managed care plans to collect data

regarding the race/ethnicity of the

enrollees and the care of patients with

limited proficiency and/or low literacy.

The commenter recommended

amending proposed § 438.700(a)(3)

(recodified at § 438.700(b)(3) in this

final rule) to read, ‘‘Acts to discriminate

among enrollees on the basis of their

health status, race, color or national

origin, or requirements for health care

services.’’

Response: Section 438.700(b)(3)

reflects the language in section

1932(e)(1)(A)(iii) of the Act, which

addresses only discrimination based on

health status. Since § 438.700(b) reflects

the specified violations for which the

Congress in section 1932(e)(1)(A) of the

Act said States must have sanctions, we

believe that we do not have authority

under section 1932(e) of the Act to add

additional grounds. The civil rights law

cited by plaintiffs has its own

enforcement provisions, which are

administered by the HHS Office for

Civil Rights. We believe that it is

appropriate to inform MCOs of their

obligations under this and other civil

rights laws and have required under

revised § 438.6(d)(4) that contracts

expressly reflect these obligations. Also,

§ 438.100(d) specifies that the State

must require MCOs to comply with Title

VI of the Civil Rights Act and other civil

rights laws. In addition to the Federal

enforcement remedies under civil rights

laws, States are free to impose sanctions

on an MCO that denies services on the

basis of race, color, or national origin, or

establish their own rules under State

law.

Comments: In general, several

commenters wanted the regulation to be

clear that States have the authority to

impose sanctions for violations beyond

those that are listed in the regulation.

These commenters do not believe that

the six violations listed in this section

should be seen as exhaustive and that

States should not be precluded from

establishing and imposing separate State

sanctions or from imposing other types

of sanctions. These commenters believe

that while our intent may have been

clear in the preamble, we should set

forth our policy with respect to

sanctions in the regulations text.

Specifically, the commenters stated that

it is unclear whether the regulations

allow States to broaden the parameters

for imposing sanctions on MCOs or

limit the States to the basis set forth in

the Act and the regulations. States have

made progress in developing their own

protections and responses to hold MCOs

accountable and should not be

preempted by Federal law from using

them. They stated that we recognized

this concept in the preamble of the

proposed rule and suggested that we

incorporate this concept into the actual

regulations text. They believe that the

six offenses outlined in the regulation

should not be the only offenses that

would permit imposition of sanctions.

There are numerous offenses that MCOs

could commit that could affect both the

integrity of the Medicaid program and

the quality of care that Medicaid

enrollees receive, for example, failure by

the plan to submit accurate data or

failure to achieve State defined quality

improvement standards. The

commenters believe that we should not

limit a State’s ability to enforce its

contract and should instead give States

the explicit authority to impose

sanctions if an MCO performs

unsatisfactorily as found during an

annual medical review or audit or if an

MCO does not provide complete data to

a State or Federal regulator.

Recommended solutions provided by

the commenters included the following:

• Add a paragraph (a)(7) to § 438.700

stating that sanctions can be used for

violations of 1903(m) and 1932 of the

Act;

• Add a new paragraph (c) to

§ 438.700 that specifies: ‘‘State agencies

retain authority to provide for

additional sanctions under State law or

regulation that address both these

specified areas of noncompliance as

well as additional areas of

noncompliance. Nothing in this

regulation prevents State agencies from

exercising that authority;’’

• Add a new paragraph (a)(7)

§ 438.700 that allows States to impose

sanctions for any breach of contract not

mentioned in paragraphs (a)(1) through

(a)(6);

• Amend § 438.700(a) to specify that

the sanctionable violations include, but

are not limited to, the specified

violations;

• Add to § 438.700(a), after the word

‘‘determination,’’ ‘‘based on findings

from onsite survey, enrollee, or other

complaints, financial audits, or any

other means.’’ This language clarifies

that the State is authorized to act based

on findings it has made, regardless of

the source of the original information.

Broad authority for the State to sanction

on the basis of complaints provides

enrollees with assurances that the State

can hold the entity accountable for

specific acts of noncompliance that

enrollees or their advocates bring to the

State’s attention but that might not be

evident on an onsite survey.

Response: We agree with the

commenters that the sanctions in

subpart I do not prevent States from

imposing any other sanction they wish

under State law, and that the regulations

should clearly state that this is the case.

We are adopting the commenter’s

suggested regulations text in a new

paragraph (b) in § 438.702. We also

agree that it would be useful to clarify

that these sanctions may be imposed

based on information obtained through

enrollee complaints, audits, onsite

surveys, or any other means and have

added the commenter’s suggested

language to § 438.700(a).

We disagree with the commenters’

suggestions that the list of sanctions in

proposed § 438.700(a) be broadened or

that the regulations provide for

imposing the full range of possible

sanctions in the case of any violation of

section 1932 or 1903(m) of the Act. To

the extent that a State is relying not on

any State law, but solely on the

affirmative authority enacted by the

Congress in section 1932(e) of the Act,

this authority is necessarily limited to

that provided by the Congress. While we

have broadly interpreted paragraphs (D)

and (E) of section 1932(e)(2) of the Act

to permit suspension of enrollment or

payment for any violations of 1903(m)

and 1932 of the Act (see § 438.700(d))

and the above discussion of proposed

§ 438.702(b), section 1932(e) of the Act

does not contain authority to impose

any of the other sanctions in section

1932(e)(2) of the Act for violations other

than those enumerated in section

1932(e)(1)(A)(i) through (v) of the Act.

Comment: One commenter argued

that we should amend § 438.700(a) to

apply to PCCMs as well as to MCOs.

This commenter does not believe there

was a compelling argument for applying

most sanctions only to MCOs. The

commenter argued that PCCMs that fail

to provide medically necessary services,

misrepresent information provided to

HCFA, the State, an enrollee, potential

enrollee, or health care provider, or

impose excessive premiums or charges

on enrollees should be subject to

sanctions. Another commenter strongly

advised HCFA against drawing a

6362 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

distinction between MCOs and PCCMs

in granting the States authority to

impose sanctions for inappropriate

behavior. Other commenters also

believe that the final rule should

provide additional authority to impose

sanctions on all MCOs and PCCMs and

specifically suggested that the final rule

gives States the authority to—

• Require noncompliant MCOs or

PCCMs to submit a corrective action

plan;

• Temporarily and permanently

withhold capitation payments and

shared savings in response to

unsatisfactory MCO or PCCM

performance during an annual medical

review or an audited review;

• Make adjustments in MCO or PCCM

payments;

• Mandate payment for medically

necessary treatment;

• Recoup the cost of State payment

for out-of-plan care from a

noncompliant MCO or PCCM; and

• Arrange for the provision of health

care services by third parties at the cost

and expense of the delinquent MCO or

PCCM.

These commenters believe that

Medicaid beneficiaries in both delivery

systems should receive equal protection

under the law and that denying States

equal authority for imposing sanctions

under both delivery systems is not

judicious. Conversely, one commenter

found applying sanctions to PCCMs

problematic because this would hold

these entities to a higher standard.

California PCCMs currently are not

Knox-Keene licensed. This commenter

was concerned that this section of the

proposed rule may require PCCMs to

become Knox-Keene licensed and/or

their contracts may have to be amended

to reflect the new higher standard.

Response: To the extent a State is

relying solely on the Federal authority

provided by the Congress as its

authority to impose a sanction, this

authority is limited to that which the

Congress provided. With respect to the

violations enumerated in paragraphs (i)

through (v) of section 1932(e)(1)(A) of

the Act, all but the marketing violations

are limited to MCOs. We have already

interpreted paragraphs (D) and (E) of

section 1932(e)(2) of the Act broadly to

permit the sanctions in those paragraphs

to be imposed on PCCMs in the case of

any violation of section 1932 of the Act.

We do not believe that section 1932(e)

of the Act can reasonably be interpreted

to provide authority for the types of

sanctions suggested by the commenter.

Because most PCCMs are paid on a feefor-service basis, they do not have the

same incentives to deny medically

necessary services that MCOs do. States

may provide for sanctions against

PCCMs under their own State sanction

laws. With respect to the commenter

concerned about applying sanctions to

PCCMs, the Congress provided for this

in section 1932(e) of the Act, and we do

not believe that this application is

inappropriate or would subject PCCMs

to the Knox-Keene Act.

While States are free to adopt the

specific additional enforcement

strategies suggested by the commenter

in the bullet points above, these

strategies cannot be included in

regulations implementing section

1932(e) of the Act, since there is no

reasonable reading of the provisions of

section 1932(e) of the Act that would

authorize those remedies.

Comment: One commenter believes

that HCFA should specify additional

grounds for imposing intermediate

sanctions and suggested that the final

regulations explicitly state that States

may impose sanctions when an MCO

fails to comply with the grievance

regulations of this part. States would be

more likely to impose these

intermediate sanctions rather than the

options provided for in § 438.424.

Response: The sanction authority

provided for by the Congress in section

1932(e) of the Act is limited. Section

1932(e) of the Act sets forth the

minimum set of violations that must be

subject to sanction and provides Federal

authority to impose sanctions for these

violations. We cannot expand on this

authority by regulation. We have

clarified in the preamble, and now in

§ 438.702(b), that States are free to

impose sanctions under State law that

go beyond those authorized by the

Congress in section 1932(e) of the Act,

including sanctions for failing to

comply with grievance requirements. To

the extent that an MCO violates the

grievance requirements or regulations

implementing section 1932(b)(4) of the

Act, States could impose the limited

sanctions provided for under paragraph

(D) and (E) of section 1932(e)(2) of the

Act and § 438.700(b).

Comment: One commenter believes

that we should amend § 438.700(a)(1) to

refer expressly to the failure to provide

medically necessary ‘‘items’’ as well as

services, since this term is included in

section 1932(e)(1)(A)(i) of the Act.

Alternatively, the commenter suggested

that we use the term ‘‘benefits’’ rather

than ‘‘services,’’ since the commenter

believes that the former term would

include services and items. For

example, prescription drugs and durable

medical equipment may not be

considered ‘‘services.’’

Response: We do not use the term

‘‘items’’ in our regulations because the

term ‘‘services’’ as used in the

regulations includes covered ‘‘items’’ as

well. While only the Medicare

regulations expressly specify that

‘‘services’’ includes ‘‘ items’’

(§ 400.202), section 1905(a) of the Act

uses the term ‘‘care and services’’ to

encompass all services or items for

which Medicaid payment may be made.

References in the regulations to

‘‘services’’ include covered ‘‘items’’ as

well.

Comment: A few commenters were

confused regarding our role in the

sanction area. These commenters are

unclear as to whether HCFA would be

making sanction determinations, either

at the request of the State or

independently. The commenters are

opposed to HCFA making sanction

determinations without the involvement

of the State.

Response: Under § 438.730 of the final

rule, previously codified at § 434.67, we

may impose sanctions on an MCO based

on the recommendation of the State.

Under paragraph (e) of § 438.730, we

also retain the right to act

independently with respect to

sanctions. This is consistent with

section 1903(m)(5) of the Act, which

grants us the authority to impose

sanctions against an MCO. This Federal

authority was not affected by the new

BBA sanction provisions in section

1932(e) of the Act. While we would not

expect to impose sanctions without the

involvement of the State, we believe

that the regulations should reflect the

fact that the Congress has authorized us

to do so.

Comment: One commenter believes

that additional consumer protections

were needed with regard to the right to

disenroll without cause when sanctions

are imposed and that States should be

required to educate enrollees on the

circumstances that allow them to

disenroll automatically. Another

commenter requested that HCFA clarify

that a State is free to suspend default

enrollment, leaving beneficiaries to

make an affirmative decision whether to

enroll. Several other commenters

suggested that HCFA further clarify this

provision and give States the option of

suspending all enrollment, not just

default enrollment. According to the

commenters, this clarification would

not only provide States with greater

flexibility but would also permit greater

choice for Medicaid beneficiaries.

Response: Under § 438.702(a)(4) of the

final rule, the State may suspend all

new enrollment, including default

enrollment, as an intermediate sanction.

The State is not precluded from

establishing other types of intermediate

sanctions that are not included in the

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6363

regulation. With respect to the

suggestion concerning information

provided to enrollees, § 438.56(c)

requires that information on an

enrollee’s disenrollment rights be

provided annually, including the

circumstances under which a

beneficiary can disenroll ‘‘for cause.’’

Comment: Several commenters

requested clarification that States still

have the flexibility to establish civil

money penalties beyond those listed in

the regulation. One commenter

specifically mentioned that the amounts

of the civil money penalties seemed

high but that they would not be

problematic so long as the amounts

were not mandatory. Another

commenter mentioned that if PCCMs

could be sanctioned, there should be a

regulatory ceiling on the amount of the

penalty.

Response: The amounts specified in

this provision only apply to the extent

the State is relying upon Federal law,

under section 1932(e) of the Act, as its

authority to act. States may, under State

law, establish additional civil money

penalties that may be more severe than

those authorized under section

1932(e)(2)(A) of the Act or § 438.704.

With respect to PCCMs, to the extent the

State is relying on Federal law as its

authority for the establishment of

sanctions, the civil money penalties

under § 438.704 would be maximum

amounts. A State is not precluded from

developing additional intermediate

sanctions against PCCMs or MCOs, as

explicitly noted in § 438.702(b).

Comment: One commenter believes

that HCFA should provide additional

guidance as to how the amount of the

civil money penalty elected, in cases in

which States have discretion to choose

an amount below a specified maximum,

should be related to the purported harm.

The commenter believes that HCFA

should provide some rationale for

assessing money penalties and should

discuss this section with the commenter

to develop this rationale.

Response: Section 1932(e)(2)(A) of the

Act establishes a relationship between

the amount of the civil money penalty

(as described in § 438.704 of the final

rule) and the specific violations to

which these penalties apply. In clauses

(i) and (ii), ‘‘maximum’’ amounts are

specified. We believe that by

establishing a ‘‘maximum’’ amount for

these violations, the Congress intended

that States have the discretion to decide

what amount to impose below these

maximum amounts. We are allowing the

States to decide the amount they wish

to impose in penalties and to establish

criteria for cases when particular

amounts at or below the specified

maximums will be imposed.

Comment: One commenter expressed

confusion regarding the maximum

penalty that can be imposed under

section 1932(e)(2)(A)(iii) of the Act for

imposing premiums or charges in excess

of those permitted. Under section

1932(e)(2)(A)(iii) of the Act, for this type

of violation, the penalty that can be

imposed is double the amount of any

excess amount charged to an enrollee

with half this amount refunded to the

overcharged enrollee or enrollees. The

commenter asked whether this would be

for the one enrollee who reported a $5

overcharge (that is, one $10 amount) or

$10 per each enrollee in the plan.

Another commenter suggested that the

regulation should be changed to provide

that it is the MCO’s responsibility, not

the State’s, to return the amount of the

overcharge to affected enrollees and that

the authority to collect double the

amount of the excess charge provides

authority to collect more than the

$25,000 limit stated in paragraph (a).

Response: Section 438.704(b)(4) of the

final rule specifies that for premiums or

charges in excess of the amounts

permitted under the Medicaid program,

civil money penalties may be imposed

at an amount representing double the

amount of the excess charges. This

would be imposed for each instance of

the violation and not necessarily

calculated using the total number of

enrollees in the plan. If all enrollees

were charged the excess amount, this

amount would be doubled for all

enrollees. Since the State imposes and

collects the entire fine, we believe that

the State ordinarily would reimburse

enrollees by distributing half the

amount specified in section

1932(e)(2)(A)(iii) of the Act. We would

leave it to the State’s discretion,

however, whether it wishes to

reimburse enrollees through the MCO.

With respect to the commenter’s last

point about the applicability of the

authority to impose $25,000 in penalties

in cases of overcharges to enrollees,

section 1932(e)(2)(A)(i) of the Act

permits a civil money penalty of ‘‘not

more than’’ $25,000 for ‘‘each

determination’’ under section

1932(a)(1)(A) of the Act, ‘‘except as

provided in clause (ii), (iii), or (iv).’’ We

believe that this language could

reasonably be interpreted in two ways.

Under one reading, ‘‘except as provided

in clause (ii), (iii), or (iv)’’ would be

interpreted to mean that clause (i) has

applicability only when the other three

clauses do not apply. Under this

interpretation, one would look solely to

clause (ii), (iii), or (iv) to determine the

amount that could be imposed in civil

money penalties when those clauses

apply. If the amount under section

1932(e)(2)(A)(iii) of the Act was

$10,000, only this amount could be

imposed in penalties. The commenter

has suggested an alternative reading,

under which the ‘‘except as provided’’

clause is read as an exception to the

$25,000 limit in clause (i). Under this

interpretation, civil money penalties of

up to $25,000 could be imposed for any

determination under section

1932(e)(1)(A) of the Act ‘‘except’’ to the

extent that an even higher amount is

permitted in the cited clauses. The

$25,000 amount would, under this

reading, constitute a ‘‘floor’’ authorized

penalty with potentially higher

‘‘ceilings’’ under the other clauses. The

$100,000 amount provided for under

clause (ii) is higher than $25,000 and

would constitute an exception to the

$25,000 limit. The amount determined

under clause (iv) would similarly be

higher than $25,000, as long as just two

individuals were denied enrollment

based on health status (which would

result in a penalty of $30,000). Under

clause (iii), ‘‘double the excess amount

charged’’ also could easily exceed

$25,000, and thus also constitute an

‘‘exception’’ to the $25,000 limit in

clause (i). We agree with the commenter

that this latter interpretation is the best

interpretation of the statute, in that a

substantial penalty could be imposed

for overcharging enrollees, even if the

amount of the overcharge is not

substantial. We are providing in

§ 438.704(b)(4) that States may impose

civil money penalties of the ‘‘higher of’’

$25,000 or the amount under section

1932(e)(2)(A)(iii) of the Act.

Comment: Several commenters

requested that HCFA reconcile the

numerous variations between proposed

§ 438.704 and 42 U.S.C. 1396u2(e)(2)(A).

The commenters suggested that the term

‘‘either’’ in proposed § 438.704(a)

should be eliminated and replaced with

the term ‘‘any’’ and that the words ‘‘a

failure to act’’ in proposed

§ 438.704(a)(1) should be replaced with

‘‘an act or failure to act.’’ These changes

would make it clear that the State is not

being directed to respond to one

circumstance at the expense of another

and that noncompliance can be applied

in both actions and failures to act.

Response: We agree with the

commenter’s points, and the revised

version of § 438.704 does not contain

the reference to ‘‘failure to act’’ without

‘‘action,’’ or the word ‘‘either’’ as

referenced by the commenter.

Comment: Numerous commenters

believe that we were too restrictive in

our interpretation of the $100,000 cap

for some of the civil money penalties

6364 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

outlined in the proposed regulation. In

the view of these commenters, the MCO

should be fined $15,000 for each

beneficiary not enrolled as a result of

discrimination, plus $100,000. One

commenter believes that there should

not be a $100,000 cap at all, because in

large areas that threshold is quickly met

and enforcement could not proceed.

Response: Under section

1932(e)(2)(A)(iv) of the Act, the

provision for a $15,000 penalty for each

individual denied enrollment under ‘‘a

practice’’ described in section

1932(e)(1)(A)(iii) of the Act is ‘‘subject

to’’ section 1932(e)(2)(A)(ii) of the Act.

Section 1932(e)(2)(A)(ii) of the Act

limits the amount of any penalty for ‘‘a

determination under [section

1932(e)](1)(A) to $100,000.’’ If section

1932(e)(2)(A)(iv) of the Act were

intended to permit penalties in excess of

$100,000 for a finding of discrimination

under section 1932(e)(1)(A)(iii) of the

Act, it would have said ‘‘in addition to’’

the amount in clause (ii) of section

1932(e)(2)(A)(ii). Instead, it says that the

amount under section 1932(e)(2)(A)(iv)

of the Act is ‘‘subject to’’ clause (ii). We

believe this can only be read to mean

that the total amount under clause (iv)

is ‘‘subject to’’ the limit in clause (ii)

and cannot exceed $100,000 per

determination of a discriminatory

practice. If there is more than one

finding of a discriminatory ‘‘practice

described in’’ section 1932(e)(1)(A)(iii)

of the Act, a penalty of up to $100,000

could be imposed for each such finding.

Comment: All of the commenters

oppose the required imposition of

temporary management in the case of

repeated violations. They believe that

we should take a flexible approach to

this provision, as it is unlikely that

States would choose to impose this

requirement, and in many instances this

requirement would be overly

burdensome. Most commenters

indicated that States will be more likely

to terminate an MCO’s contract under

these egregious circumstances in which

our regulation requires the imposition of

temporary management. Commenters

stated that, putting aside the practical

problems associated with such a

remedy, they believe that a plan that is

incapable of managing itself would be

equally poorly run by temporary

management. In the view of these

commenters, this plan should have its

contract terminated and should not be

subject to the imposition of outside

management in a probably futile attempt

to salvage the operation. Another

commenter stated that this provision is

of great concern because the State

should always have the authority to

terminate the MCO’s contract if the

MCO meets any specified contract

termination threshold. Forcing the State

to continue a contractual arrangement

and payment when the State has

determined that termination is the most

appropriate course of action strikes this

commenter as imprudent. The

imposition of temporary management

may be very administratively complex if

the State MCO licensing agency does

not concur with this course of action,

particularly when the MCO has lines of

non-Medicaid business that would be

affected. Requiring the State to work

through the complexities of imposing

temporary management when this does

not appear to be the appropriate

response would be very problematic to

the State and have potentially negative

ramifications for both enrollees and

providers. One commenter believes that

if it is appropriate for a State

government agency to take over the

management of a managed care plan, the

appropriate agency would be the State

Department of Insurance. That agency

generally has far more experience in

managing troubled insurers and

managed care plans. The commenter

recommended that HCFA convey these

points to State agencies. Another

commenter stated that temporary

management requires extensive

knowledge and should only be used

sparingly. The commenter believes that

the State should defer to the State

insurance commissioner as temporary

management should fall under his or

her purview. One commenter would

favor a change in the regulation to allow

temporary management as an option

rather than a mandate. Implementing

this sanction would place a heavy

administrative burden on the State.

Although States would have the

discretion to impose this sanction on an

MCO, it is doubtful this sanction would

ever be used. Authorizing the State to

take over management of a commercial

enterprise seems to go beyond the scope

of authority available to the State, while

allowing immediate disenrollment of

enrollees is quite justified. The

commenter also stated that it is not

necessary to assume management of the

MCO when other sanctions are

available, including termination of the

MCO’s contract. This sanction is

overreaching and invades the State’s

right to determine appropriate sanctions

for its plans. Another commenter stated

that in the event of continued egregious

behavior by an MCO, the State would

certainly terminate the contract and

reassign enrollees but would not want to

be put in the position of managing an

MCO. Although this provision is based

on statutory language, the commenter

urged HCFA to recognize and to

minimize the potential conflict with

existing State insurance regulations,

policies, and processes for monitoring

and taking action against financially

insecure plans. One commenter

recommended that the regulations

reflect the decision reached in the

preamble, stating that States set the

thresholds for egregious actions

requiring temporary management and

that the contract can be terminated

rather than imposing temporary

management.

Response: Section 1932(e)(3) of the

Act provides that the State shall

(regardless of what other sanctions are

provided) impose the sanction of

temporary management in cases in

which an MCO has ‘‘repeatedly’’

violated section 1903(m) of the Act. To

the extent that the commenters believe

that the requirement in § 438.706(b) is

inappropriate, their arguments are

properly directed at the Congress, since

this regulatory provision merely reflects

the statutory requirement in section

1932(e)(3) of the Act and has no

independent legal effect. We have no

authority to alter or delete this

requirement. We agree with some of the

sentiments reflected in the above

comments and intend to give States the

maximum flexibility permitted by

statute. The regulations permit the State

to terminate a contract at any time and

to do so rather than imposing temporary

management. States are also free to

establish a threshold in their State plan

or otherwise that would have to be met

before an MCO is considered to have

‘‘repeatedly’’ committed violations of

section 1903(m) of the Act for purposes

of the mandatory temporary

management requirement in section

1932(e)(3) of the Act. Since the

circumstances for each population and

MCO vary greatly, we believe it is

prudent to work with each State to

determine a reasonable threshold. All

States will have ample ability to

terminate a contract, if they choose,

rather than imposing the temporary

management requirement.

Comment: Two commenters were

concerned over the effect imposition of

temporary management would have on

the MCO’s commercial enrollment.

Another noted that, based upon the

regulatory language, this provision

could apply to an MCO that also has

Medicare and/or commercial business.

These commenters believe that this

sanction provision raises serious

practical concerns, especially with the

lack of any due process protections

other than written notice. One

commenter recommended adding a new

paragraph (c) to § 438.706 that says the

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6365

State shall develop criteria for who can

serve as a temporary manager and shall

maintain a list of individuals and

entities meeting the criteria who are

able and willing to serve in that

capacity.

Response: We have no authority to

change the requirement in § 438.706(b),

since it reflects the statutory

requirement in section 1932(e)(3) of the

Act. States are free to develop the

criteria suggested by the commenter or

to maintain the list suggested. Since

States are free to terminate a contract

before it gets to the stage of a mandatory

temporary management, and in keeping

with our decision to grant States

maximum flexibility in complying with

section 1932(e)(3) of the Act, we do not

accept the commenter’s suggestion that

these specific approaches be mandated.

We note that for those situations in

which temporary management would be

mandated under whatever criteria the

State develops, MCOs would have had

ample warning through other

intermediate sanctions and corrective

action plans. Since States have the

authority to terminate a contract instead

of imposing temporary management,

termination is more likely to be a State’s

sanction of choice, with MCOs receiving

hearings prior to termination. Except for

repeated section 1903(m) of the Act

violations, the rest of this section is for

use entirely at a State’s option. Because

we believe that States will be unlikely

to exercise temporary management

under § 438.706, we believe there

should be no effect on an MCO’s

commercial or Medicare enrollment. In

the unlikely event that a State takeover

of management were to occur, we would

expect States to take measures to limit

the scope of their control to the

parameters necessary to administer the

Medicaid contract.

Comment: One commenter

encouraged States to take into

consideration the unique needs of

children when determining the

identification of egregious behavior and

threats to enrollees and the number of

offenses that would require imposition

of temporary management.

Response: We encourage States to take

the unique needs of children into

consideration when determining when

temporary management of an MCO is

appropriate. We will take this into

consideration when working with States

that wish to develop thresholds of

section 1903(m) of the Act violations.

Comment: One commenter

appreciated being given the clear

authority to impose temporary

management on an MCO. Another group

of commenters supported HCFA’s

guidance in § 438.706(a) regarding when

the voluntary imposition of temporary

management is appropriate. Voluntary

imposition of temporary management is

appropriate when the State finds

through onsite survey, enrollee

complaints, financial audits, or any

other means that there is egregious

behavior on the part of the MCO,

substantial risk to enrollees’ health, or

the need to impose the sanctions to

ensure the health of the MCO’s

enrollees.

Response: We appreciate the

commenters’ support and approval.

Comment: Numerous commenters

were concerned over their perception of

a lack of an adequate opportunity for

MCOs to contest a State decision to

impose a sanction. The commenters

noted that while § 438.710(b) requires

that a hearing be provided before a

contract is terminated, § 438.710(a)

requires in the case of other sanctions

only that written notice be provided of

the sanction and of any due process

requirements that the State elects to

provide. One commenter was concerned

about a perceived lack of minimum

procedures before the State can impose

sanctions such as civil money penalties

or suspension of new enrollment or

payments. Another commenter had

serious concerns about the absence of

Federal procedural process

requirements before the imposition of

sanctions on MCOs. Based on the terms

of the proposed rule, the State agency

would have discretion to impose civil

money penalties suspend new

enrollment, and suspend payment

without giving the MCO and PCCM an

opportunity to present its views before

the decision maker. One commenter

believes that rather than denying the

right to a hearing relative to the

imposition of temporary management,

as provided in section 1932(e)(5) of the

Act, the entire concept should be

reconsidered. One commenter suggested

that minimum procedural safeguards

should be included in these regulations

but did not specify what these

minimum safeguards should be.

Another commenter recommended that

HCFA require State agencies to ensure

some form of procedural due process to

be used prior to imposition of sanctions.

Two commenters recommended that, at

a minimum, MCOs be granted

procedural safeguards that are the same

or very similar to the procedural

safeguards that HCFA has given

Medicare+Choice organizations.

Response: We do not prohibit States

from establishing the ‘‘due process

protections’’ that they consider

appropriate. As noted earlier, section

1932(e)(5) of the Act provides States

with the discretion to make this

decision, stating that ’’ * * * the State

shall provide the entity with notice and

such other due process protections as

the State may provide, ***’’

(Emphasis added.) We believe it would

be inconsistent with this provision to

dictate that specific procedures be

employed. We find one area in which

our proposed rule goes beyond the

requirements of the statute in

potentially denying an MCO an

opportunity to contest a sanction.

Proposed § 438.710(b) of the Act

provides that the State could not delay

imposition of temporary management

‘‘during the time required for due

process procedures, and may not

provide a hearing before the imposition

of temporary management.’’ (Emphasis

added.) Section 1932(e)(5) of the Act

provides for the State to afford ‘‘due

process protections,’’ but precludes a

State only from providing a ‘‘hearing’’

before imposing temporary

management. In response to the above

concerns, we have revised what is now

§ 438.706(c) to eliminate the reference to

due process protections and to reflect

the statute by prohibiting the State only

from providing a hearing before

imposing temporary management.

Comment: One commenter believes

that when a contractor is terminated,

adequate notice needs to be given to

beneficiaries. The commenter

recommended that we require timely

notice to beneficiaries when States

terminate an MCO or when an MCO

withdraws from the program. This

notice should include accurate

information on options to enable

beneficiaries to make informed choices

among other available MCOs and

PCCMs.

Response: We agree that Medicaid

beneficiaries enrolled in an MCO or

PCCM that is being terminated should

receive timely notice of the termination

with information on the options

available to the beneficiary once the

termination is effective. While the

Congress provided in section

1932(e)(4)(C)(i) of the Act for notice to

enrollees of a decision to terminate a

contract, this notice is provided only

when the State exercises its discretion

to permit enrollees to disenroll

immediately without cause before the

termination hearing is completed.

Section 1932(e)(4)(C)(i) of the Act

clearly provides that States ‘‘may’’

provide such notice. We agree with the

commenter that if a decision to

terminate an MCO is upheld, and a

termination is about to take effect,

beneficiaries should be notified. Under

section 1902(a)(19) of the Act, which

requires that States provide safeguards

necessary to assure that care and

6366 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

services are provided in a manner

‘‘consistent with * * * the best interests

of recipients,’’ we are adding

§ 438.710(b)(2)(iii) to require that notice

of the termination be provided to

enrollees of the terminated MCO or

PCCM, with information on their

options following the effective date of

the termination.

Comment: We received one comment

that stated that in order to avoid

conferring an unintended defense to

MCOs that meet the contractual

standard for termination of the contract,

we should specify that failure of a State

to impose intermediate sanctions is no

basis for objection or affirmative defense

against a contract termination.

Response: States have the authority to

terminate an MCO’s or PCCM’s contract

without first having to impose

intermediate sanctions, such as civil

money penalties. If a State chooses not

to impose intermediate sanctions before

it terminates an MCO’s or PCCM’s

contract, this action should not be used

as an affirmative defense on the part of

the MCO or PCCM against contract

termination. We do not believe it is

necessary or appropriate to make this

statement in the regulation text itself.

Comment: Several commenters

disagreed with the language in proposed

§ 438.718(a) that allows a State to

terminate an MCO’s or PCCM’s contract

if the MCO or PCCM failed

‘‘substantially’’ to carry out the terms of

its contract. These commenters argued

that the term substantially does not

appear in section 1932(e)(4) of the Act,

which is implemented in revised

§ 438.708, and severely restricts State

flexibility in protecting Medicaid

beneficiaries and the integrity of the

Medicaid program. In the commenters’

view, the added burden of proving

substantial failure to comply is

unnecessary and will add layers of

litigation when a State seeks to

terminate an MCO or PCCM. These

commenters recommended removing

the word ‘‘substantially.’’

Other commenters made the same

point about our inclusion of the word

‘‘substantially’’ in proposed § 438.708,

which implements the obligation in

section 1932(e)(3) of the Act to impose

temporary management in the case of

repeated violations. Although the

preamble indicates that we introduced

the word ‘‘substantially’’ in order to

allow States greater flexibility, there is

no indication that the Congress

intended for there to be greater

flexibility in the application of this

statutory requirement. These

commenters argued that if the Congress

had intended flexibility, it would not

have made this provision ‘‘mandatory’’

in the first place, noted that this

provision is the only mandatory

requirement that sanctions be imposed,

and noted that this provision is

triggered only in instances in which the

MCO repeatedly failed to meet

requirements. These commenters found

it difficult to understand why we would

take what they considered the only

mandatory sanction in the statute and

attempt to give States greater flexibility.

Response: We agree that the word

‘‘substantially’’ is not used in section

1932(e)(4) or section 1932(e)(3) of the

Act, is potentially ambiguous, and could

create misunderstanding and

enforcement problems. We included

this term in proposed §§ 438.718(a) and

438.708 because we did not believe that

termination or temporary management

would be warranted for violations that

are not substantive in nature, such as

clerical or non-quality related reporting

violations. In response to the above

comments, in the final rule, we have

changed ‘‘substantially’’ to

‘‘substantive’’ in both § 438.708(a) and

§ 438.706(b) as codified at § 438.708 in

the proposed rule.

Comment: One commenter believes

that the 30-to 60-day time frame for the

termination hearing was insufficient

and imposed an undue administrative

burden. Another commenter

recommended that the regulation

provide notice of the intent to terminate

60 days before the effective date of the

termination. The commenter also

believes that the final regulation should

establish criteria for when termination

should be imposed and notice of when

a termination decision has been made.

A third commenter argued that this

proposed requirement would impose a

hardship on States because they are

required to set the date and time for a

hearing that the provider may not wish

to have or be willing to attend. One

commenter suggested that the

termination notification should inform

the MCO of its right to request a hearing

and the procedures for doing so by

phone or by mail. Upon the receipt of

a hearing request, the State would be

required to schedule the hearing not

fewer than 30 or more than 60 days

thereafter, unless the State agency and

MCO or PCCM agree in writing to a

different date.

Response: Because of legitimate

concerns from many different parties,

and in light of the fact that the Congress

chose to provide States with their own

discretion to establish due process

protections, we are removing the time

frames that were in the proposed rule

and allowing the State to develop its

hearing process and its timing.

Comment: We received several

comments requesting that we require

the pre-termination hearings be open to

the public, since public disclosure is an

important step towards ensuring

accountability. These commenters

stated that the Supreme Court has

recognized the public policy value of

having program participants most

affected by an enforcement decision

participate in an enforcement hearing,

citing the Supreme Court’s decision in

O’Bannon v. Town Court Nursing

Center, 447 U.S. 773 (1980). One

commenter requested that we clarify

who may participate in the hearing and

the procedural rules that apply to the

hearing. Another commenter

recommended that States be required to

provide potentially affected enrollees

with the following: (1) written notice at

least 15 days before the date of the pretermination hearing and (2) information

regarding how enrollees may testify at

that hearing. Commenters stated that we

should require that this notice be (1)

written at no higher than a fourth grade

level, (2) translated into the prevalent

languages spoken by the population in

the service area, and (3) accessible to

persons with hearing and sight

impairments.

Response: We believe that the above

suggestions represent good ideas. With

respect to the period prior to a decision

following a hearing, the Congress has

suggested that States should have

discretion whether to notify enrollees of

the proposed termination. Under section

1932(e)(4)(C) of the Act, the State ‘‘may’’

notify ‘‘individuals enrolled with a

managed care entity which is the subject

of a hearing to terminate the entity’s

contract with the State of the hearing.’’

We believe it would be inconsistent

with Congressional intent to mandate

notice at this time. We have required

that notice to enrollees be provided if a

decision to terminate is upheld in a

hearing. Any notice the State sends to

enrollees must meet the language and

format requirements of § 438.10(b) and

(c).

Comment: One commenter stated that

sometimes it is necessary for the State

to terminate a contract with a PCCM

because, the PCCM has left the practice

without notifying the State. In that

situation, the proposed requirement for

notice and hearing before termination

would not allow the State to take

immediate action and would cause

hardship to enrollees whose access to

medical care would be greatly hindered.

Response: While a State may not

terminate a contract with an MCO or

PCCM, unless the State provides a

hearing before termination in the

situation described by the commenter,

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6367

the statutory requirement for pretermination hearing would not apply

because the PCCM would have

‘‘terminated’’ the contract. Enrollees

would not be adversely affected if the

State gives them prompt notice and

assists them to enroll in another MCO

or PCCM or change to the fee-for-service

program.

Comment: Several commenters

recommended that we specify that

States may inform enrollees of their

right to disenroll any time after the State

notifies the MCO or PCCM of its intent

to terminate. Commenters stated that

this section does not make clear at what

point in the termination process States

are required to notify enrollees. The

commenters suggested that we explicitly

require MCOs or PCCMs to provide both

oral and written notification to enrollees

and specify that this may be sent before

completion of the hearing process. Steps

should be taken to ensure that all

people, including individuals with

limited English proficiency, limited

reading skills, visual impairments, or

other disabilities are effectively notified.

The final regulation should include

adequate safeguards to ensure

continuity of care during the time

needed for enrollees to select another

MCO or PCCM. Other commenters

stated that this notification should be

mandatory.

Response: Under § 438.722, the State

may notify enrollees and authorize them

to disenroll without cause at any time

after it notifies the MCO or PCCM of its

intent to terminate. The notice to

enrollees must meet the language and

format requirements of § 438.10(b) and

(c). Section 438.62 requires the State

agency to have a mechanism to ensure

continuity of care during the transition

from one MCO or PCCM to another or

from an MCO or PCCM to fee-forservice. We have not required that

notice be oral as well as written.

Comment: The State does not notify

HCFA before imposing sanctions or

once the sanction has been lifted. Why

would HCFA need or want to be

notified for each MCO infraction when

it never has been in the past and has not

needed the information? The

commenter recommends that the

requirement to notify HCFA of every

sanction is not necessary and should be

dropped.

Response: We agree that this would be

burdensome. It is also unnecessary since

we can access this information when

needed. This requirement has been

removed.

Comment: Many commenters

recommended some level of public

notification of imposition of sanctions.

Some commenters stated that notice of

the sanctions should be required to be

given to current enrollees, by all

enrollment brokers to potential

enrollees, and to a newspaper of wide

circulation in the area served by the

MCO. Public information about the

imposition of sanctions will contribute

another layer of accountability to the

extent members of the public,

specifically the Medicaid population,

are able to exercise choice among health

care providers. Others stated that,

although this section is an important

provision to assist Federal oversight,

enrollees, health care providers, and

potential enrollees should also receive

timely information concerning the

following issues: (1) whether a specific

MCO has been sanctioned, (2) the type

of sanction, (3) the reason the sanction

was imposed, and (4) what steps the

enrollee can take to protect himself or

herself. The independent enrollment

assistant should provide potential

enrollees with this information in both

oral and written form, and the

sanctioned MCO should be required to

provide to current enrollees and health

care providers in its network timely

written information on sanctions. This

requirement will ensure public access to

critical information on quality of

services. The State should also provide

this information, upon request, to the

general public. These notices should

also meet the literacy recommendations

discussed previously. Commenters

further suggested that we add the

following, ‘‘prior to enrollment, the

enrollment broker (or other entity

conducting enrollment) shall provide

each eligible recipient with information

regarding which MCOs or primary care

case managers have been sanctioned,

the types of sanctions, and the reasons

for the sanctions. In addition, this

information will be publicly available,

upon request, from the State.’’

Response: In response to this and the

preceding comment, we have revised

§ 438.724 so that, instead of requiring

notice to HCFA, it requires States to

publish public notice describing the

intermediate sanction imposed, the

reasons for the sanction, and the amount

of any civil money penalty. We specify

that the notice must be published no

later than 30 days after imposition of the

sanction and must appear as a public

announcement in either the newspaper

of widest circulation in each city with

a population of 50,000 or more within

the MCO’s service area, or the

newspaper of widest circulation in the

MCO’s service area if there is not,

within that area, any city with a

population of 50,000 or more.

Comment: Section 438.730 authorizes

HCFA to impose sanctions directly on

MCOs. Although this provision is

authorized by the BBA, some

commenters urged HCFA, except in

extraordinary circumstances, to defer to

States on the appropriateness of

sanctions. They stated that such an

approach is consistent with the roles

performed by States and HCFA under

the Medicaid program. The commenters

were concerned about HCFA making

sanction determinations without the

involvement of the State and want

clarification that sanctions will not be

imposed by HCFA without involvement

of the State.

Response: We already had sanctioning

authority codified by § 434.67, which

has been redesignated as § 438.730. We

have no plans to deviate from our

traditional role of deferring to States on

the monitoring of day-to-day MCO or

PCCM operations and their

appropriateness. The regulation itself

makes clear that our involvement would

be based on the State’s

recommendation.

Comment: Several commenters

suggested that HCFA should take a more

proactive role in ensuring oversight and

monitoring. The early implementation

of mandatory Medicaid managed care

has been plagued with problems.

Neither the State nor HCFA has

provided adequate oversight to protect

beneficiaries. Managed care has clearly

not lived up to its promise of providing

quality care at lower costs. There is

considerable doubt that it ever will.

Unlike their wealthier counterparts,

Medicaid beneficiaries cannot simply

pay out-of-pocket if their managed care

plan does not provide the care they

need. Health care consumers across the

nation are calling for greater

accountability and oversight. This is

extremely important to Medicaid

beneficiaries. The commentors are

deeply concerned that HCFA has placed

too much of the oversight and

enforcement responsibilities on the

State Medicaid agencies. The Congress

did not revoke HCFA’s statutory

authority to sanction MCOs or PCCMs.

Although the regulations transfer much

of this responsibility to the State,

beneficiaries have little assurance that

the State will adequately protect them,

particularly since State Medicaid

agencies do not have a good track record

of oversight and enforcement. Reports

by the GAO and OIG have called for

greater Federal oversight and

enforcement. This focus makes even less

sense with the BBA changes than it did

under preexisting authority. Why would

a State interested in enforcing

compliance recommend that HCFA

impose a sanction that the State itself is

authorized to impose? Why would a

6368 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

State not interested in enforcing

compliance recommend anything at all

to HCFA? The proposed rule lacks any

assurance that HCFA will act if the State

fails to act. When will HCFA perform

these functions, if they are not

performed by the State? What would

trigger HCFA action or will it be entirely

at HCFA’s discretion? Will HCFA

monitor States’ actions or failure to act?

The commenters believe that this

section should be rewritten to eliminate

the State as a recommender of action to

HCFA and to emphasize HCFA’s

independent authority to impose

sanctions. As with States, the section

should direct that sanctions can be

imposed based on findings made

through onsite surveys, enrollee

complaints, financial audits, or any

other means. The regulation should

state that HCFA will automatically

perform the functions articulated in

§ 438.730 if an MCO performs any of the

following activities: (1) Fails to carry out

the terms of its contract; (2) fails to

substantially provide medically

necessary services that it is required to

provide; (3) imposes premiums or

charges in excess of those permitted by

law; (4) discriminates among enrollees

on the basis of health status or

requirements for health care services; (5)

misrepresents information that is

furnished to HCFA, the State, an

enrollee, a potential enrollee, or

managed care plan; (6) does not comply

with physician incentive requirements;

(7) distributes, either directly or

indirectly, information that has not been

approved by the State or that contains

false or materially misleading

information; (8) engages in any behavior

that is contrary to any requirements of

section 1903(m) or 1932 of the Act and

implementing regulations; (9) places

enrollee health at substantial risk; or

(10) by virtue of its conduct, poses a

serious threat to an enrollee’s health or

safety or both.

Response: We have always had

independent authority to sanction

MCOs but not the resources to monitor

them individually. Our primary tools to

influence State activities with its MCOs

have been corrective action plans,

specific performance actions, and

denials of FFP.

Comment: Several commenters were

concerned at the absence of guidelines

or criteria that would be used by a State

agency in determining the amount of

sanctions and urge us to include these

guidelines and criteria. There must be

standards of reasonableness that would

apply to ensure that MCOs are not

arbitrarily subjected to sanctions that

are excessive in comparison with the

nature of the offense in question.

Response: We may not impose

standards or criteria because the Federal

sanctioning authority is completely a

State option (other than temporary

management) and we do not set criteria

for States using State authority. Any

extra requirements could have a chilling

effect of discouraging the use of the

Federal authority. The monetary

amounts specified in § 438.704 are

limits, giving MCOs protection against

excessive fines. The only mandatory

due process protections involve

termination of the contract and are

contained in the statute.

Comment: One commenter

recommended deletion of § 438.730.

The commenter stated that if the State

believes that an MCO should be

sanctioned, it is free to impose that

sanction without HCFA involvement.

The commenter also pointed out that

the sanctions that HCFA may impose

are the same sanctions available to the

State.

Response: This section is a

redesignation of § 434.67, which reflects

authority granted through section

1903(m)(5) of the Act, part of the Social

Security Act before enactment of the

BBA. We have no authority to remove

these provisions from the regulations.

Comment: Several commenters

believe that HCFA should publicly

report the number of times States have

recommended that HCFA deny payment

and the result of each of the

recommendations. This information

should then be updated regularly.

Requiring that this information be made

public and updated on a regular basis

will help ensure the State’s

accountability to recipients and the

public at large. Since a similar provision

under § 434.67 has existed for several

years, they would like HCFA to specify

in the preamble the number of times

States have recommended that HCFA

deny payment and the result of each of

the recommendations. They are

concerned that this provision has not

been implemented to the extent

necessary to protect beneficiaries. They

believe that information on the number

of times States have recommended

denial of payment is a critical element

in determining how active States have

been in monitoring compliance and

protecting beneficiaries.

Response: We disagree that sanctions

should be publicly reported. The

existing longstanding sanction provision

at § 434.67 does not require us to report

to the public the number of

recommendations by States for

imposition of sanctions or actions

resulting from the recommendations.

We do not require regular reporting of

sanctions that are imposed on MCOs

through provisions of this final

regulation because we do not want to

discourage State use of sanctions. The

preamble to this final regulation is not

the appropriate place to report on

activity related to the existing

regulation.

H. Conditions for Federal Financial

Participation (Subpart J)

Subpart J of the proposed rule set

forth largely recodified versions of the

regulations in part 434, subpart F. These

regulations contain rules regarding the

availability of Federal financial

participation (FFP) in MCO contracts.

1. Basic Requirements (§ 438.802)

Proposed § 438.802 was based on the

existing § 434.70 and provided that FFP

is only available in expenditures under

MCO contracts for periods that—(1) the

contract is in effect and meets specified

requirements; and (2) the MCO, its

subcontractors, and the State are in

compliance with contract requirements

and the requirements in part 438.

Comment: One commenter noted that

proposed § 438.802(c) represents a more

stringent standard than the longstanding standard in § 434.70(b),

arguing that the proposed standard is

‘‘much too onerous.’’ The commenter

noted that under § 434.70(b), FFP could

be withheld if an MCO ‘‘substantially

fails to carry out the terms of the

contract,’’ while under proposed

§ 438.802(c), FFP is based on the MCO

and State being ‘‘in compliance’’ with

the requirements of the contract. The

commenter argued that States may

hesitate to incorporate special quality

initiatives into their contracts

anticipating that FFP will be withheld if

State or plan (or both) are not in

complete compliance.

Response: Like proposed § 438.802,

§ 434.70(a) provided that FFP was

available in contract payments ‘‘only’’

for periods that the contract ‘‘is in

effect’’ and ‘‘[m]eets the requirements of

this part,’’ specifically including

physician incentive plan requirements.

Unlike proposed § 438.802, however,

§ 434.70(a) is also based on FFP on

meeting ‘‘appropriate requirements of

45 CFR part 74.’’ Proposed § 438.802

dropped this latter condition. Proposed

§ 438.802 was less stringent than

§ 434.70. The commenter is focusing not

on the contract’s compliance with

requirements but on the MCO’s

compliance with the contract. We agree

with the commenter that § 438.802(c)

imposes a stricter standard than

§ 431.70(b) and it was not our intent to

put States and plans at higher risk of

FFP withholding than they were before.

In this final rule with comment period,

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6369

we have substituted ‘‘substantial

compliance’’ for ‘‘compliance’’ in the

Basic Requirements section, both in

§ 438.802(c) and § 438.802(b), regarding

compliance with physician incentive

plan requirements.

Comment: Several commenters argued

that compliance with ADA and Civil

Rights Act requirements should be

added to § 438.802.

Response: Entities that contract with

Medicaid are required to comply with

both the ADA and the Civil Rights Act

as well as all other applicable law and

Federal regulation. As discussed above,

in § 438.6 of this final rule with

comment period, we have added

language requiring that contracts

expressly prohibit MCOs from

discrimination based on race, color, or

national origin and require compliance

with all applicable State and Federal

laws.

Comment: A commenter argued that

there is an inequity in a system that

certain States pay extremely high

capitation rates for disabled populations

(in which FFP is awarded) but do not

provide for a comparable level of FFP to

cover equivalent populations in other

States. This commenter found general

reason for concern about which

populations different States are covering

and the method by which different

States are providing that care (fee-forservice versus managed care).

Response: Section 1902 of the Act

requires that States provide medical

assistance to certain mandatory groups

and provide them with a certain

specified minimum level of benefits.

However, States have considerable

latitude in deciding which other groups

to cover and what levels of payment to

set for their contracting MCOs, within

the parameters of actuarial soundness

and the rate setting requirements in

§ 438.6(c). It is the nature of a State run

program for benefits to vary from State

to State. However, as discussed above in

section II. A, § 438.6(c)(1)(i)(B) requires

that payment rates be ‘‘appropriate for

the populations to be covered,’’ and

§ 438.6(c)(1)(i)(B)(3)(iv) requires that

payment and cost assumptions be

‘‘appropriate for individuals with

special health needs.’’ We believe that

these requirements should ensure that

payments are sufficient for disabled

enrollees when they are enrolled in

managed care contracts.

2. Prior Approval (§ 438.806)

Proposed § 438.806 was based on

§ 434.71 and provided that FFP was not

available in expenditures under

contracts involving over a specified

financial amount ($1 million for 1998,

adjusted by the consumer price index

for future years) ‘‘prior approved’’ by us.

Comment: Several commenters

believe that the $1 million figure for

1998 was too low, and one suggested

raising it to a $5 million minimum.

Response: We do not have the

authority to raise the threshold amount

for required prior approval of contracts,

which is stipulated in section

1903(m)(2)(A)(iii) of the Act.

Comment: A commenter suggested

that this final rule with comment period

clarify (1) that State or county-level

purchasers will not be at risk because

the State has not obtained the approval

required under § 438.806 by the time the

contract needs to be implemented and

(2) that FFP is available retroactively if

approval from the HCFA Regional Office

is not secured by the time of the

effective date of the contract.

Response: This rule does not change

our existing interpretation of the prior

approval requirement. For any contract

that is implemented without first

obtaining approval from the HCFA

Regional Office, the State is at risk for

FFP in payment for those services

should the contract not be approved.

The risk facing county-level purchasers

is a question of the degree to which a

State puts its own counties at risk

within the context of State law and

regulations. With regard to the related

question of FFP retroactive to the

effective date of the contract, the

revision of § 438.806(b)(1) does not

expand the scope of the original

regulation. It merely adjusts upward the

threshold amount for prior approval,

which was $100,000 before the BBA

raised the cost.

3. Exclusion of Entities (§ 438.808)

Proposed § 438.808 reflects the

limitation on FFP in section 1902(p)(2)

of the Act under which FFP in

payments to MCOs is based. FFP

payments are based on the State

excluding from participation as an MCO

any entity that could be excluded from

Medicare and Medicaid under section

1128(b)(8) of the Act, that has a

substantial contractual relationship with

an entity described in section

1128(b)(8)(B) of the Act, or employs or

contracts with individuals excluded

from Medicaid. We received no

comments on this section.

4. Expenditures for Enrollment Broker

Services (§ 438.810)

Proposed § 438.810 reflects the

conditions on FFP for enrollment broker

services set forth in section 1903(b)(4) of

the Act, which was added by section

4707(b) of the BBA. This section permits

FFP in State expenditures for the use of

enrollment brokers only if the following

conditions are met:

• The broker is independent of any

managed care entity or health care

provider that furnishes services in the

State in which the broker provides

enrollment services.

• No person who is the owner,

employee, or consultant of the broker or

has any contract with the broker—

—Has any direct or indirect financial

interest in any entity or health care

provider that furnishes services in

the State in which the broker

provides enrollment services;

—Has been excluded from participation

under title XVIII or XIX of the Act;

—Has been debarred by any Federal

agency; or

—Has been, or is now, subject to civil

monetary penalties under the Act.

• The initial contract or

memorandum of agreement (MOA) or

memorandum of understanding (MOU)

for services performed by the broker has

been reviewed and approved by HCFA

before the effective date of the contract

or MOA.

Comment: Several commenters

expressed support for this provision and

indicated that it is critical that the

broker remain independent and

unbiased.

Response: We appreciate the

commenters support and agree that this

provision is of great help in ensuring

that beneficiaries are able to make

informed choices.

Comment: One commenter suggested

that we allow a ‘‘de minimis’’ exception

for certain levels of stock ownership,

especially in a publicly traded

company. The commenter also

suggested that HCFA rules preempt

similar State rules to avoid excessive

application of these rules.

Response: We believe that any degree

of ownership, including any amount of

stock in an MCO, PHP, or PCCM or

other provider, by enrollment broker

owners, staff, or contractors may create

the potential for bias. That is why we

are not providing for exceptions in

§ 438.810. Although section 1903(b)(4)

of the Act and § 438.810 of the

regulations set forth conditions that

must be met to receive FFP, States have

the prerogative to set rules more

stringent than the Federal rules.

Comment: Some commenters believe

that § 438.810 should include

safeguards to protect Medicaid

beneficiaries from false and deceptive

advertising. A commenter

recommended that, when brokers are

used to enroll Medicaid beneficiaries

into managed care, States should be

required to assure that they have

6370 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

accurate data about the Medicaid

eligibles and the availability of MCOs,

PHPs, or PCCMs and any subcontracting

providers.

Response: We agree that it is

important for States to provide

enrollment staff with accurate

information about Medicaid eligibles

and about MCOs, PHPs, or PCCMs and

their subcontracting providers. Sections

438.10(d) and (e) require that enrollees

and potential enrollees be provided

with names and locations of current

network providers, including

identification of those who are not

accepting new patients. It also

emphasizes that information must be

sufficient to allow an informed decision.

We believe that this addresses the

expressed concerns. States or

enrollment brokers must make efforts to

provide the most accurate and current

information available. State and broker

data systems differ in their capabilities,

and provider and eligibility information

changes daily. We ordinarily address

this issue during pre-implementation

review and monitoring of mandatory

programs.

Comment: One commenter believes

that it is not necessary for us to approve

initial enrollment broker contracts or

memoranda of understanding because

statutory limitations are straightforward,

FFP is limited, and brokers must be

independent. In this commenter’s view,

contract approval is not necessary to

ensure compliance, since the threat of

civil money penalties is sufficient.

Another commenter supported our

decision to require prior approval of

initial enrollment broker contracts but

suggested that we provide additional

guidance pointing to minimum

qualifications of enrollment brokers.

One commenter acknowledged the

need for contract review but suggested

that we impose a 30 day time limit for

review in order to avoid delaying

contract implementation. Once this time

had elapsed, the contract would be

deemed approved.

Response: We have already reviewed

some broker contracts and MOAs/MOUs

on a voluntary basis. Much of the

current review consists of technical

assistance and advice about whether

contracts contain legally required

provisions, as well as assurances of

quality and results of noncompliance.

We intend to issue contract review

guidelines for our staff.

We will not impose a time limit for

review of contracts since it is impossible

to assess workloads and the amount of

time required for review. Once

mandatory contract review is

implemented, we will assess the length

of time required for review and

recommend time frames if necessary.

Comment: One commenter believes

that fiscal intermediaries for State

Medicaid programs face an inherent

conflict of interest, because they are

paid to process claims for traditional

fee-for-service Medicaid programs, and

assisting Medicaid beneficiaries to

enroll in a managed care entity poses a

threat to these agents’ primary source of

revenue. In this commenter’s view, the

intermediaries have a strong incentive

to maintain the status quo. The

commenter recommended that HCFA’s

rules should prohibit entities from

serving as enrollment brokers for States

in which they serve as fiscal

intermediaries.

Response: We are aware that some

fiscal intermediaries have adapted to the

managed care environment by

performing enrollment broker functions

in some States. This is often convenient

for States that already have fiscal

intermediary contracts in place. Since

enrollment brokering has become an

additional line of business for some of

these agents, we believe that the

incentives for bias toward fee-for-service

are minimal. In addition, we anticipate

that States desiring to use fiscal

intermediaries in the role of enrollment

brokers would consider any inherent

bias during the selection process.

Comment: One commenter asked

about the applicability of this provision

to a public entity in which eligibility

and enrollment functions might occur in

one division and other divisions might

be responsible for purchasing or

providing some Medicaid covered

services. The commenter asked whether

State ‘‘conflict of interest’’ regulations, if

approved by HCFA, would satisfy the

intent of this section. The commenter

noted that if county government

employees conduct enrollment and

education, and counties are also directly

involved in arranging for or providing

Medicaid services directly, FFP would

not be payable for the county

employee’s enrollment services. The

commenter suggested that we define

‘‘independent’’ in such a way as to

allow a county employee to conduct

enrollment activities as long as the

county has in place adequate safeguards

to protect against conflict of interest. For

example, if an employee conducting

enrollment is employed under a

separate division or department and is

not subject to supervision or discipline

by a separate division or department

that conducts purchasing or operates an

MCO, the commenter recommended

that this be considered acceptable.

Response: The managed care

enrollment function is an administrative

function of the State. The State may

choose to contract out this function,

have it done by the State or local staff,

or even allow MCO staff to perform this

function. The example of a county

eligibility employee performing

enrollment activities when the county

also provides services would violate

§ 438.810, thus precluding payment of

FFP for the enrollment activities. The

Medicaid eligibility function must

always be performed by State or local

staff. This function cannot be contracted

out to other entities. If MCO, PHP, or

PCCM enrollment is contracted out to

an enrollment broker, defined as an

entity or individual that performs

choice counseling and/or enrollment

activities, the broker may not have any

connection to or interest in any entity or

health care provider that provides

coverage of services in the same State.

An enrollment broker might be a public

or quasi-public entity with a contract or

MOA/MOU with the State or county. In

this situation, this entity may not

furnish health care services in the State.

For example, a State may not contract

with or have an MOU with a county

health department to do managed care

enrollment or choice counseling

because the health department provides

health services. A community

organization that provides health

services in the State, for example, an

organization providing health care to

homeless individuals, may contract or

subcontract to perform outreach and

education, but not enrollment and

choice counseling functions. An MCO,

PHP, PCCM, or other health care

provider that provides services in a

State may not also have an interest of

any sort in an organization performing

Medicaid enrollment or choice

counseling. This restriction is based

upon the statutory language contained

in section 1903(b)(4) of the Act.

In § 438.810(b)(1) of this final rule

with comment period, we have clarified

that an enrollment broker would not

meet the test for independence if it is an

MCO, PHP, PCCM or other health care

provider, or owns, or is owned by an

MCO, PHP, PCCM, or other health care

provider in the State in which the

broker operates.

A State’s conflict of interest

regulations ordinarily address situations

in which a State or local officer,

employee, or agent has responsibilities

related to the awarding of contracts.

Conflicts of interest involving Medicaid

officials have long been prohibited

under sections 1902(a)(4)(C) and (D) of

the Act. This language prohibits conflict

of interest by current or former State

and local officers, employees, or

independent contractors responsible for

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6371

the expenditure of substantial amounts

of funds under the State plan. The

conflict of interest language in § 438.58

applies to State and local officers and

employees and agents of the State who

have responsibilities relating to MCO

contracts or the default enrollment

process. Conversely, it specifically

prohibits conflict of interest in any

Medicaid managed care contracting

activities, including enrollment broker

contracting. Section 438.810 specifically

addresses situations in which a

relationship between a health care

provider and an individual or entity

responsible for choice counseling or

enrollment may be biased by that

relationship. While conflict of interest

provisions would be expected to be in

place in the State, § 438.810 covers an

additional situation in which potential

conflict of interest might influence a

Medicaid recipient’s choice of plan.

5. Costs Under Risk and Nonrisk

Contracts (§ 438.812)

Proposed § 438.812 was transferred in

its entirety from previous §§ 434.74 and

434.75 and was unchanged in the

proposed rule. Proposed § 438.812

provides that States receive Federal

matching for all costs covered under a

risk contract at the ‘‘medical assistance’’

rate, while under a nonrisk contract

only the costs of medical services are

matched as ‘‘medical assistance,’’ and

all other costs are matched at the

administrative rate.

Comment: One commenter believes

that we should provide additional

guidance on what constitutes the

‘‘furnishing of medical services’’ as

described in § 438.812(b)(1). The

distinction between what is

administrative and what is a medical

service is becoming less clear in this

commenter’s view.

Response: We do not believe

additional clarification in the

regulations text is necessary. The costs

of medical services are the payments

made to providers for furnishing

services covered under the contract. In

the case of fee-for-service Medicaid, this

would be the State plan payment

amounts. These costs could either be in

the form of payments to providers (feefor-service, per diem, or capitation) or

‘‘salary’’ in the case of an employee.

Administrative costs would include

member services, claims processing,

coverage decisions, and other activities

that would be matched as

administrative costs under fee-forservice Medicaid.

Comment: One commenter noted that

the proposed rule discussion of

§ 438.812 did not address the Federal

medical assistance percentage (FMAP)

that States receive for services provided

to American Indians by the Indian

Health Service (IHS) and tribally

operated programs. The commenter

believes that the regulation should

specifically address how the special

matching rate for eligible IHS services

will be applied and the State role in

assuring that standards are met.

Response: We agree that the FMAP

rate for services provided to Indians by

IHS or tribally operated programs

applies whether the IHS or tribal facility

operates in fee-for-service or managed

care. There is no need to change this

regulation since, when applicable, this

special FMAP rate is the ‘‘medical

assistance’’ rate in that case. The

regulation differentiating FMAP rates

for risk and nonrisk contracts would not

prohibit or in any way modify the

matching rate that is required for IHS or

eligible tribal facilities. Section 438.812

simply recodifies longstanding

regulations and does not involve or

affect HCFA policy on the application of

the FMAP for IHS services in the

managed care context.

In response to this and other

comments received, we want to

reemphasize that tribal and IHS

providers are not necessarily required to

be licensed by a State as long as they

meet the State’s or MCO’s qualifications.

We believe that the definition of

provider in § 400.203 will ensure that

these providers are not inappropriately

excluded from participation in

Medicaid managed care programs.

6. Condition for Federal Financial

Participation (FFP) in Certain Contract

Arrangements (§ 438.814)

As discussed in detail in section II. A

of this regulation, this new section

reflects the condition for FFP in

contracts that contain incentive

arrangement or risk corridors. As

described in new § 438.6(c)(5) on rate

setting for risk contracts, FFP is only

available in these contracts to the extent

that payments do not exceed 105

percent of the payment rate determined

to be actuarially sound.

I. Revisions to Parts 435, 440, and 447;

Miscellaneous Comments

In addition to the provisions set forth

in the new part 438, and the fair hearing

provisions in part 431 discussed in

section II. E. above, the proposed rule

contained amendments to Parts 435,

440, and 447 which we discuss below.

These provisions included amendments

to §§ 435.212 and 435.326 to reflect the

new terminology adopted by the BBA

(for example, ‘‘MCO’’ and ‘‘MCE’’). We

also proposed a new § 440.168 in part

440 to include a description of primary

care case management services.

Amendments to part 447 not already

addressed above include a new

§ 447.46(f) implementing the timely

claims payment requirements in section

1932(f), and a new § 447.60 regulating

MCO cost-sharing, which was made

permissible under BBA amendments to

section 1916 of the Act. In this section,

we discuss the comments we received

on the above regulations. We received

no comments on the revisions to part

435, or on § 447.60. We also in this

section address miscellaneous

comments that did not relate to a

specific section of the proposed

regulations.

1. Guaranteed Eligibility

Section 435.212 was amended in the

proposed rule to implement section

1902(e)(2) of the Act. This change will

permit State agencies, at their option, to

provide for a minimum enrollment

period of up to six months for

individuals enrolled in a PCCM or any

MCO. Previously, this option was only

available to enrollees of Federallyqualified HMOs.

Comment: One commenter observed

that the provision in the proposed rule

is inconsistent, authorizing guaranteed

eligibility for individuals enrolled in

any MCE (MCO or PCCM) in the

introductory text of the section, while

limiting the authority to MCOs

elsewhere.

Response: Using both terms in the

proposed rule was an inadvertent error.

We have clarified this issue by using the

terms MCO and PCCM throughout the

final rule, as intended by the BBA.

2. Definition of PCCM Services

(Proposed § 440.168)

Section 4702 of the BBA adds PCCM

services to the list of optional Medicaid

services in Section 1905(a) of the Act.

The BBA also added Section 1905(t) to

the Act. This new subsection defines

PCCM services, identifies who may

provide them, and sets forth

requirements for contracts between

PCCMs and the State agency. This

means that in addition to contracting

with PCCMs under a section 1915(b)

waiver program or section 1115

demonstration project, or under the new

authority in section 1932(a)(1) to

mandate managed care enrollment,

States may now add PCCMs as an

optional State plan service. Regardless

of the vehicle used, proposed § 438.6(j)

set forth the minimum contract

requirements States must have with

their primary care case managers.

Proposed § 440.168(a) set forth the

definition of primary care case

management services, for case

6372 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

management related services that

include ‘‘location, coordination, and

monitoring of primary health care

services,’’ that are provided under a

contract between the State and either (1)

an individual physician (or, at State

option, a physician assistant, nurse

practitioner, or certified nurse-midwife),

or (2) a group practice or entity that

employs or arranges with physicians to

furnish services. Proposed § 438.168(b)

provided that PCCM services may be

offered as a voluntary option or on a

mandatory basis under section

1932(a)(1) or a section 1115 or 1915(b)

waiver.

Comment: One commenter expressed

concerns about any form of required

case management.

Response: Current law, through

freedom of choice waivers under

sections 1915(b) and 1115 of the Act,

has for many years permitted States to

require that Medicaid beneficiaries

obtain their care through PCCM

programs. Section 4702 of the BBA

provided States additional flexibility by

adding PCCM services to the list of

optional Medicaid services. This allows

States, at their option, to provide quality

health care services and to enhance

access to Medicaid beneficiaries through

an arrangement that has proven to be

cost effective to the Medicaid program.

In addition, this section sets forth new

requirements for contracts between

primary care case managers and the

State agency that provide important

protections for beneficiaries and ensure

access to quality health care. We believe

that these protections, along with other

beneficiary protections provided for in

this final rule, adequately address the

commenter’s concerns.

3. Timeliness of Provider Payments

(Proposed § 447.46)

Section 1932(f) of the Act specifies

that contracts with MCOs under section

1903(m) must provide that, unless an

alternative arrangement is agreed to,

payment to health care providers for

items and services covered under the

contract must be made on a timely basis,

consistent with the claims payment

procedures described under section

1902(a)(37)(A) of the Act. The

procedures under section 1902(a)(37)(A)

of the Act require that 90 percent of

claims for payment (for which no

further written information or

substantiation is required in order to

make payment) made for services

covered under the contract and

furnished by health care providers are

paid within 30 days of receipt, and that

99 percent of such claims are paid

within 90 days of receipt. These

requirements were included in

proposed § 447.46.

Comment: One commenter objected

generally to the requirements in

proposed § 447.46, while another argued

that the provision for developing a

mutually agreed upon alternative

payment schedule between an MCO and

provider would not resolve the issue of

timely payments. This commenter

recommended that the timely payment

provisions should provide that

payments must be made in a manner

consistent with State law, or, in the

absence of a State requirement, in

accordance with requirements in

Federal regulation. This commenter did

not believe that MCOs should be free to

negotiate alternative arrangements.

Another commenter contended that

delayed payments for both managed

care and fee-for-service programs have

long been a problem in State Medicaid

programs. This commenter felt that

physicians, hospitals, and health

systems should be paid for the covered

services they provide to Medicaid

beneficiaries in a timely manner, and

that chronic payment delays by

Medicaid programs and plans

discourage physician and provider

participation, are disruptive to the

patient-physician relationship, and

could adversely affect patient access.

This commenter recommended that

HCFA adopt a standard that would

require payment to health care

providers within 14 days for

uncontested claims which are filed

electronically and within 30 days for

paper claims which are uncontested. In

addition, the commenter recommended

that for capitated payment systems,

HCFA should require MCOs to make

capitated payment to physicians and

providers shortly after the beneficiary’s

enrollment, and also promulgate a

standard time frame for payments by

States to physicians and other providers

of services under Medicaid fee-forservice programs.

Response: Congress was very specific

in section 1932(f) to incorporate the

standards set forth in section

1902(a)(37)(A), and provide that parties

could also agree to an alternative

payment schedule. We do not have the

discretion to change the timeframes in

section 1902(a)(37)(A), or to eliminate

the right to negotiate an alternative

schedule, as these are mandated by

statute. We note that if an alternative

payment schedule is established, it must

be stipulated in the contract according

to § 447.46(c)(3). The statute does not

address the timing of capitation

payments, which we believe should be

negotiated between the parties.

4. Miscellaneous Preamble Comments

a. Effective Date of the Final Rule

In the proposed rule, we stated our

intention to make the final rule effective

60 days following publication. However,

those provisions which must be

implemented through contracts would

be effective for contracts entered into or

revised on or after 60 days following the

effective date, but no longer than 12

months from the effective date.

Comment: Several commenters asked

us to clarify or revise the proposed

effective date. In particular, the

commenters were concerned that

adequate time was not allowed for

implementing the many changes

proposed in the regulation. One

commenter suggested that HCFA give

States an additional year from final

publication of the regulation to bring

contracts into compliance. Another

commenter recommended that HCFA

consider allowing States at least 120

days to implement the final regulation.

Response: In recognition of the

significant changes within this final

rule, we have set the implementation

date of this final rule to take effect 90

days following publication. Although

we believe that it is important to

provide BBA protections as soon as

possible, we believe that changing the

effective date will help to ease the State

burden of implementing these

provisions. Further, those provisions of

the final rule that must be implemented

through contracts with MCOs, PHPs,

HIOs or enrollment brokers must be

reflected in contracts entered into or

revised on or after 90 days following the

publication date, but no longer than 12

months from the effective date. Because

a substantial number of the provisions

of the final rule are implemented

through contract revisions, the effective

date for many provisions will be

delayed in many States. Of course, some

provisions in this final rule reflect

statutory requirements that are already

in effect. HCFA has provided State

agencies with guidance on

implementing these provisions through

a series of letters to State Medicaid

Directors. These letters appear on the

HCFA Home Page and can be accessed

at http:www.hcfa.gov.

b. Absence of FQHC and RHC

Provisions in the Proposed Rule

Comment: Several commenters

requested that HCFA address the new

FQHC and RHC reimbursement

requirements set forth in section 4712(b)

of the BBA. One of the commenters was

concerned that unless these provisions

were included in the regulation there

would be no mechanism to ensure State

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6373

and MCO compliance. The commenter

acknowledged that HCFA had

undergone a process to inform State

Medicaid Directors of their new

obligations under the BBA through a

series of letters. However, without this

requirement in the regulation, the

commenter was concerned that both

MCOs and States would disregard the

Federal statutory protections intended

to preserve FQHCs and RHCs as vital

Medicaid providers. Moreover, the

commenter argued that regulations have

the force of law, whereas States have

challenged in the past whether they are

legally bound by guidance in letters to

State Medicaid Directors. By placing

these requirements in its regulations,

the commenter believed that HCFA

could ensure that States or MCOs that

fail to comply with BBA’s requirements

would be subject to sanctions by HCFA.

The remaining commenters questioned

HCFA’s interpretation of the FQHC/RHC

statutory provision and believe that this

area should be clarified in regulation

and open to public comment.

Response: This rulemaking primarily

implements Chapter 1 of Subtitle H of

the BBA, titled ‘‘Managed Care.’’ The

provisions relating to FQHC/RHC

payment are set forth in Chapter 2,

‘‘Flexibility in Payment of Providers,’’

and thus arguably are outside the scope

of this rulemaking. Even if this rule

were the appropriate vehicle for

regulations implementing these FQHC/

RHC provisions, we do not believe that

such regulations would be warranted.

The rules in question are ‘‘transitional’’

in nature, as the 100 percent cost

payments described will eventually be

phased out over the next several years.

We do not believe it appropriate to

promulgate regulations that will be

obsolete in a relatively short period of

time.

Moreover, we do not believe

regulations are necessary, as the

statutory requirements are

straightforward and self-implementing,

and HCFA has provided guidance to all

States, through State Medicaid Director

Letters on April 21, 1998 and October

23, 1998, on FQHCs and RHCs. We

disagree with the commenter that there

is no ‘‘enforcement mechanism’’ for

these requirements. The requirements in

question, as interpreted by HCFA in

State Medicaid Director Letters, are fully

enforceable. A State that fails to fulfill

its obligations under section

1902(a)(13)(C)(ii) to make required

quarterly supplemental payments to

FQHCs/RHCs that subcontract with

MCOs would be subject to a compliance

enforcement action under section 1904.

If an MCO fails to comply with section

1903(m)(2)(A)(ix) by paying at least

what it pays other providers, HCFA

would disallow Federal financial

participation (FFP) in payments under

the MCO’s contract. Thus, the FQHC/

RHC requirements in question are selfimplementing and fully enforceable.

HCFA’s interpretations of these

requirements are also enforceable, and

entitled to deference from courts.

c. General Comments on the Proposed

Rule

Comment: Several commenters

supported HCFA in its implementation

of the BBA, and were pleased to see the

proposed rule reflect many of the

recommendations from the Consumer’s

Bill of Rights and Responsibilities

(CBRR). These commenters also

believed that the proposed rule was a

thoughtful implementation of the BBA

provisions, which adequately reflected

the intent and hope of the Congress and

provides functional guidance to States

without becoming overly burdensome or

demanding. Other commenters believed

that the regulation is a positive step

toward improving quality for Medicaid

beneficiaries in managed care and that

the regulation is brief, simple and

written at a readable level.

However, several other commenters

criticized HCFA for creating regulations

that they perceived as overly

burdensome that did not allow

sufficient State flexibility. These

commenters also argued that the

proposed regulations went beyond the

statutory intent and authority of the

BBA, and that the regulations would

lead to increased administrative costs

for Medicaid MCOs. These commenters

believed that HCFA was micromanaging its approach to Medicaid

managed care, and the proposed

regulations, if finalized, would make it

increasingly difficult for State Medicaid

agencies to provide access to quality

health care through MCOs, since MCOs

would not be willing to participate.

Another commenter believed that the

proposed regulations did not reflect the

approach of a purchaser, but the

approach of a unilateral regulator

particularly with respect to the CBRR

and other beneficiary protections.

Response: The regulation was

developed to provide States with an

appropriate level of flexibility that we

believe to be consistent with necessary

beneficiary protections. Thus, State

flexibility had to be balanced against

statutory requirements of the BBA, and

a Presidential directive that required

Medicaid program compliance to the

extent permitted by law, with the

recommendations in the CBRR. In

response to specific comments regarding

the over-prescriptiveness or burden of

certain provisions, we have made some

changes to promote even greater

flexibility, and also added requirements

in response to other commenters.

Further, the regulation has been

designed to provide a framework that

allows HCFA and States to continue to

incorporate further advances for

oversight of managed care, particularly

as it pertains to beneficiary protection

and quality of care. With respect to

HCFA’s statutory authority, we

summarize each provision of the

effected regulations followed by our

response.

Comment: In general, a few

commenters were concerned that what

they believe to be over-prescriptiveness

of the regulation would result in MCOs

leaving the Medicaid managed care

market. These commenters believed that

the prescriptive mandates of the

regulation would limit and hinder

negotiations with MCOs, because of the

additional requirements that would

have to be met for Medicaid members as

opposed to commercial members. As a

result, the commenters argued that these

requirements would be administratively

burdensome for MCOs. In addition, the

commenters believed that the financing

of these administrative requirements

was so inadequate MCOs would be

forced out of the Medicaid market due

to financial reasons.

Response: We will be reviewing this

issue as we are also concerned about the

continued viability of MCOs in the

Medicaid managed care market.

However, we also recognize the

importance of quality care and

consumer protections for Medicaid

beneficiaries enrolled in Medicaid

managed care and are unwilling to

sacrifice these very necessary

protections. In this final rule we have

also revised the upper payment limit

requirement, which may result in

increased levels of funding for MCOs.

d. Beneficiary Protections in FFP

Comment: Commenters expressed

concern that the proposed rule did not

extend its numerous beneficiary

protections to the fee-for-service (FFP)

delivery system, and that many of the

protections within the regulation have

no corollary protections in FFP. The

commenters noted that in FFP

Medicaid, there were no rights afforded

to providers who will coordinate care,

nor was there adequate quality

assurance activities, information on

participating providers, or detailed

grievance procedures. The commenters

believed that the proposed regulation

makes it difficult to make meaningful

comparisons between FFP and managed

care. Another commenter felt that the

proposed rule did not adequately

6374 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

recognize that managed care is not the

only system that States will be using to

provide health services to beneficiaries,

as many States will continue to operate

a FFP system. The commenter believed

that it is the clear intent of Federal

legislation that all Medicaid

beneficiaries should receive the same

protections and advantages without

respect to the type of provider that is

under contract. Therefore, in the

commenters opinion, the regulations

that apply to MCOs should also apply

to the State Medicaid agencies in their

operation of FFP systems.

Response: While HCFA agrees that

beneficiary protections are also

important for beneficiaries receiving

care under fee-for-service arrangements,

this rulemaking primarily implements

Chapter 1 of Subtitle H of the BBA,

titled ‘‘Managed Care.’’ These statutory

provisions do not apply to FFP

Medicaid, and cannot be extended to

FFP arrangements in this final rule,

since the proposed rule did not indicate

that fee-for-service Medicaid provisions

were at issue in this rulemaking.

However, States do have the flexibility

to develop beneficiary protections

similar to those presented in this

regulation for those still receiving care

through fee-for-service.

e. Use of Examples in the Preamble

Comment: Some commenters were

concerned over the use of examples in

the preamble to the September 29, 1998

Notice of Proposed Rule Making

(NPRM) and the potential applicability

of these examples in a court of law.

These commenters requested that HCFA

clarify that the examples in the

preamble to the proposed rule would

not be standards enforceable by law.

They believed that the use of examples

could lead to unintended interpretations

of the final rule. One commenter

suggested that HCFA make a clear

statement ‘‘that the preamble that

accompanied the proposed rule was

intended to spark discussion, not

provide guidance for further

interpretations.’’

Response: The examples provided in

the preamble to the NPRM were

intended to be just that, examples. They

were included in the preamble

discussion to provide options for States

when implementing the provisions

within the proposed rule. We did not

include these examples in the regulation

text itself, as they were intended to be

illustrative in nature and States always

retain the flexibility to deviate from

these examples.

f. Consistency with Medicare

Comment: Several commenters

disagreed with our guiding principle

that, where appropriate, we would

promote consistency with the

Medicare+Choice program in

developing this regulation. One

commenter argued that the Medicaid

statute is not designed to promote

consistency with Medicare. The

commenter did not believe that

consistency between Medicare and

Medicaid is a valid reason to deviate

from the principle of State flexibility.

The commenter believed that Title XIX

provides Federal funds for various State

medical assistance programs that are to

be administered by States within broad

Federal rules, and noted that those

Federal rules, as found in Title XIX,

contain no general requirement for

consistency with Medicare. The

commenter further noted that the

preamble to the proposed rule also

states that ‘‘the regulations were written

to support State agencies in their role as

health care purchasers * * * and * * *

to provide State agencies with the tools

needed to become better purchasers.’’

The commenter found this to be a

‘‘paternalistic’’ approach, which in the

commenter’s view was inconsistent

with the nature of the Medicaid program

as one administered by States within

broad Federal rules. Portions of the

proposed regulations intended to

‘‘support’’ States as health care

purchasers, but which do not

implement any requirement under Title

XIX, should in the commenter’s view be

issued as guidance or advice to States,

not as additional requirements in

Federal regulations. Finally, the

commenter found the ‘‘uniform national

application’’ of ‘‘best practices,’’ as

defined by HCFA, to be inconsistent

with the nature of the Medicaid program

as one administered by States within

broad Federal rules.

Several other commenters, however,

supported the guiding principle of

consistency with the Medicare+Choice

program, and believed that it would

help relieve the administrative burdens

imposed on MCOs, because to the extent

that the Medicare and Medicaid

programs are consistent with each other,

administrative efficiencies result. The

commenters also felt that establishing

uniform industry standards was

beneficial not only to MCOs and

primary care case managers, but also for

consumers receiving services and

providers who contract with those

MCOs or primary care case managers to

deliver health care services. The

commenters commended HCFA for

recognizing that while it is imperative

that there be consistency and uniform

application of standards, some areas

require a unique approach by States; as

a result, the commenters support

HCFA’s efforts to allow States the

flexibility in developing such programs.

Response: It was our intent to create

consistency with Medicare+Choice

program requirements in order to ensure

that the managed care industry would

not have to comply with multiple sets

of standards. However, where there was

a clear need for State flexibility or

where consistency with the

Medicare+Choice program was not

appropriate for Medicaid managed care,

we deviated from Medicare+Choice

policy. We believe that this final rule

effectively balances the need for

flexibility and consistency, while

providing States with the broad tools

they need to become more efficient

purchasers of health care. As we

developed this final rule, we continued

to work with our Medicare colleagues to

coordinate changes to provisions in this

final rule that had counterparts in the

Medicare+Choice regulations. While we

have promoted uniform national

application of knowledge and best

practices learned, the Medicaid statue

has always given States the flexibility to

design their own Medicaid programs.

g. Applicability of BBA Provisions to

Waiver Programs

Section 4710(c) of the BBA provides

that nothing in the managed care

provisions of the BBA (Chapter 1 of

subtitle H) shall be construed as

affecting the terms and conditions of

any waivers granted States under

section 1915(b) or 1115 of the Act. The

Conference Report on the BBA clarifies

that this exemption is intended solely

for waivers that are approved or in effect

as of August 5, 1997 (the date of

enactment). We indicated in the

preamble to the proposed rule that we

interpreted this exemption to apply to

1915(b) waivers only for the period of

time for which a waiver has been

approved as of August 5, 1997, at which

time the State would be required to

comply with the BBA provisions. In the

case of waivers under section 1115

demonstration projects approved as of

August 5, 1997, the terms and

conditions are similarly

‘‘grandfathered’’ under section 4710(c)

of the Act only for the period of time for

which the waivers were approved as of

August 5, 1997. However, unlike section

1915(b) waivers, these demonstration

projects are subject to another BBA

provision that affects the applicability of

BBA managed care provisions. Section

4757 of the BBA added a new section

1115(e), providing for a three year

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6375

extension of demonstrations if certain

conditions are met. If a section 1115

demonstration approved on or before

August 5, 1997 is renewed under the

terms of section 1115(e), the terms and

conditions that applied on the last day

approved under the original

demonstration remain in effect during

the three year extension period. Thus, if

terms inconsistent with the BBA

managed care provisions were still in

effect by virtue of section 4710(c), these

terms were extended for three years if

there an extension was granted under

section 1115(e).

Comment: Many commenters felt that

HCFA’s interpretation of section 4710(c)

as applicable only for periods for which

waivers were approved on August 5,

1997 was inconsistent with the

commenters’ view of the intent of this

provision. These commenters felt that

States had developed specific

provisions of their waivers and

demonstrations to address specific

issues within the State, doing so in

consultation with all appropriate

stakeholders, and that to require

changes in the programs now would

result in confusion for enrollees and

providers, disruptions in the delivery

system, and increased administrative

costs for both the States and health

plans.

Response: We disagree with the

commenters’ view of this provision.

Language in the Conference Report on

the Balanced Budget Act of 1997

specifically states the intent of Congress

as limiting the exemption contained in

section 4710(c) to waivers ‘‘either

approved or in effect’’ as of the date of

enactment. Since section 1915(b)

waivers are specifically limited by

statute to no more than 2 years and

section 1115 demonstration waivers are

typically granted for periods of no more

than 5 years, the waiver which is

‘‘approved’’ or ‘‘in effect’’ as of the date

of enactment expires at some point

thereafter. While States may request

renewals of section 1915(b) waivers for

up to 2 years, these additional waiver

periods cannot be seen to have been

‘‘approved’’ or ‘‘in effect’’ on August 5,

1997. This is similarly the case with

respect to standard extensions of a

section 1115 demonstration approved

after August 5, 1997. As explained

above, however, in this latter case, a

totally separate provision of the BBA

created section 1115(e) of the Act, that

requires the terms and conditions in

effect on the date before a section 1115

demonstration would otherwise expire

be extended for three years. Section

1115 demonstrations that do not qualify

for an extension under the authority in

section 1115(e)(1) do not maintain the

same exemption, and would be subject

to all BBA provisions in effect at the

time of the expiration of the 1115

authority approved as of August 5, 1997

(in the absence of new waiver or

matching authority under section

1115(a) exempting a State from BBA

requirements).

We have provided some flexibility to

States in phasing in BBA requirements

by permitting exemptions for any

provisions addressed in the State’s

waiver proposal, statutory waivers,

special terms and conditions,

operational protocol, or other official

State policy or procedures approved by

HCFA, rather than limiting the

exemption solely to specific ‘‘Special

Terms and Conditions’’ negotiated

between HCFA and the States. We

believe that HCFA has balanced the

need to implement important

beneficiary protections contained

within the BBA with the flexibility that

States need to effectively phase-in these

requirements in programs designed to

meet specific needs within the State.

Comment: Some commenters felt that

the terms and conditions agreed to by

HCFA and the State should continue to

be the applicable rules under which a

waiver program is operated.

Response: As indicated above, not

only the special terms and conditions,

but any other policies, procedures or

protocols approved by HCFA will

remain in effect for the period the State

is entitled to an exemption under this

provision. With the exception of section

1115 demonstrations extended under

section 1115(e) of the Act, we believe

that Congress limited this exemption to

the time period of the waiver approved

or in effect as of August 5, 1998.

Comment: Several commenters argued

that the BBA provisions were intended

to apply to managed care programs

established under State plan

amendments authorized by section

1932(a) of the Act, and should not apply

at all to waiver programs.

Response: The BBA provisions on

managed care in sections 4701 through

4710 of the BBA that are limited in their

application to mandatory managed care

under the State plan contain a specific

reference to that section of the Act. Both

the definition of PCCM services in

section 1905(t) (in section 1905(t)(3)(F)),

and section 1903(m)(2)(A), in the case of

MCOs, require compliance with

applicable provisions in section 1932.

Thus, when a provision in section 1932

applies to an MCO or MCE, and is not

limited to a program under section

1932(a)(1), it applies regardless of the

authority under which the managed care

program in which they participate

operates. Thus, these provisions apply

to all types of managed care—voluntary

or mandatory, State plan or waiver.

Comment: Some commenters felt that

HCFA inappropriately limited this

exemption by applying it only to

provisions that were ‘‘specifically

addressed’’ in approved State

documents, rather than to the entire

waiver program.

Response: We believe that we have

adopted a broad interpretation of the

applicability of section 4710(c). Section

4710(c) states that the managed care

provisions shall not be construed to

affect the ‘‘terms and conditions’’ of

waivers. As noted above, this could

have been interpreted to apply only to

provisions set forth in actual formal

‘‘terms and conditions.’’ We have

interpreted this to refer to anything

addressed in the State’s approved

waiver materials. In such cases, no

determination need be made as to

whether the State’s policy or procedures

meet or exceed the BBA requirement

during the duration of the waiver period

approved as of August 5, 1997 (or an

extension under section 1115(e) in the

case of a section 1115 demonstration).

We note that the BBA contains

provisions such as fraud and abuse

protections, some of the quality

provisions, a prudent layperson’s

definition of emergency, and the

extension of guaranteed eligibility to

PCCMs, which would not usually be

addressed in a State’s waiver materials.

We believe it is important to implement

these provisions which can provide

beneficiary protections beyond that

already provided for in a State’s waiver.

Comment: One commenter questioned

the impact of this exemption on a State

which is phasing-in a waiver on a

county-by-county basis, where parts of

the State would be exempt from BBA

requirements, while other parts of the

State would be subject to them.

Response: A State that is phasing-in a

waiver which was approved prior to

August 5, 1997 maintains exemptions

from the BBA for the whole service area

of its waiver program as it is

implemented, not merely the areas

which were implemented prior to that

date. The language in the Conference

Report provides the exemptions for any

waiver which is ‘‘approved or in effect.’’

Comment: One commenter believed

that HCFA should provide additional

clarification as to how this exemption

from BBA provisions applies to section

1115 demonstrations.

Response: HCFA Regional Offices

have been working with section 1115

States to identify those areas that need

to come into compliance with BBA

provisions. These decisions will have to

be on a State-by-State basis, determined

6376 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

by the specific provisions in effect in

each State’s waiver program. Once

HCFA has determined which BBA

provisions apply and which do not

apply, the exemptions will remain in

place until the current approved period

of the waiver expires, or if it is extended

under section 1115(e), the end of the

three year extension. At this time States

will need to come into compliance with

all BBA provisions that are currently in

effect. The only exception is for a State

that receives an extension of its section

1115 authority under section 1115(e)(1)

which, as indicated above, requires the

same terms and conditions to be in

place when the waiver is extended for

up to three years.

Comment: One commenter felt that

the BBA provisions should be applied

immediately to all new and existing

waiver programs.

Response: Section 4710(c) provides

that nothing in the BBA provisions on

managed care ‘‘shall be construed as

affecting the terms and conditions of

any waiver . . . under section 1115 or

1915(b) of the Social Security Act.’’ We

believe that this language precluded us

from applying these provisions in an

inconsistent manner with such waiver

terms and conditions.

h. Comments Relating to American

Indians and Alaskan Native Populations

Comment: We received several

comments that specifically addressed

the relationship of the proposed

regulation to the American Indian and

Alaskan Native (AI/AN) populations.

Most of the commenters were concerned

that the tribal health care systems would

be drastically impacted by the proposed

regulation. Because of this impact, one

commenter recommended that the

Indian Health Service (IHS) and the

tribal system be exempted from the

proposed regulations, and that we

consult with IHS and tribal

organizations before including them in

the proposed regulations. Another

commenter indicated that States should

recognize the inherent sovereignty of

Indian Tribes and Nations and the

special status of health programs for

American Indians under Federal law.

This commenter recommended that

States implementing Federal programs

need to develop a consultation policy

that ensures tribal participation in

developing health care programs.

Another commenter stated that the

proposed regulation showed concern for

consumer protection in general, but

gave little attention to the specific needs

and circumstances of AI/AN consumers

and Indian health providers. In the

commenter’s opinion, the best way to

ensure that this happens is to require

States to engage in meaningful tribal

consultation. Several other commenters

specified that the proposed rule does

not mention or discuss the special

relationship that exists between the

United States and its indigenous

peoples, namely American Indians,

Alaskan Natives, Aleuts, Eskimos and

Native Hawaiians. These commenters

believed that it is important to

specifically include language that

acknowledges this relationship and

allows the Federal government to

provide services for these groups. This

would be done not on the basis of race

or ethnicity, but rather upon the Federal

government’s historical relationship

with native peoples and their

governments who live in areas which

are not portions of States of the United

States but who have had affinities to

these areas long before these States

came to be part of the United States. The

commenters also noted the importance

of including language in the final rule

that recognized the trust responsibilities

of the Federal government to indigenous

peoples and their respective tribes in

developing program standards,

including defining cultural competence,

enrollment policies and procedures,

marketing, access, grievances, quality

assurance and sanctions for MCOs

providing health services to their

peoples and not the States.

Response: While we are aware of, and

concerned about, the impact of this final

rule on IHS and tribal health systems,

we are not exempting them from its

application when they operate as

Medicaid managed care entities or

subcontract with Medicaid managed

care entities. First, there is no basis in

the statute for such an exemption. We

also believe that Medicaid beneficiaries

who use such systems are entitled to the

protections and safeguards embodied in

this rule whether or not they use IHS

and tribal systems. We do however

understand that IHS and tribal health

systems have unique circumstances, and

we have consulted with IHS and tribal

governments on many issues. These

consultations have resulted in some

adjustments to the rule. We will

continue the consultation process as we

interpret and implement this final rule

to ensure that we address the concerns

of IHS and tribal health systems. We do

not believe, however, that this

rulemaking is an appropriate vehicle to

address the full range of Federal treaty

relationships with tribal groups cited,

since its scope is limited to the

Medicaid managed care provisions in

Chapter 1 of Subtitle H of the BBA.

Comment: One commenter strongly

suggested that efforts be made by Tribal,

Federal and State officials to implement

the IHS/HCFA Memorandum of

Agreement (MOA). The commenter

believed that MOA provisions for 100

percent FMAP for tribally operated

facilities should be honored under any

State managed care system in the views

of this commenter. The commenter

believed that States operating Medicaid

managed care programs should carve

out IHS and tribal programs as Medicaid

providers eligible for the ‘‘pass-through’’

reimbursement. Another commenter

stated that Indian health facilities

should be paid by Medicaid for every

visit in which Medicaid covered

services are provided to a Medicaid

beneficiary. This would apply to the

Indian Health Service direct service

facilities, tribally operated facilities, and

urban Indian clinics, collectively known

as the I/T/U. The commenter believed

that the I/T/U should be paid by

Medicaid at a rate that covers the cost

of delivering services, considering that

there is little opportunity to shift costs

to other third party payers. The

commenter further stated that barriers to

participation should be eliminated for

AI/AN populations for health care

programs that receive any Federal

funding. Recognizing the limitations in

funding, the commenter believed that

resources should be used to the

maximum extent for direct patient care

and prevention activities while keeping

administrative functions as efficient as

possible.

Response: As discussed above in the

discussion of comments on Subpart J

section II. H., issues of Federal matching

funding levels are outside the scope of

the proposed rule or this final rule,

which has no effect on matching rates

for services furnished by IHS or tribal

facilities. We note that the commenter is

mistaken in suggesting that the cited

MOA requires any particular payment

levels to IHS or tribal facilities (and

further note that it does not address

urban Indian facilities at all). We

recognize, however, that IHS and tribal

health systems and providers may have

unique circumstances in contracting

with such programs. We intend to

continue to work with IHS and the

tribes to minimize barriers to

participation in Medicaid managed care

programs, and to address the matching

rate issues raised by the commenters.

i. Miscellaneous Comments

Comment: One commenter

recommended that the final rule address

the administration of non-emergency

MCO transportation services. The

commenter believed (based on

recommendations made by HCFA’s

Transportation Technical Advisory

Group) that coordination with

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6377

transportation agencies and other

human service providers increased the

efficiency of the transportation system,

helped control costs, and can provide

better service to Medicaid and nonMedicaid users of the transportation

system. The commenter noted that it is

in the interest of the community, State,

and the health care and transportation

industries to develop coordinated

networks of transportation. Further,

according to the commenter, States

should have the ability to operate their

non-emergency transportation services

with Federal matching funding

comparable to the optional medical

service match to improve the States’

capacity to coordinate transportation

services, thereby saving Medicaid

related costs while supporting the

existing public transportation network.

Response: The issue of nonemergency transportation services is not

an issue that is unique to managed care.

This regulation only pertains to the

Medicaid managed care provisions in

the BBA, and thus, non-emergency

transportation is beyond the scope of

this regulation and the statute it

implements.

Comment: One commenter disagreed

with the deletion of the requirement

that no more than 75 percent of

enrollees in risk contracts be eligible for

Medicare or Medicaid. Although it is

not clear why this would be the case,

the commenter apparently believed that

this deletion would result in MCOs

decreasing the numbers of Medicaid

beneficiaries.

Response: First, the 75/25 enrollment

requirement is a limit on the percentage

of enrollees eligible for Medicaid, and

therefore there is no reason to believe it

would result in decreased Medicaid

enrollment. Any changes that resulted

from its elimination would presumably

increase Medicaid enrollment. More

importantly, this change was made by

Congress in the BBA, and we thus had

no discretion in this rulemaking to

retain it. We note that this requirement

was previously used as a rough ‘‘proxy’’

to ensure quality services by requiring

that an MCO attract commercial

customers. This ‘‘proxy’’ has been

replaced in the BBA with more direct

quality requirements implemented in

this final rule.

Comment: We received one comment

urging that the proposed rule deal with

the effects on Medicaid of the law

prohibiting ‘‘public benefits’’ going to

individuals who are not citizens or

permanent residents.

Response: This subject is outside the

scope of this rulemaking.

Comment: A few commenters

suggested that HCFA require State

agencies to consult with beneficiaries

and the physician community at all

stages of the planning and

implementation of new managed care

initiatives. The commenters believed

that physician organizations can offer

significant input into the development

of professional standards effecting

patient care delivery, evaluating the

adequacy of provider networks, and

assessing quality of care delivered.

Further, the commenters believed that

we should continuously monitor and

evaluate State experiences with

physician participation and serve as a

clearinghouse of information for States

on successful strategies.

Response: We realize that public and

physician consultation are important

factors in the development of Medicaid

managed care initiatives and encourage

stakeholder input at all stages of

managed care development. However,

we are not requiring a specific

requirement for stakeholder

involvement since States, based on the

uniqueness of their Medicaid managed

care programs, are in the best position

to determine how this involvement

should be structured. Each State is

required to have a Medical Care

Advisory Committee (MCAC)

established for the purpose of advising

the Medicaid agency about health and

medical services. This committee, by

regulatory definition, is required to

include physicians and beneficiaries.

We encourage States to continue to use

the MCAC as a mechanism for obtaining

input on managed care issues. Likewise,

under § 438.302, we are requiring public

consultation in development of the

State’s quality strategy, though we are

not specifying the structure of this

consultation.

Comment: One commenter expressed

concern with the lack of discussion in

the preamble and proposed regulation

text of requirements or directions to

States regarding long term care services

and support delivered by MCOs. The

commenter believed that this was of

particular concern since the elderly and

people with disabilities account for the

majority of Medicaid spending.

Response: While long-term care

services were not explicitly addressed

in the regulation, we believe the

regulation was written in such a manner

to encompass all the types of services

delivered under managed care including

long-term care. Long-term care issues

were considered in discussions during

the development of the final regulation.

Comment: Several commenters were

concerned with what they believed to be

a lack of clarity and specificity in the

proposed rule concerning children and

children with special health care needs.

These commenters believed that the

final rule should be more specific on

child health requirements separate from

adult health requirements, since

children have distinct medical and

developmental health care needs. The

commenters also stated that the

proposed rule offered no special

protection for children with special

health care needs. One commenter

stated that when Congress enacted

section 1932(a)(2)(A) of the Act, it

intended that HCFA develop standards

and protections for special needs

children above and beyond the managed

care standards and protections provided

to all beneficiaries. The commenter

further indicated that because children

with special health care needs are the

most vulnerable, it was essential that

HCFA provide specific regulations that

protects these children in managed care

environments.

Response: We agree that children, and

particularly children with special health

care needs, have unique needs that

differ from the adult population. While

this final rule establishes a general

framework for States to use when

developing managed care programs to

serve all of its enrolled populations, as

discussed in section II. D. above, it also

takes into account and implements

recommendations set forth in HCFA’s

report to Congress on special needs

beneficiaries required under section

4705(c)(2) of the BBA. We note that

section 1932(a)(2)(A) specifically

exempts special needs children from

being mandatorily enrolled in the State

Plan Option for Medicaid managed care.

In addition, under 1915(b) waivers

HCFA has established new interim

criteria that States must meet when

establishing programs for children with

special health care needs. These criteria

require additional reporting and

monitoring for children with special

health care needs. And finally, the terms

and conditions for 1115 waiver

programs also contain specific areas that

address the needs of these types of

children.

Comment: One commenter was

concerned about the impact of Medicaid

managed care on the nation’s dental

schools and other hospital-based or

allied dental education programs. The

commenter urged HCFA to recognize

the special role of dental education

institutions in serving the Medicaid

population and to use the regulations to

strengthen the Medicaid program by

improving access to dental prevention

and treatment services. Finally, this

commenter recommended that the

proposed regulations be revised to

amplify the specific requirements of law

related to the access of diagnostic,

6378 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

preventive and treatment services for

children under Medicaid’s EPSDT

program. The commenter was

specifically concerned about the impact

of managed care on the utilization rate

for children’s dental services.

Response: We recognize the

importance of the nation’s dental

schools and other hospital-based dental

education programs in serving the

dental needs of the Medicaid

population. At this time, we do not

believe it is necessary to develop a

separate regulation to address access to

dental prevention and treatment

services. This final rule is designed to

address access issues related to all

Medicaid managed care services. For

example, an MCO that delivers dental

services to Medicaid beneficiaries must

comply with the access requirements in

the regulation. The MCO must ensure

that it offers an appropriate range of

services and that it maintains a network

of providers that is sufficient to meet the

needs of its enrollees. Further,

according to § 438.206(a), each State

must ensure, through its contract with

an MCO, that all of the covered services

are accessible for all the beneficiaries

enrolled with the MCO. We are also

optimistic that managed care will

facilitate increased utilization in the

area of dental services.

Comment: Several commenters

recommended that HCFA develop a

final rule which ensures that States,

MCOs and PCCMs will develop

Medicaid managed care programs that

protect the rights of enrollees who are

homeless, promote their access to an

appropriate range of services, and

improve the quality of care available to

them.

Response: We believe this final rule

protects the rights of all beneficiaries,

including persons who are homeless.

For example, § 438.206 requires that the

delivery network meet the needs of the

population served and that access to

services be guaranteed, while under

§ 438.100 all beneficiaries must be

treated with dignity and respect. We

recognize that persons who are

homeless face unique difficulties in

receiving information needed to make

appropriate choices among MCO or

PCCM options due to transience, lack of

mailing address, and other

circumstances. Under § 438.56(d)(2)(i),

persons who are homeless, and who

have been automatically assigned at

their initial enrollment into an MCO or

PCCM, may disenroll and re-enroll with

a different MCO or PCCM at any time.

We believe this will give persons who

are homeless the opportunity to learn

more about managed care when they

need medical services and make the

most effective choice of MCOs or

PCCMs at that time.

Comment: One commenter

recommended that there should be some

form of consumer assistance programs

to help enrollees navigate the managed

care system.

Response: We agree that there must be

adequate and appropriate consumer

assistance programs available to enable

beneficiaries to navigate the managed

care system. We also agree that it is a

State’s responsibility to ensure that

consumer assistance is available to its

beneficiaries. However, because

consumer assistance can be

accomplished in many different ways,

and should be designed by each State to

meet the unique characteristics of its

managed care population and program,

we are not imposing a Federal

requirement for this. Some States

already use toll free hotlines for

consumer assistance, while others have

developed ombudsman programs. We

do require that MCOs must give

enrollees reasonable assistance they

need in completing forms or other

procedural steps in the grievance

process.

Comment: Several commenters

believed that the regulation should

clearly respond to the special needs of

medically vulnerable beneficiaries with

acute, chronic and disabling conditions

and contain specific definitions of these

diagnoses, as well as clear definitions of

‘‘mental illness’’ and ‘‘addictive

disorders’’ so that coverage for these

conditions are included under the

service plan. One commenter

recommended the inclusion within all

Medicaid mental health managed care

benefit packages of psychosocial

rehabilitative services, self-help services

and peer supports, and other nonmedical services designed to help

consumers improve their level of

functioning, increase their ability to live

independently and cope with ongoing

symptoms and side effects of

medications. Further, the commenter

contended that States should be

required to establish the methodology

necessary to measure the prevalence of

chronic mental illness, acute mental

illness, or substance abuse per county,

taking into account the predicted health

care needs of the population to be

enrolled. Another commenter believed

that the regulation should incorporate a

requirement that each Medicaid

managed care behavioral health plan

name and provide a full continuum of

addiction treatment services in the

network including: hospital and nonhospital detoxification, hospital and

non-hospital rehabilitation, short and

long term rehabilitation, outpatient,

partial hospitalization services and

treatment for the family. This

commenter also recommended that a

particular university be given a strong

role in review of these provisions, and

that this role should be written into

regulation.

Response: The regulation was

intended to address needs and

protections for all Medicaid

beneficiaries in managed care. The

information requirements at § 438.10

require that the State must, directly, or

through the MCO, PHP, or PCCM,

provide information on any benefits to

which the beneficiary is entitled under

the Medicaid program, but that are not

covered under the MCO, PHP, or PCCM

contract, and specific instructions on

where and how to obtain those benefits,

including how transportation is

provided. Further, we are not

identifying specific types of treatment

and services in the regulation for one

type of service category. Each State has

the flexibility to determine the services

that will be covered under their own

State Medicaid program. This regulation

pertains only to the delivery of services,

not the benefits provided under the

State’s Medicaid program. With respect

to the last comment on the role of a

specified university, we do not believe

it would be appropriate to grant an

outside private body government

oversight authority.

Comment: One commenter suggested

that MCO, PHP, and PCCM contracts

should specify the services that the

entity is responsible to provide, and that

the State should be required to make

arrangements for providing other State

plan services, and give beneficiaries

written information on how to obtain

them.

Response: As noted above in section

II. C., § 438.210(a) requires that

contracts specify the services the entity

is required to provide, and § 438.206(c)

requires that if an MCO contract does

not cover all of the services covered

under the State plan, the State must

make available those services from other

sources and instruct all enrollees on

where and how to obtain them,

including how transportation is

provided. Further, the information

requirements under § 438.10 require

that the State must, directly or through

the MCO, PHP, or PCCM, provide to

Medicaid beneficiaries information on

any services to which they may be

entitled under the Medicaid program,

but that are not covered under the MCO

PHP, or PCCM contract and specific

instructions on where and how to obtain

those services, including how

transportation is provided.

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6379

Comment: One commenter

recommended that a new paragraph

should be included (titled ‘‘Americans

with Disabilities Act’’) to require that

each MCO must ensure that: (1) the

physical and mental disabilities of

enrollees and potential enrollees are

reasonably accommodated, including

flexible scheduling, extra assistance and

specialized staff training; (2) enrollees

with disabilities receive services in the

most integrated setting appropriate to

their needs, including community based

services to enable them to live in

community settings instead of

institutions or residential treatment

facilities; (3) no eligibility criteria,

service authorization procedures,

utilization review practices or other

methods of administration are employed

that defeat or substantially impair, with

respect to individuals with disabilities,

accomplishment of the objectives of the

State’s medical assistance program; and

(4) qualified individuals with

disabilities be provided services,

benefits and aids that are as effective in

affording equal opportunity to obtain

the same result, to gain the same benefit

or to reach the same level of

achievement as that provided to others.

Response: We do not feel it is

necessary to add a separate provision as

other areas of the regulation respond to

this issue. Section 438.100 requires that

the State must ensure that each MCO

and PHP comply with any and all

Federal laws pertaining to enrollee

rights, including the Americans with

Disabilities Act. Further, § 438.6(f)

requires that all contracts must comply

with all applicable State and Federal

laws and regulations, including Title VI

of the Civil Rights Act of 1964; Title IX

of the Education Amendments of 1972

(regarding education programs and

activities); the Age Discrimination Act

of 1975; the Rehabilitation Act of 1973;

and the Americans with Disabilities Act.

Comment: One commenter was

concerned with what will happen to

people with mental retardation should

an MCO, PHP, or PCCM withdraw from

the Medicaid market. The commenter

stated that if a Medicaid MCO or PHP

leaves the Medicaid market, there must

be protections in place to ensure

continuing access to medically

necessary services for individuals with

mental retardation and other disabilities

who critically need access to these

health and health related services and

supports to live in the community.

Response: It is the State’s ultimate

responsibility to ensure access to

Medicaid covered services. In the event

that an MCO or PHP withdraws from the

Medicaid market, the State must ensure

that services are delivered to all

Medicaid beneficiaries either through

another Medicaid MCO or PHP, or

through fee-for-service arrangements.

Comment: One commenter found it

disturbing that managed care consumer

protections and quality measures for the

Medicare population have more ‘‘teeth’’

than those required for Medicaid. The

commenter felt that this perceived

distinction in the requirements of

Medicare managed care and Medicaid

managed care continues what the

commenter believed to be ongoing

discrimination against people who are

poor and disabled.

Response: It was our intent to create

consistency with the Medicare+Choice

requirements to lessen the impact that

multiple regulatory and administrative

standards exert on the managed care

industry. However, where there was a

clear need for greater beneficiary

protection or where consistency with

the Medicare+Choice program was not

appropriate for Medicaid managed care,

we deviated from the Medicare+Choice

policy. We believe that this final rule

balances the need for flexibility and

consistency, while providing States

with the broad tools necessary to

become better purchasers of health care.

We believe that this final rule contains

protections for enrollees that are equal

to or exceed those in the

Medicare+Choice final rule. This

includes sanction and civil money

penalty authority similar to that in the

Medicare+Choice rule. We thus disagree

with the commenter’s premise about the

Medicare+Choice rule having more

‘‘teeth.’’

Comment: Several commenters urged

HCFA to provide special attention to the

effect of these regulations on people

with disabilities. The commenters

believed that the regulations must

provide specific protections for special

needs populations, such as those with

spinal cord injury or dysfunction when

enrollment in Medicaid managed care is

mandatory. One commenter believed a

methodology should be developed

which would allow States to inventory

disabled populations on a per county

basis in order to ensure that adequate

numbers of providers, especially

specialists, would be available to serve

the enrolled special needs population.

Response: The regulation was

intended to address the needs and

protections for all Medicaid

beneficiaries in managed care, including

persons with disabilities. The regulation

was written in a manner to establish a

general framework for States to use

when developing managed care

programs to serve all of its enrolled

populations. We believe the regulation

allows greater access to quality health

care services delivered through

managed care arrangements for persons

with disabilities. As noted above in

section II. C., § 438.206(d) requires that

MCOs and PHPs take into account the

anticipated enrollment of persons with

special health care needs in establishing

their provider network, and must have

the appropriate numbers and ‘‘types’’ of

providers in terms of training and

experience to meet these needs. We

believe these provisions directly address

the commenters’ concerns.

Comment: One commenter suggested

that the final regulation make clear that

all States are free to adopt more rigorous

standards of consumer protections in

Medicaid managed care.

Response: The consumer protections

in this regulation were not designed to

prevent States from developing more

rigorous standards. States retain the

flexibility to develop more restrictive

consumer protection provisions that go

beyond those contained in this

regulation.

Comment: Several commenters noted

that the issue of low physician

participation in Medicaid does not

appear to have been addressed in the

proposed rule, and believed that this

has always been a concern under the

Medicaid program. Some of the

commenters believed that because of

inadequate funding and administrative

requirements, physicians have

minimized their participation in the

Medicaid program. These commenters

believed that financial incentives may

be an appropriate mechanism to entice

physician participation. On the other

hand, a commenter felt that financial

incentives that may prevent the delivery

of medically necessary services may be

partially controlled by prohibiting any

financial incentives. Another

commenter recommended that in

addition to physician incentive plans

that place physicians at substantial

financial risk for services they do not

provide, having to conduct enrollee

surveys, and provide adequate and

appropriate stop loss protection, HCFA

should also state that financial risk will

reside with the plan in instances where

a plan decision results in a limit on the

services provided. Finally, one

commenter felt that there was a need to

develop financial incentives for

managed care plans to compete on the

basis of quality rather than the basis of

price. This commenter believed that it is

important for Medicaid managed care

regulations to establish rewards for

MCOs based on quality, not merely cost

reductions.

Response: The general issue of

relatively low levels of physician

participation in the Medicaid program is

6380 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

outside the scope of this rulemaking.

We note, however, that levels of

participation in managed care settings

have been higher than under fee-forservice Medicaid, and that a managed

care enrollee is ensured access to a

primary care provider under this final

rule. Thus, to the extent managed care

is involved, physician participation is

guaranteed under this final rule to the

extent necessary to meet access

requirements. Specifically, § 438.207

requires that each MCO and PHP must

ensure that it maintains a network of

providers that is sufficient in number,

mix and geographic distribution to meet

the needs of the anticipated number of

enrollees in the MCO’s or PHP’s service

area. Further, under § 438.214, the State

must ensure that each MCO and PHP

have a process for formal selection and

retention of providers that does not

discriminate against those that serve

high risk populations or specialize in

conditions that require costly treatment.

With respect to financial incentives for

MCOs and PHPs, these are addressed in

§ 422.6(c)(5) as part of the discussion of

actuarially sound rates. See section II.

A. above. Beyond these limits, we

believe States should have flexibility in

this area. With respect to financial

incentives for individual physicians,

§ 438.6(h) requires that MCO and PHP

contracts provide for compliance with

the physician incentive plan

requirements.

Comment: One commenter wrote to

express concerns regarding the quality

of care delivered by a particular

managed care program. The commenter

was concerned about the introduction of

managed care for persons with

disabilities and persons with chronic

conditions. The commenter contended

that they were misled by their health

plan, and the organization denied and

reduced care when not appropriate.

Response: We anticipate that the new

consumer protections, quality

provisions and grievance system

requirements in this final rule will work

to alleviate problems in the areas

addressed by the commenter.

Comment: One commenter believed

that the final rule should maintain an

adequate safety net to guarantee the

continued viability of Medicaid

managed care and to allow for

reasonable alternatives. The commenter

cautioned States moving towards

mandatory managed care that they must

avoid the tendency to make the area fit

MCOs rather than the MCOs address the

area. The commenter felt that ‘‘cookie

cutter’’ approaches will not work in

large rural States, and it might be

difficult to develop health plan

networks in rural areas.

Response: We recognize that States

are unique and have different needs for

their enrolled populations. This final

rule was designed to maintain State

flexibility as much as possible, so that

States can implement managed care

programs that meet the needs of their

beneficiaries.

VI. Collection of Information

Requirements

Under the Paperwork Reduction Act

(PRA) of 1995, we are required to

provide 30-day notice in the Federal

Register and solicit public comment

before a collection of information

requirement is submitted to the Office of

Management and Budget (OMB) for

review and approval.

In order to fairly evaluate whether an

information collection should be

approved by OMB, section 3506(c)(2)(A)

of the PRA of 1995 requires that we

solicit comment on the following issues:

• The need for the information

collection and its usefulness in carrying

out the proper functions of our agency.

• The accuracy of our estimate of the

information collection burden.

• The quality, utility, and clarity of

the information to be collected.

• Recommendations to minimize the

information collection burden on the

affected public, including automated

collection techniques.

Therefore, we are soliciting public

comments on each of these issues for

the information collection requirements

discussed below.

The following information collection

requirements and associated burdens

are subject to the PRA. For purposes of

this requirement, we incorporated

pertinent managed care data from the

1999 Medicaid enrollment report. As of

June, 1999, there were 375 managed

care organizations (MCOs) (this includes

2 HIOs that must adhere to the MCO

requirements of this regulation), 37

primary care case management systems

(PCCMs), 412 managed care entities

(MCOs and PCCMs combined), and 129

prepaid health plans (PHPs). There were

a total of 24,470,583 beneficiaries

enrolled in these plans (some

beneficiaries are enrolled in more than

one plan) in forty-eight States and the

District of Columbia (Wyoming and

Alaska do not currently enroll

beneficiaries in any type of managed

care).

A. Section 438.6 Contract

Requirements

1. Section 438.6(c) Payments Under the

Contracts

a. Requirement

In summary, § 438.6(c) modifies the

rules governing payments to MCOs and

PHPs by doing the following: (1)

eliminates the upper payment limit

(UPL) requirement; (2) requires actuarial

certification of capitation rates; (3)

specifies data elements that must be

included in the methodology used to set

capitation rates; (4) requires States to

consider the costs for individuals with

chronic illness, disablility, ongoing

health care needs, or catastrophic claims

in developing rates; (5) requires States

to provide explanations of risk sharing

or incentive methodologies; and (6)

imposes special rules, including a

limitation on the amount that can be

paid under FFP in some of these

arrangements.

b. Burden

We believe that the burden of

providing additional information to

support the actuarial soundness of a

State’s capitation rates will be offset by

the elimination of the UPL requirement.

States will no longer be required to

extract fee-for-service (FFP) data and

manipulate that data by trending and

other adjustments in order to establish

a FFP equivalent for purposes of

comparison to capitation rates.

2. Section 438.6(i)(2) Advance Directives

a. Requirement

This paragraph requires that MCOs

and PHPs (States may determine that it

is inappropriate to require this of some

PHPs) provide adult enrollees with

written information on advance

directives policies and include a

description of applicable State law.

b. Burden

The burden associated with this

requirement is the time it takes to

furnish the information to enrollees. We

assume that this information would be

furnished with the rest of the

information required by other

regulations sections and is therefore

subsumed under those requirements.

B. Section 438.8 Provisions That

Apply to PHPs

Section 438.8(a) Contract Requirements

a. Requirement

This section imposes most of the

contract requirements contained in

§ 438.6 on PHPs, including advance

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6381

directives (in most instances) and

physician incentive plan requirements.

2. Burden

PHPs have not previously been

required to maintain written policies

and procedures with respect to advance

directives. This requires the PHP to

provide written information to enrollees

of their rights under this provision and

the PHP’s policies with respect to the

implementation of those rights. We

project 8 hours for each of the 129 PHPs

to establish this policy and 2 minutes

per enrollee for provision of this

information, and acceptance of this right

to each of approximately 8.1 million

individuals enrolled in PHPs. The total

time for this would be 271,032 hours.

Under the physician incentive plan

provision, PHPs, like MCOs, will be

required to provide descriptive

information to States and HCFA to

determine whether or not there is

substantial financial risk in their

subcontracts. In addition, enrollees

must be surveyed and provided

information on the risk arrangements

when substantial risk exists.

We are basing our projections of

burden upon information published in

the Federal Register on March 27, 1996

and December 31, 1996 (61 FR 13445

and 61 FR 69049) which contained the

original regulatory provisions on

physician incentive plans for Medicare

and Medicaid HMOs. Based on those

assumptions, we believe no more than

one third of the approximately 130

PHPs use incentive or risk payment

arrangements with their subcontracting

providers. Affected PHPs would be

required to provide detailed responses

to State surveys regarding their payment

mechanisms and amounts. At the

projected 100 hours per response for

approximately 43 PHPs the total burden

would be 4300 hours. For those PHPs

with substantial financial risk, there are

other requirements such as stop loss

insurance and beneficiary surveys. We

believe there would be minimal

additional burden as a result of these

requirements (because many already

comply with these requirements) and

that this would apply to no more than

one fourth of those PHPs with risk or

incentive payments, or a total of 11. We

estimate an additional 10 hours per plan

for a total of 110 hours. Altogether, we

estimate 4,410 hours of burden through

imposition of this requirement on PHPs.

C. Section 438.10 Information

Requirements

1. Section 438.10(b), (d), (e), and (f)

a. Requirement

In summary, § 438.10(b), (d) and (e)

state that each State, MCO, PHP, and

PCCM must furnish information to

enrollees and potential enrollees, to

meet the requirements of this section.

Paragraph (b) requires that the State

notify enrollees and potential enrollees,

and require each MCO, PHP, and PCCM

to notify its enrollees and potential

enrollees that oral interpretation and

written information are available in

languages other than English and how to

access those services. The basic

information listed in paragraph (d) and

(e) of this section must be provided to

each enrollee or to any potential

enrollee upon request, by the MCO or

PHP (unless the State chooses to furnish

it directly), within a reasonable time

after it receives from the State notice of

the beneficiary’s enrollment. This

information must be provided on an

annual basis thereafter, the MCO or PHP

must notify enrollees of their right to

obtain this information upon request.

The information that must be provided

includes the following:

Information for potential enrollees

General information must be provided

about the basic features of managed

care, which populations are excluded

from enrollment, subject to mandatory

enrollment, or free to enroll voluntarily

in an MCO or PHP, and MCO and PHP

responsibilities for coordination of

enrollee care.

Information specific to each MCO and

PHP serving an area that encompasses

the potential enrollee’s service area

must be provided. This includes

information on benefits covered; cost

sharing if any; service area; names,

locations, and telephone numbers of

current network providers, including at

a minimum information on primary care

physicians, specialists, and hospitals,

and identification of providers that are

not accepting new patients; and benefits

that are available under the State plan

but are not covered under the contract,

including how and where the enrollee

may obtain those benefits, any cost

sharing, and how transportation is

provided.

Information for enrollees

The State must give each enrollee

written notice of any change (that the

State defines as ‘‘significant’’) in the

information specified at least 30 days

before the intended effective date of the

change and make a good faith effort to

give written notice of termination of a

contracted provider, within 15 days

after receipt or issuance of the

termination notice, to each enrollee who

received his or her primary care from,

or was seen on a regular basis by, the

terminated provider.

Required information:

• Kinds of benefits, and amount,

duration, and scope of benefits available

under the contract; enrollee rights as

specified in § 438.100.

• Procedures for obtaining benefits,

including authorization requirements.

• Names, locations, and telephone

numbers of current network providers,

including information at least on

primary care physicians, specialists, and

hospitals, and identification of

providers that are not accepting new

patients.

• Any restrictions on the enrollee’s

freedom of choice among network

providers.

• The extent to which, and how,

enrollees may obtain benefits, including

family planning services, from out-ofnetwork providers.

• The extent to which, and how,

after-hours and emergency coverage are

provided.

• Policy on referrals for specialty care

and for other benefits not furnished by

the enrollee’s primary care provider.

• Cost sharing, if any.

• Grievance, appeal, and fair hearing

procedures for enrollees, including

time-frames, required under

§ 438.414(b).

• Any appeal rights that the State

chooses to make available to providers

to challenge the failure of the

organization to cover a service.

• Any benefits that are available

under the State plan but are not covered

under the contract, including how and

where the enrollee may obtain those

benefits, any cost sharing, and how

transportation is provided. The State

must furnish information about how

and where to obtain the service.

• Information on how to obtain

continued services during a transition,

as provided in § 438.62.

• The rules for emergency and poststabilization services, as set forth in

§ 438.114.

• Additional information that is

available upon request, and how to

request that information.

At least once a year, the MCO or PHP,

or the State or its contracted

representative, must notify enrollees of

their right to request and obtain the

information listed above.

In addition, § 438.10(f) requires that

information related to the licensure,

certification, and accreditation status of

MCOs, PHPs, and their providers be

6382 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

furnished to each enrollee and each

potential enrollee.

b. Burden

We believe the burden placed on

States, MCOs, PHPs, and enrollment

brokers as a result of this requirement is

the time associated with modifying the

content of existing information

materials, as well as the time associated

with distributing the materials to

enrollees as specified by the regulation.

We estimate that it will initially take 12

hours for each MCO or PHP to modify

existing information materials to

conform with the requirement above.

We further estimate that there are

approximately 375 MCOs and 129 PHPs,

equating to an initial modification

burden of approximately 6,048 hours.

After the initial modification, we

estimate that it will take MCOs and

PHPs approximately 4 hours each to

annually update the information

materials, equating to an annual total

burden of approximately 2,016 hours.

We expect that it will take MCOs,

PHPs, or States approximately 5

minutes per enrollee to mail the initial

packet, for an estimated 20.2 million

enrollees. The total burden associated

with this requirement is approximately

1,683,000 hours, approximately 3,340

hours per MCO or PHP, or 34,000 hours

per State.

We similarly estimate that it annually

will take MCOs, PHPs, or States 5

minutes per enrollee to mail

information materials upon request. We

estimate that 10 percent of enrollees and

potential enrollees will request

information annually, equating to

approximately 2,020,000 enrollees and

potential enrollees. The annual mailing

burden associated with this requirement

is estimated to be 2,020,000 individuals

multiplied by 5 minutes per person, for

a total burden of approximately 168,300

hours (approximately 330 hours per

MCO or PHP, or 3,400 hours per State).

Finally, we estimate that it will

annually take MCOs, PHPs, or States 5

minutes per enrollee to notify enrollees

of their right to receive information.

Five minutes multiplied by an estimated

total enrollee population of 20,200,000

individuals equates to an annual burden

of approximately 16,830,000 hours or

approximately 3,300 hours per MCE or

PHP or 33,400 hours per State.

2. Section 438.10(g)

a. Requirement

Section 438.10(g) requires that each

primary care case manager (PCCM) (and

PHPs that operate like PCCMs) provide

similar types information to potential

enrollees including information on

provider names and locations, benefits,

grievance procedures, and procedures

for obtaining services during the appeals

process.

b. Burden

The burden associated with this

requirement is the amount of time

required by States or their contracted

representative to mail the required

information to potential enrollees. We

believe that it will take the 30 States

approximately 5 minutes per enrollee to

mail this information. We estimate that

there are a total of approximately

4,274,000 PCCM enrollees, and that 10

percent of those enrollees will request

this information. This equates to an

annual burden of 5 minutes multiplied

by 427,400 enrollees, or approximately

35,600 hours (approximately 962 hours

per primary care case manager).

3. Section 438.10(h)

a. Requirement

In summary, § 438.10(h) states that if

a State plan provides for mandatory

MCO, PHP, or PCCM enrollment under

section 1932(a)(1)(A) of the Act, the

State or its contracted representative

must provide information in a

comparative, chart-like format, to

potential enrollees and at least once a

year thereafter. The information must

include the MCO’s, PHP’s or PCCM’s

service area, the benefits covered under

the contract, any cost sharing imposed

by the MCO, PHP, or PCCM and, to the

extent available, quality and

performance indicators, including but

not limited to disenrollment rates and

enrollee satisfaction.

b. Burden

We believe that the additional burden

on States (for example those not yet

captured in the above provisions) is the

length of time associated with creating

the comparative chart. We estimate that

it will take States approximately 4 hours

each to create the comparative chart. We

further estimate that approximately 8

States per year will avail themselves of

the State Plan Option, for a total annual

burden of approximately 32 hours.

D. Section 438.12 Provider

Discrimination Prohibited

a. Requirement

This section requires that if an MCO

or PHP declines to include individual or

groups of providers in its network, it

must give the affected providers written

notice of the reason for its decision.

b. Burden

The burden associated with this

requirement is the time it takes the MCO

or PHP to draft and furnish the

providers with the requisite notice. We

estimate that it will take an hour to draft

and furnish any given notice. We

estimate that on average each MCO and

PHP will need to produce 10 notices per

year for a total of 5,040 hours.

E. Section 438.50(b) State Plan

Information

a. Requirements

Each State must have a process for the

design and initial implementation of the

State plan that involves the public and

have methods in place to ensure

ongoing public involvement once the

State plan has been implemented.

b. Burden

The burden associated with this

section includes the time associated

with developing the process for public

involvement, including annual updates.

We estimate that it will take 40 hours

per State to develop the process for, and

involving, the public for a total burden

of 1960 hours (48 States and D.C.). We

estimate that ensuring ongoing public

involvement will take another 20 hours

per State annually for a total annual

burden of 980 hours.

F. Section 438.56z Disenrollment:

Requirements and Limitations

1. Section 438.56(b)

a. Requirement

All MCO, PHP, and PCCM contracts

must—

(1) Specify the reasons for which the

MCO, PHP, or PCCM may request

disenrollment of an enrollee;

(2) Provide that the MCO, PHP, or

PCCM may not request disenrollment

because of a change in the enrollee’s

health status, or because of the

enrollee’s utilization of medical

services, diminished mental capacity, or

uncooperative or disruptive behavior

resulting from his or her special needs;

and

(3) Specify the methods by which the

MCO, PHP, or PCCM ensures the agency

that it does not request disenrollment

for reasons other than those permitted

under the contract.

b. Burden

The burden of submitting this

supporting documentation when MCOs,

PHPs, or PCCMs request disenrollment

of beneficiaries would be two hours per

request. We calculate that

approximately one-tenth of one percent

of enrollees (24,470) would be affected,

or 43 per MCO, PHP, or PCCM annually.

The total burden would be 48,940

hours, or 87 hours per MCO, PHP, or

PCCM.

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6383

2. Section 438.56(d)(1)

a. Requirement

In order to disenroll, the beneficiary

(or his or her representative) must

submit an oral or written request to the

State agency (or its agent) or to the

MCO, PHP or PCCM where permitted.

b. Burden

We believe that the burden associated

with this requirement is the length of

time it would take enrollees to submit

in writing a disenrollment request, if

they choose to use the written format.

We estimate that it will take

approximately 10 minutes per enrollee

to generate a written disenrollment

request. We estimate that approximately

5 percent of MCO, PHP, and PCCM

enrollees will request that they be

disenrolled from an MCO, PHP, or

PCCM. Approximately one-fourth of the

enrollees will choose a written rather

than an oral request. This equates to an

annual burden of approximately 10

minutes multiplied by 306,000 affected

enrollees (one-fourth of the 1,221,000

enrollees requesting disenrollment), or

approximately 51,000 hours.

3. Section 438.56(d)(3)

a. Requirement

When MCOs, PHPs, or PCCMs are

processing disenrollment requests and

do not act to approve them, they must

submit written notice to the State and

then the State takes action. When a State

is acting on a for-cause disenrollment

request, they may request written

information from the MCO, PHP, or

PCCM to determine the outcome. In

addition, if the MCO, PHP, or PCCM

approves the disenrollment for cause, it

must give the enrollee and the State

agency written notice of its

determination.

b. Burden

We believe that the burden associated

with this requirement is the time taken

for MCOs, PHPs, or PCCMs to submit

written notice to the State and

beneficiaries.

Of the 1,221,000 affected enrollees,

we calculate that one-fifth (244,000) will

not be approved. If each notice takes 15

minutes to produce, the total burden

would be 61,000 hours. Of the 244,000

enrollees not approved, we calculate

that three-fourths (183,000) will involve

the State requesting information from

the MCO, PHP, or PCCM justifying the

denial. At one hour per request, the total

burden on MCOs, PHPs, or PCCMs

would be 183,000 hours.

We estimate that the MCOs, PHPs,

and PCCMs will need to produce

notices for the remaining four-fifths of

enrollees requesting disenrollment

(977,000) and the States to approve the

request for disenrollment. As this notice

will probably be a short form letter, with

attachments as necessary, we believe

that it will take ten minutes per request

to send out the notices, or an annual

burden of 163,000 hours.

G. Section 438.102 Enrollee-Provider

Communications

a. Requirement

Section 438.102(c) states that the

general rule in paragraph (b) of this

section does not require the MCOs and

PHPs to cover, furnish, or pay for a

particular counseling or referral service

if the MCO or PHP objects to the

provision of that service on moral or

religious grounds; and makes written

information on these policies available

to (1) prospective enrollees, before and

during enrollment and, (2) current

enrollees, within 90 days after adopting

the policy with respect to any particular

service.

b. Burden

The above information collection

requirement is subject to the PRA.

However, we believe the burden

associated with these requirements is

captured in the general information

requirements in § 438.10.

H. Section 438.114 Emergency

Services

a. Requirement

Section 438.114(b) states that at the

time of enrollment and at least annually

thereafter, each MCO, PHP, and State

(for PCCMs) must provide, in clear,

accurate, and standardized form,

information that, at a minimum,

describes or explains (1) What

constitutes an emergency, with

reference to the definitions in paragraph

(a) of this section, (2) the appropriate

use of emergency services, (3) the

process and procedures for obtaining

emergency services, including use of the

911 telephone system or its local

equivalent, (4) the locations of

emergency settings and other locations

at which MCO physicians and hospitals

provide emergency services and poststabilization care covered under the

contract, and (5) the fact that prior

authorization is not required.

a. Burden

The following information collection

requirement is subject to the PRA.

However, we believe the burden

associated with these requirements is

captured in the general information

requirements in § 438.10.

I. Section 438.202 State

Responsibilities

a. Requirement

Each State contracting with an MCO

or PHP must have a strategy for

assessing and improving the quality of

managed care services offered by the

MCO or PHP, document the strategy in

writing and make it available for public

comment before adopting it in final, and

conduct periodic reviews to evaluate the

effectiveness of the strategy at least

every three years. Each State must also

submit to HCFA a copy of the initial

strategy and a copy of the revised

strategy whenever significant changes

are made. In addition, States are

required to submit to HCFA regular

reports on the implementation and

effectiveness of the strategy, consistent

with the State’s own periodic review of

its strategy’s effectiveness, but at least

every three years.

b. Burden

The burden associated with this

section is limited to those States offering

managed care through MCOs or PHPs

(49) and includes the time associated

with developing the proposed strategy,

publicizing the proposed strategy,

incorporating public comments,

submitting an initial copy of the strategy

to HCFA prior to its implementation

and whenever significant changes are

made, and submitting regular reports on

the implementation and effectiveness of

the strategy at least every three years.

We estimate that it will take 40 hours

per State to develop the proposed

strategy for a total burden of 1960 hours.

We estimate that publicizing the

proposed strategy will take 2 hours per

State for a total burden of 98 hours. We

estimate that incorporating public

comments for the final strategy will take

another 40 hours per State for a total

burden of 1960 hours. We estimate it

will take one hour per State to submit

an initial copy of the strategy to HCFA

and whenever significant changes are

made for a total of 49 hours. We

estimate it will take 40 hours per State

to create and submit a report on the

implementation and effectiveness of the

strategy. We assume that these reports

will be submitted at least every three

years for a total annual burden of 653

hours.

K. Section 438.204 Elements of State

Quality Strategies

a. Requirement

In this final rule we have added a new

requirement at § 438.204(b)(1)(iii) that a

State identify the race, ethnicity, and

primary language spoken by each MCO

6384 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

and PHP enrollee and report this

information to each MCO and PHP in

which each beneficiary enrolls at the

time of their enrollment.

b. Burden

We believe that most States currently

track race and ethnicity data in their

eligibility systems. If States do not,

minor changes in their software will be

needed. With respect to primary

language of enrollees, there will likely

be additional programming needed for

all States. We estimate that this would

require 2 hours of programming for each

of the 49 jurisdicitons for a total of 98

hours.

L. Section 438.206 Availability of

Services

a. Requirement

Paragraph (c) of this section requires

that if an MCO, PHP, or PCCM contract

does not cover all of the services under

the State plan, the State must make

those services available from other

sources and provide to enrollees

information on where and how to obtain

them, including how transportation is

provided.

b. Burden

The burden associated with this

requirement is the time it takes to

provide the information. This burden of

this requirement is included in the

general disclosure requirements in

§ 438.10.

M. Section 438.207 Assurances of

Adequate Capacity and Services

a. Requirement

Section 438.207 requires that each

MCO and PHP must submit

documentation to the State, in a format

specified by the State and acceptable to

HCFA, that it has the capacity to serve

the expected enrollment in its service

area in accordance with the States’

standards for access to care and meets

specified requirements.

Section 438.207(c) requires that this

documentation be submitted to the State

at least annually, and specifically at the

time the MCO or PHP enters into a

contract with the State and at any time

there has been a significant change (as

defined both by the State and this

regulation) in the MCO’s or PHP’s

operations that would affect adequate

capacity and services.

Section 438.207(d) requires the State,

after reviewing the MCO’s or PHP’s

documentation, to certify to HCFA that

the MCO or PHP has complied with the

State’s requirements for availability of

services, as set forth at § 438.206.

b. Burden

We believe that MCOs and PHPs

already collect and provide this

information to State agencies as part of

their customary and usual business

practices and that the only additional

burden on MCOs and PHPs is the length

of time required for MCOs and PHPs to

compile this information in the format

specified by the State agency, and the

length of time for the MCOs and PHPs

to mail the information to the State and

the HCFA. We estimate that it will take

each MCO and PHP approximately 20

hours to compile the information

necessary to meet this requirement, for

a total of 20 hours multiplied by 504

MCOs and PHPs, or approximately

10,000 hours. In addition, we estimate

that it will take MCOs and PHPs

approximately 5 minutes each to mail

the materials associated with this

burden to the State for an annual burden

of approximately 5 minutes multiplied

by 502 MCOs and PHPs, or

approximately 42 hours.

In this final rule we have added

requirements to the types of assurances

that MCOs and PHPs must provide (for

example assurances that the MCO or

PHP has policies and practices to

address situations where there are: (1)

unanticipated needs for providers with

particular types of experience; and (2)

unanticipated limitations on the

availability of such providers. In

addition, we have added new

requirements under § 438.206(d) that

when establishing and maintaining

provider networks, each MCO and PHP

must consider the anticipated

enrollment with respect to persons with

special health care needs and the

experience of providers required to

furnish contracted services.

Documentation to support assurances by

each MCO and PHP that they have

considered the anticipated enrollment

of persons with special health care

needs and have recruited or are in the

process of recruiting experienced

providers is part of the assurances that

must be provided to the State. We do

not believe that it is customary, or part

of the ususal business practice of MCOs

and PHPs to collect data that includes

totals for projected enrollment of

persons with special health care needs

and their specialized provider

requirements. We estimate that

obtaining information on: (1) the

numbers and types of persons with

special health care needs that could be

anticipated to enroll in the MCO or

PHP; (2) the types of experienced

providers they would require; (3) the

experience of the existing providers in

the MCO’s or PHP’s network; and (4) the

numbers and types of additional

experienced providers needed, would

require an estimated 40 hours of work

for each of the 504 MCOs and PHPs for

a total estimated burden of 20,160

hours.

N. Section 438.240 QualityAssessment

and Performance Improvement

Program; Performance Improvement

Projects

a. Requirement

Section 438.240(c) states that each

MCO and PHP must annually measure

its performance using standard

measures required by the State and

report its performance to the State. In

this final rule we have added a

requirement that the State must include

any minimum performance measures

and levels specified by HCFA. In

addition to using and reporting on

measures of its performance, in

§ 438.240(d)(3) States are to ensure that

each MCO and PHP initiates each year

one or more performance improvement

projects. In § 438.240(d)(10) each MCO

and PHP is required to report the status

and results of each such project to the

State as requested.

B. Burden

This regulation would require States

to require each MCO and PHP to

annually produce at least two

performance measures. Based on

discussions with the 17 States with the

largest Medicaid managed care

enrollments, all 17 States are already

doing so. Because the use of

performance measures in managed care

has become commonplace in

commercial, Medicare and Medicaid

managed care, we do not believe that

this regulatory provision imposes any

new burden on MCOs, PHPs, or States.

With respect to the requirements for

performance improvement projects in

§ 438.240(d), we expect that, in any

given year, each MCO and PHP will

complete two projects, and will have

four others underway. We further expect

that States will request the status and

results of each MCO’s and PHP’s

projects annually. Accordingly, we

estimate that it will take each MCO and

PHP 5 hours to prepare its report for

each project, for an annual total burden

of 30 hours per MCO and PHP. In

aggregate, this burden equates to 30

hours multiplied by an estimated 504

MCOs and PHPs, or approximately

15,120 hours.

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6385

O. Section 438.242 Health Information

Systems

a. Requirement

Section 438.242(b)(2) requires the

State to require each MCO and PHP to

collect data on enrollee and provider

characteristics as specified by the State,

and on services furnished to enrollees,

through an encounter data system or

other such methods as may be specified

by the State. Section 438.242(b)(3) states

that each MCO and PHP must make all

collected data available to the State and

to HCFA, as required in this subpart, or

upon request.

b. Burden

The above information collection

requirements are subject to the PRA.

However, we believe that the burden

associated with these information

collection requirements is exempt from

the Act in accordance with 5 CFR

1320.3(b)(2) because the time, effort,

and financial resources necessary to

comply with these requirements would

be incurred by persons in the normal

course of their activities.

P. Section 438.402 General

Requirements

a. Requirement

In summary, § 438.402 requires each

MCO and PHP to have a grievance

system, sets out general requirements

for the system, and establishes filing

requirements. It provides that

grievances and appeals may be filed

either orally or in writing, but that oral

appeals (except those with respect to

expedited service authorization

decisions) must be followed by a written

request.

b. Burden

We estimate that approximately 1

percent of 20.2 million MCO and PHP

enrollees (202,000) annually will file a

grievance with their MCO or PHP and

that approximately .5 percent (101,000)

annually will file an appeal. For these

cases, we estimate that the burden on

the enrollee filing a grievance or appeal

is approximately 20 minutes per case.

The total annual burden on enrollees is

101,000 hours.

Q. Section 438.404 Notice of Action

a. Requirement

In summary, § 438.404 states that if an

MCO or PHP intends to deny, limit,

reduce, or terminate a service; deny

payment; deny the request of an

enrollee in a rural area with one MCO

or PHP to go out of network to obtain

a service; or fails to furnish, arrange,

provide, or pay for a service in a timely

manner, the MCO or PHP must give the

enrollee timely written notice and sets

forth the requirements of that notice.

b. Burden

We estimate that the burden

associated with this requirement is the

length of time it would take an MCO or

PHP to provide written notice of an

intended action. We estimate that it will

take MCOs and PHPs 30 seconds per

action to make this notification. We

estimate that approximately 5 percent

(1,010,000) of the approximately 20.2

million MCO and PHP enrollees will

receive one notice of intended action

per year from their MCO or PHP (2,004

hours per MCO or PHP) for a total

burden of approximately 8417 hours.

R. Section 438.406 Handling of

Grievances and Appeals

a. Requirement

In summary, § 438.406 states that each

MCO and PHP must acknowledge

receipt of each grievance and appeal.

b. Burden

The above information collection

requirement is not subject to the PRA.

It is exempt under 5 CFR 1320.4(a)

because it occurs as part of an

administrative action.

S. Section 438.408 Resolution and

Notification: Grievances and Appeals

a. Requirement

In summary, § 438.408 states that for

grievances filed in writing or related to

quality of care, the MCO or PHP must

notify the enrollee in writing of its

decision within specified timeframes.

The notice must also specify that the

enrollee has the right to seek further

review by the State and how to seek it.

All decisions on appeals must be sent to

the enrollee in writing within specified

timeframes and, for notice of expedited

resolution, the MCO or PHP must also

provide oral notice. The decision notice

must include the MCO or PHP contact

for the appeal, the results of the process

and the date it was completed, and a

summary of the steps the MCO or PHP

has taken on the enrollee’s behalf to

resolve the issue. For an oral grievance

that does not relate to quality of care,

the MCO or PHP may provide oral

notice unless the enrollee requests that

it be written.

This section also provides, for

expedited appeals, that MCOs and PHPs

must submit delayed and adverse

appeal decisions to the State fair hearing

office along with all supporting

documentation.

b. Burden

The above information collection

requirements are not subject to the PRA.

They are exempt under 5 CFR 1320.4(a)

because they occur as part of an

administrative action.

T. Section 438.410 Expedited

Resolution of Grievances

1. Paragraph (c)

a. Requirement

Paragraph (c), Requirements for

appeals, requires each MCO and PHP to

document all oral requests in writing

and maintain the documentation in the

case file.

b. Burden

The above information collection

requirement is not subject to the PRA.

It is exempt under 5 CFR 1320.4(a)

because it occurs as part of an

administrative action.

2. Paragraph (d)

a. Requirement

Section 438.410(d) states that if an

MCO denies a request for expedited

grievance, it must automatically transfer

the request to the standard time frame

process and give the enrollee prompt

oral notice of the denial and follow up,

within 2 working days, with a written

letter.

b. Burden

The above information collection

requirements are not subject to the PRA.

They are exempt under 5 CFR 1320.4(a)

because they occur as part of an

administrative action.

U. Section 438.414 Information

About the Grievance System

a. Requirement

Sections 438.414(a) and (b) state that

each MCO and PHP must provide

information about the grievance system,

as specified in § 438.10 and this subpart

to: (1) Enrollees, (2) potential enrollees

(as permitted by the State), and (3) all

providers and contractors, at the time of

subcontracting. The information must

explain the grievance system through a

State-developed or State-approved

description and must include the

information set forth in § 438.414 (b)(1)

through (6).

In addition, § 438.414(c) states that

upon request, the MCO or PHP must

provide enrollees and potential

enrollees with aggregate information

derived from the collected information

in § 438.416(e), regarding the nature of

enrollee grievances and their resolution.

6386 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

(c) Requirements for appeals. Each

MCO and PHP must meet the following

requirements with respect to appeals:

(1) Establish a convenient and

efficient means for an enrollee or a

provider to request expedited resolution

of an appeal;

(2) Provide expedited resolution of an

appeal in response to an oral or written

request if the MCO or PHP determines

(with respect to a request from the

enrollee) or the provider indicates (in

making the request on the enrollee’s

behalf or supporting the enrollee’s

request) that taking the time for a

standard resolution could seriously

jeopardize the enrollee’s life or health or

ability to attain, maintain, or regain

maximum function.

(3) Document all oral requests in

writing; and

(4) Maintain the documentation in the

case file.

b. Burden

These information collection

requirements are subject to the PRA.

However, we believe the burden

associated with these requirements is

captured in the general information

requirements in § 438.10.

V. Section 438.416 Recordkeeping and

Reporting Requirements

a. Requirement

Sections 438.416 (a) and (c) state that

each MCO and PHP must maintain a log

of all complaints and grievances and

their resolution, and retain the records

of complaints, grievances (including

their resolution) and disenrollments for

three years, in a central location, and

make them accessible to the State.

In addition, § 438.416(d) states that

each MCO and PHP must, at least once

a year, send to the State a summary that

includes the following information, (1)

the number and nature of all grievances

and appeals, (2) the time frames within

which they were acknowledged and

resolved, and (3) the nature of the

decisions. This material is available to

the public upon request under § 438.10.

b. Burden

We estimate that approximately .5

percent of the approximately 20.2

million MCO and PHP enrollees will file

a grievance with their MCO or PHP (200

per MCO or PHP). The recording and

tracking burden associated with each

grievance is estimated to be 1 minute

per request (3.4 hours per MCO or PHP),

for a total burden of 1,680 hours (1

minute multiplied by an estimated

101,000 enrollees who would file a

grievance).

This section also contains the

applicable requirements that MCOs and

PHPs must follow to submit the annual

summary of complaints and grievances.

Every MCO and PHP (approximately

504 organizations) must submit an

annual report. We estimate that the

burden on the MCO or PHP for

collecting information and preparing

this summary will be approximately 4

hours per MCO/PHP or approximately

2,016 hours total.

W. Section 438.604 Data That Must Be

Certified

a. Requirement

When payments from States to MCOs

and PHPs are based on data submitted

by the MCO or PHP that include, but are

not limited to, enrollment information,

encounter data, or other information

required by the State, the MCO or PHP

must attest to such data’s accuracy,

completeness, and truthfulness as a

condition of receiving such payment.

Each MCO and PHP must certify that it

is in substantial compliance with its

contract. Certification is required, as

provided in § 438.606, for all documents

specified by the State.

b. Burden

While the requirement for MCOs and

PHPs (and their contractors) to attest to

the accuracy of enrollment information

encounter data or other information

required by the State is subject to the

PRA, as is the requirement for MCOs

and PHPs to certify the accuracy,

completeness, and truthfulness of all

information provided in contracts,

requests for proposals, or other related

documents specified by the State, the

burden associated with these

requirements is captured during the

submission of such information.

Therefore, we are assigning one token

hour of burden for this requirement.

X. Section 438.710 Due Process:

Notice of Sanction and Pre-termination

Hearing

1. (a) Due Process: Notice of Sanction

and Pre-Termination Hearing

a. Requirement

Section 438.710(a) states that before

imposing any of the sanctions specified

in this subpart, the State must give the

affected MCO or PCCM written notice

that explains the basis and nature of the

sanction. Section 438.724 also requires

all intermediate sanctions to be

published in a newspaper in order to

notify the public.

b. Burden

The above information collection

requirements are not subject to the P.A.

They are exempt under 5 CFR 1320.4(a)

because they occur as part of an

administrative action.

2. (b)(1) Due Process: Notice of Sanction

and Pre-Termination Hearing

a. Requirement

Section 438.710(b)(1) states that

before terminating an MCO’s or PCCM’s

contract, the State must give the MCO

or PCCM written notice of its intent to

terminate, the reason for termination,

and the time and place of the hearing.

b. Burden

The above information collection

requirement is not subject to the PRA.

It is exempt under 5 CFR 1320.4(a)

because it occurs as part of an

administrative action.

Y. Section 438.722 Disenrollment

During Termination Hearing Process

a. Requirement

Section 438.722(a) states that after a

State has notified an MCO or PCCM of

its intention to terminate the MCO or

PCCM’s contract, the State may give the

MCO’s or PCCM’s enrollees written

notice of the State’s intent to terminate

the MCO’s or PCCM’s contract.

b. Burden

States already have the authority to

terminate MCO or PCCM contracts

according to State law and have been

providing written notice to the MCOs or

PCCMs. States are now given, at their

discretion, the option of notifying the

MCO’s or PCCM’s enrollees of the

State’s intent to terminate the MCO’s or

PCCM’s contract. While it is not

possible to gather an exact figure, we

estimate that 12 States may terminate 1

contract per year. We estimate that it

will take States 1 hour to prepare the

notice to enrollees, for a total burden of

12 hours. In addition, we estimate that

it will take States approximately 5

minutes per beneficiary to notify them

of the termination, equating to a burden

of 5 minutes multiplied by 12 States

multiplied by 40,080 beneficiaries per

MCO or PCCM, for a burden of

approximately 40,080 hours. The total

burden of preparing the notice and

notifying enrollees is 40,096.

Z. Section 438.810 Expenditures for

Enrollment Broker Services

a. Requirement

Section 438.810(c) requires that a

State contracting with an enrollment

broker must submit the contract or

memorandum of agreement (MOA) for

services performed by the broker to

HCFA for review and approval prior to

the effective date of services required by

the contract or MOA.

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6387

b. Burden

The burden associated with this

requirement is the length of time for a

State to mail each contract to HCFA for

review. We estimate that the burden

associated with this requirement is 5

minutes per enrollment broker contract,

for a total annual burden of

approximately 3 hours per year (5

minutes multiplied by an estimated 35

enrollment broker contracts in the States

using brokers).

We have submitted a copy of this

proposed rule to OMB for its review of

the information collection requirements

described above. These requirements are

not effective until they have been

approved by OMB.

If you comment on these information

collection requirements, please mail

copies directly to the following: Health

Care Financing Administration, Office

of Information Services, DHES, SSG,

Attn: Julie Brown, HCFA–2001–F, Room

N2–14–26, 7500 Security Boulevard,

Baltimore, MD 21244–1850; and Office

of Information and Regulatory Affairs,

Office of Management and Budget,

Room 10235, New Executive Office

Building, Washington, DC 20503, Attn:

Brenda Aguilar, Desk Officer.

VII. Provisions of the Final Rule

For reasons specified in the preamble,

we have made the following changes to

the proposed rule:

Part 400—Introduction; Definitions

Section 400.203

We have revised this section to

include three new provisions. First, we

specify that PCCM stands for primary

care case manager. Second, we specify

that PCP stands for primary care

physician. Third, we have revised the

definition of provider to clarify that, for

the fee-for service program, it means any

individual or entity furnishing Medicaid

services under an agreement with the

Medicaid agency and for the managed

care program, it means an any

individual or entity that is engaged in

the delivery of health care services and

is legally authorized to do so by the

State in which it delivers the services.

Part 430—Grants to States for Medical

Assistance

Section 430.5

We have revised this section by

removing the definition of clinical

laboratory, moving the definition of

authorized representative to this section

from § 438.2, and moving the definitions

of capitation payment, federally

qualified HMO, health insuring

organization, nonrisk contract, prepaid

health plan, and risk contract from this

section to § 438.2. We have revised the

definition of authorized representative

to provide that the term will be defined

by each State consistent with its laws,

regulations, and policies.

Part 431—State Organization and

General Administration

Section 431.200

We have revised paragraph (c) to

include a reference to section 1819(f)(3)

of the Act.

Section 431.201

We have defined service authorization

request to mean a managed care

enrollee’s request for the provision of a

Medicaid-covered service.

Section 431.244

We have revised paragraph (f)

regarding time frames for State fair

hearings to include a requirement for an

expedited hearing for certain service

authorization requests. We have

redesignated paragraph (g) as (h) and

included a new paragraph (g) which

permits States to allow a hearing officer

to grant an extension of the time frames

under certain circumstances.

Part 434—Contracts

Section 435.212

We revised this section to replace

‘‘HMO,’’ wherever it appears, with

‘‘MCO and PCCM’’ rather than ‘‘MCO.’’

Section 435.1002

We revised paragraph a to include a

reference to § 438.814.

Part 438—Managed Care Provisions

Subpart A—General Provisions

Section 438.2

We have revised this section by

moving the definition of authorized

representative to § 430.5 and moving the

definitions of capitation payment,

federally qualified HMO, health

insuring organization, nonrisk contract,

prepaid health plan, and risk contract

from § 430.5 to this section. We have

revised the definition of capitation

payment to clarify that the State agency

makes the payment regardless of

whether the particular recipient receives

services during the period covered by

the payment, rather than a fee. We have

clarified the definition of health

insuring organization (HIO) so that it

does not appear to require that an HIO’s

subcontractors be capitated. Since we

have decided to specify within each

regulatory provision, whether it applies

to MCOs, PHPs, and/or PCCMs, we no

longer use the term managed care entity,

and have deleted that definition. We

have revised the definition of nonrisk

contract to clarify that the term refers to

a contract under which the contractor is

not at financial risk for changes in

utilization or for costs incurred under

the contract that do not exceed the

upper payment limits specified in

§ 447.362 of this chapter. In addition,

under a nonrisk contract, the contractor

may be reimbursed by the State at the

end of the contract period on the basis

of the incurred costs, subject to the

specified limits. Finally, we have

clarified the definition of PHP to

indicate that PHPs may be reimbursed

by any non-state plan methodology, not

just capitation.

Section 438.6

We have revised this section to

include a new paragraph (a) that

provides for regional office review of all

MCO and PHP contracts including those

that are not subject to the prior approval

requirements in § 438.806. We are

making significant revisions to

paragraph (c). We have extended the

rate setting requirements to all risk

contracts. We are removing the

requirement that rates not exceed the

upper payment limit (UPL) set forth in

§ 447.361 and substituting an expanded

requirement for actuarial soundness

including certification of capitation

rates by an actuary. We specify data

elements to be included in the

methodology used to set capitation rates

and require States to consider the costs

for individuals with chronic illness,

disability, ongoing health care needs, or

catastrophic claims in developing rates.

We also require States to provide

explanations of risk-sharing or incentive

methodologies and impose special rules,

including a limitation on FFP, in

contracts utilizing some of these

arrangements. These changes are being

made as a Final Rule with a 60-day

period for submission of comments.

We have revised paragraph (d) to

clarify that the provision applies to

MCOs and PHPs, not MCEs. Paragraph

(i)(2) is revised to clarify that MCOs and

PHPs are not required to provide adult

enrollees with oral information on

advance directives.

Section 438.8

We have revised paragraph (a) to

provide that the requirements for

advance directives specified in § 438.6

apply to all PHPs except where the State

believes that they are not appropriate,

for example, if the PHP contract only

covers dental services or non-clinical

services such as transportation. We have

also expanded the PHP requirements to

include compliance with the physician

incentive plan rules and all of the State

6388 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

responsibility provisions of Subpart B

(except for the State plan provisions in

§ 438.50).

Section 438.10

We have revised this section to

include the substantive requirements

from § 438.318. We have also made

several minor wording and

organizational changes that served to

clarify the requirements of this section.

We have clarified how these rules apply

to PHPs, whereby PHPs that have PCCM

contracts are subject to the rules

governing PCCMs, but all other PHPs

are subject to the rules governing MCOs.

In paragraph (c), we have clarified

that informational material must be

available in alternative formats and in a

manner that takes into consideration

special needs, such as visual

impairment or limited reading

proficiency. In addition, paragraph (c)

provides that the State and MCE must

provide instructions to enrollees and

potential enrollees regarding how they

may obtain information in an

appropriate format.

We have revised paragraph (d) to

require the State or its contracted

representative to provide information to

potential enrollees regarding which

populations are excluded from

enrollment, subject to mandatory

enrollment, or free to enroll voluntarily.

We have included a new provision in

paragraph (e)(1)(ii), which requires an

MCO to inform enrollees regarding any

significant changes in any of the

information that was furnished to them.

The MCO must furnish the information

within 90 days after the effective date of

the change. We have included

regulatory language in paragraph (e)(2)

requiring the information provided to

enrollees to include names and

locations of current network providers,

including information at least on

primary care physicians, specialists, and

hospitals, and identification of

providers that are not accepting new

patients. In paragraph (e)(3), we have

revised the annual notice requirement to

provide that at least once each year, the

MCO, the State or its contracted

representative must notify enrollees of

their right to request and obtain

specified information.

In paragraph (g), we have clarified

that the time frames for furnishing

information are the same for both

PCCMs and MCOs.

We have revised paragraph (f) to

provide that enrollees and potential

enrollees may request and receive

information on requirements for

accessing services, including factors

such as physical accessibility.

Section 438.12

We have revised paragraph (b) to

permit different reimbursement

amounts for the different specialties or

for the same specialty.

Subpart B—State Responsibilities

Section 438.50

We have revised this section by

including paragraph (b)(4), which

requires the State plan to specify the

process that the State uses to involve the

public in both the design and the initial

implementation of the program and the

methods it uses to ensure ongoing

public involvement once the State plan

has been implemented. We have also

revised the language in paragraph (a) to

clarify that the provisions of this section

do not apply to programs that have

mandatory managed care enrollment

pursuant to a waiver under either

section 1115 or section 1915(b) of the

Act. We have moved the requirements

regarding limitations on enrollment and

default enrollment from § 438.56 to this

section so that they are only applicable

in State plan managed care programs.

Section 438.52

We have revised the definition of

‘‘rural’’ area in paragraph (a) to

eliminate the State’s option to use

definitions other than any area outside

an ‘‘urban area’’ as defined in

§ 412.62(f)(1)(ii). We have revised the

exception for rural area residents in

paragraph (c) to clarify that an enrollee

must be permitted to obtain services

from an out of network provider if the

provider is the main source of a service

to that individual. We also require that,

in rural areas, an enrollee must be

permitted to obtain services from an out

of network provider if he or she needs

related services, not all related services

are available within the network, and

the enrollee’s primary care provider or

another provider determines that

receiving the services separately would

subject the enrollee to unnecessary risk.

Section 438.56

We have moved the requirements

regarding limitations on enrollment and

default enrollment from this section to

§ 438.50. We have revised paragraph (a)

to provide that the provisions of this

section apply to all managed care

arrangements whether enrollment is

mandatory or voluntary and whether the

contract is with an MCO, a PHP, or a

PCCM provider.

We have revised paragraph (b) to

require that all MCE contracts must

specify the reasons for which the MCO,

PHP, or PCCM may request

disenrollment of an enrollee. The

contracts must also provide that the

MCO, PHP, or PCCM may not request

disenrollment because of a change in

the enrollee’s health status, or because

of the enrollee’s utilization of medical

services, diminished mental capacity, or

uncooperative or disruptive behavior

resulting from his or her special needs

except where the behavior impairs the

ability of the MCO, PHP, or PCCM to

furnish services to this enrollee or

others.

In paragraph (c), we have clarified

that an enrollee may request

disenrollment without cause in four

instances:

• During the 90 days following the

date of the recipient’s initial enrollment,

or the date the State sends the recipient

notice of the enrollment, whichever is

later.

• At lease once every 12 months

thereafter.

• Upon automatic reenrollment, if the

temporary loss of Medicaid eligibility

has caused the recipient to miss the

annual disenrollment opportunity.

• When the State imposes an

intermediate sanction, as specified in

§ 438.702(a)(3)

We have revised paragraph (d) to

permit an enrollee to submit either an

oral or a written request for

disenrollment. In subparagraph (d)(2),

we have significantly revised the

provisions relating to ‘‘for cause’’

disenrollment. We identify three

circumstances that would constitute

cause under the final rule:

• The enrollee was homeless (as

defined by the State) or a migrant

worker at the time of enrollment and

was enrolled in the MCO, PHP, or

PCCM by default.

• The plan does not, because of moral

or religious objects, cover the service the

enrollee seeks.

• The enrollee needs related services

to be performed at the same time, not all

related services are available within the

network, and the enrollee’s primary care

provider or another provider determines

that receiving the services separately

would subject the enrollee to

unnecessary risk.

In subparagraph (d)(iv), we recognize

that the enrollee may cite other reasons

for requesting disenrollment that could

constitute ‘‘cause’’ under the rule,

including poor quality of care, lack of

access to services covered under the

contract, or lack of access to providers

experienced in dealing with an

enrollee’s special health care needs.

In paragraph (e), we clarify the time

frames for disenrollments to provide

that regardless of the procedures

followed, the effective date of an

approved disenrollment must be no

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6389

later than the first day of the second

month following the month in which

the enrollee or the MCO, PHP, or PCCM

files a request.

We have revised paragraph (f) to

clarify that if a State restricts

disenrollment under this section, it

must provide that enrollees are

furnished a written notice of their

disenrollment rights at least 60 days

before the start of each enrollment

period. In addition, if a State denies a

disenrollment request, it must provide

notice to the enrollee of their right to

file a request for a State Fair Hearing.

Section 438.60

We have deleted an exception for

emergency and post stabilization

services from this provision, which had

been erroneously included in the

NPRM, since duplicate payments are

prohibited for these services.

Section 438.62

We have added a new paragraph (b)

that requires the State agency to have in

effect a mechanism to ensure continued

access to services when an enrollee with

ongoing health care needs is

transitioned from fee-for-service to an

MCO, PHP, or PCCM, from one MCO,

PHP, or PCCM to another, or from an

MCO, PHP, or PCCM to fee-for-service.

We require that this mechanism apply at

least to the following groups:

• Children and adults receiving SSI

benefits.

• Children in Title IV–E foster care.

• Recipients aged 65 or older.

• Any other recipients whose care is

paid for under State-established, riskadjusted, high-cost payment categories.

• Any other category of recipients

identified by HCFA.

In addition, we require the State to

notify the enrollee that a transition

mechanism exists, and provide

instructions on how to access the

mechanism. We also require the State to

ensure that an enrollee’s ongoing health

care needs are met during the transition

period, by establishing procedures to

ensure that, at a minimum—

• The enrollee has access to services

consistent with the State plan and is

referred to appropriate health care

providers.

• Consistent with Federal and State

law, new providers are able to obtain

copies of appropriate medical records.

• Any other necessary procedures are

in effect.

Section 438.64

We have deleted this section which

required that capitation payments be

computed on an actuarially sound basis,

and incorporated it into the new

§ 438.6(c) provisions.

Section 438.68

We have added this new section

which requires the State agency to have

in effect procedures for educating

MCOs, PHPs, or PCCMs and their

providers about the clinical and other

needs of enrollees with special health

care needs.

Subpart C—Enrollee Rights and

Protections

Section 438.100

We removed the language relating to

benefits and moved the provisions

relating to ‘‘Enrollee Rights’’ from

§ 438.320 to this section. We revised the

enrollee rights in paragraph (b) to

include the following two rights:

• To obtain a second opinion from an

appropriately qualified health care

professional in accordance with

§ 438.3206(d)(3).

• To be free from any form of restraint

or seclusion used as a means of

coercion, discipline, convenience, or

retaliation, as specified in other Federal

regulations on the use of restraints.

In addition, we have revised three of

the enrollee rights to provide that the

State must ensure that the enrollee has

the right—

• To receive information on available

treatment options and alternatives,

presented in a manner appropriate to

the enrollee’s condition and ability to

understand. We clarify that if the MCO

does not cover a service because of

moral or religious objections, then the

MCO need not furnish information on

where and how to obtain the service,

but only on where and how to obtain

information about the service.

• To participate in decisions

regarding his or her health care,

including the right to refuse treatment.

• To request and receive a copy of his

or her medical records and to request

that they be amended or corrected, in

accordance with § 438.3224.

We have included a new requirement

in paragraph (c) that provides that the

State must ensure that an enrollee’s free

exercise of his or her rights does not

adversely affect the way the MCO,

PCCM, or PHP, the MCO, PCCM, or

PHP’s providers, or the State agency

treat the enrollee. In paragraph (d), we

have revised the list of examples of

applicable Federal and State laws for

which States must ensure MCO, PCCM,

or PHP compliance.

Section 438.102

We have replaced the term

‘‘practitioner’’ with ‘‘health care

professional’’ and revised the definition

to mirror the statutory language. We

have reorganized the substantive

provisions of the section to clarify the

requirements. We revised paragraph (c)

to include all of the information

requirements that apply if an MCO does

not provide a counseling or referral

service based on moral or religious

objections. We have clarified that, if the

MCO does not cover a service under this

section, then it is not required to inform

enrollees and potential enrollees about

how and where to obtain the service,

but rather how and where to obtain

information about a service. In

paragraph (d), we require the State to

provide information to enrollees on how

and where to obtain a service that the

MCO does not cover based on moral or

religious objections.

Section 438.104

In paragraph (a) we moved the

definitions of choice counseling,

enrollment activities, and enrollment

broker from this section to § 438.810.

We revised the definition of marketing

materials to mean materials that are

produced in any medium, by or on

behalf of an MCO, PCCM, or PHP and

can reasonably be interpreted as

intended to market to enrollees or

potential enrollees. We also defined

marketing to mean any communication

from an MCO, PCCM, or PHP, any of its

agents or independent contractors, with

an enrollee or potential enrollee that can

reasonably be interpreted as intended to

influence that individual to enroll or

reenroll in that particular MCO, PCCM,

or PHP’s Medicaid product or disenroll

from another MCO, PCCM, or PHP’s

Medicaid product.

In paragraph (b), we have clarified

that inaccurate, false, or misleading

statements include, but are not limited

to, any assertion or statement (whether

oral or written) that the beneficiary must

enroll in the MCO, PCCM, or PHP in

order to obtain benefits or in order to

not lose benefits or that the MCO,

PCCM, or PHP is endorsed by HCFA,

the Federal or the State government, or

similar entity. We have also revised two

of the provisions in subparagraph (b)(2)

in order to clarify that the MCO, PCCM,

or PHP contract must provide that the

MCO, PCCM, or PHP distributes their

marketing materials to its entire service

area, as indicated in the contract and

that the MCO, PCCM, or PHP does not

seek to influence enrollment in

conjunction with the sale or offering of

any other insurance.

Section 438.108

In § 447.53(e), we now prohibit

providers from denying care or services

to an individual eligible for the care or

services on account of the individual’s

inability to pay the cost sharing.

6390 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

Section 438.110

We have moved the provisions related

to assurances of adequate capacity and

services to § 438.207.

Section 438.114

We have removed the definitions of

emergency medical condition,

emergency services, and poststabilization services and included cross

references to the definitions of the same

terms in the regulations governing the

Medicare+Choice program. We have

revised paragraph (c) to provide that the

following entities are responsible for

coverage and payment of emergency

services and post-stabilization services:

• The MCO

• The primary care case manager that

has a risk contract

• The State, in the case of a primary

care case manager that has a fee-forservice contract.

In paragraph (d), we clarify the

specific rules governing coverage and

payment for emergency services. We

revised paragraph (e) to provide for

additional rules that govern emergency

services. First, the entity responsible for

payment may not limit what constitutes

an emergency medical condition based

on lists of particular diagnoses or

symptoms and it may not refuse to

process a claim because it does not

contain the primary care provider’s

authorization number. Second, once a

qualified provider determines that an

enrollee has an emergency medical

condition, the enrollee may not be held

liable for subsequent screening and

treatment needed to diagnose the

specific condition, or stabilize the

patient. Third, the attending emergency

physician or the provider actually

treating the enrollee is responsible for

determining when the enrollee is

sufficiently stabilized, and that

determination is binding on the entities

responsible for payment.

We have also revised paragraph (f) to

require post-stabilization services to be

covered and paid for as provided in the

regulations governing the

Medicare+Choice program (§ 422.113).

We explain that, in applying the

Medicare+Choice provisions, reference

to ‘‘M+C’’ organization’’ must be read as

reference to the entity responsible for

Medicaid payment, as specified in

paragraph (c) of this section.

Subpart D—Quality Assessment and

Performance Improvement

Note: In the proposed rule, this subpart

was subpart E, and the sections were

numbered as §§ 438.300 to 438.342. In this

final rule, this subpart has been relocated as

Subpart D and the sections are numbered as

§§ 438.200 to 438.242. Sections referenced

herein use the §§ 438.200 to 438.242

numbering of the final rule.

Section 438.202 State responsibilities

In paragraph (b) we require each State

contracting with an MCO or PHP to

document its quality strategy in writing.

In paragraph (c) we require each State

to provide for the input of recipients

and other stakeholders in the

development of the quality strategy,

including making the strategy available

for public comment before adopting it in

final. In paragraph (e) we require the

State to update the strategy. In

paragraph (f) we require each State to

submit to HCFA a copy of the initial

strategy and a copy of the revised

strategy whenever significant changes

are made. In addition, we require the

State to submit to HCFA regular reports

on the implementation and effectiveness

of the strategy.

Section 438.204 Elements of State

Strategies

We have revised paragraph (b) to

require that the State quality strategy

must include procedures for identifying

enrollees with special health care needs

and assessing the quality and

appropriateness of care furnished to

those enrollees. We included a new

paragraph (c) to require the State quality

strategy to incorporate performance

measures and levels prescribed by

HCFA.

Section 438.206 Availability of

Services

We have revised paragraph (d) to

clarify that the State must ensure that

when each MCO and PHP establishes

and maintains its network of providers,

each MCO and PHP considers the

anticipated enrollment, with particular

attention to pregnant women, children,

and persons with special health care

needs. We have also clarified that each

MCO and PHP must consider the

training and experience of providers

when establishing and maintaining its

provider network. In subparagraph

(d)(3), we have included a new

requirement for MCO and PHP networks

(consistent with the scope of the PHP’s

contracted services) to provide for a

second opinion from a qualified health

care professional within the network or

otherwise arrange for the enrollee to

obtain one outside the network at no

cost to the enrollee if an additional

professional is not currently available

within the network. In subparagraph

(d)(5) we have added a new requirement

that the MCO or PHP must permit an

enrollee to access out-of-network

providers to receive medical services, if

the MCO’s or PHP’s network is unable

to provide the necessary medical

services, for as long as the MCO or PHP

is unable to provide the services. We

have added a new requirement at

subparagraph (d)(7) requiring an MCO

or PHP to ensure that its providers do

not discriminate against Medicaid

enrollees. At subparagraph (d)(8) we

have added a new requirement that

requires the MCO or PHP to require outof-network providers to coordinate with

the MCO or PHP with respect to

payment and ensure that the cost to the

enrollee is no greater than it would be

if the services were furnished within the

network. We have moved requirements

that MCOs and PHPs must ensure that

provider hours of operation are

convenient for the enrollees from

subparagraph (d)(6) to subparagraph

(e)(1)(ii), and have added a requirement

that convenience be determined by a

State-established methodology, and at

least comparable to Medicaid fee-forservice. We have also moved the

requirement that services must be

available 24 hours a day, 7 days a week,

when medically necessary from

subparagraph (d)(5) to (e)(1)(iii).

We have moved the requirements

relating to initial assessment from this

section to § 438.208.

Section 438.207 Assurances of

Adequate Capacity and Services

We have created this new section

which relocates and adds to the

requirements regarding assurances of

adequate capacity and services

previously located at § 438.110. We

have revised paragraph (a) to provide

that each MCO and PHP must give

assurances to the State (in the NPRM the

MCO was to also give assurance to

HCFA) that it has the capacity to serve

the expected enrollment in its service

area in accordance with the State’s

standards for access to care under this

subpart. In paragraph (b), we have

required that each MCO and PHP must

submit specific documentation that

must be in a format specified by the

State and acceptable to the HCFA. In

subparagraph (b)(4), we have added

requirements that each MCO and PHP

must document that it has policies and

practices in place to address situations

in which there is unanticipated need for

providers with particular types of

experience or unanticipated limitation

of the availability of such providers. We

revised paragraph (c) to require the

submission of the assurance

documentation at least once a year as

opposed to every two years as stated in

the proposed rule. We also added in

paragraph (c) circumstances which we

believe constitute a significant change

in the MCO’s or PHP’s operation and

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6391

which would require the MCO or PHP

to resubmit assurances documenting

adequate capacity and services. These

are: (1) A significant change in the

MCO’s or PHP’s services or benefits; (2)

an expansion or reduction of the MCO’s

or PHP’s geographic service area; (3) the

enrollment of a new population in the

MCO or PHP; and (4) a significant

change in the MCO or PHP rates. We

also revised paragraph (d) to provide

that after the State reviews the

documentation submitted by the MCO

or PHP, the State must certify to HCFA

that the MCO or PHP has complied with

the State’s requirements for availability

of services, as set forth in § 438.206. We

have added a new paragraph (e) to

provide that the State must make

available to HCFA, upon request, all

documentation collected by the State

from the MCO or PHP.

Section 438.208 Coordination and

Continuity of Care

We have made significant changes to

the content and organization of this

section. As a part of those changes, we

have moved section 438.306(e)(2) and

(3) pertaining to initial assessment, and

pregnancy and complex and serious

medical conditions, to this section. We

have clarified that the words ‘‘initial

assessment’’ used in the proposed rule

are actually two different functions:

screening and assessment. We have also

replaced the words ‘‘persons with

serious and complex medical

conditions’’ with the words ‘‘persons

with special health care needs.’’ In new

paragraph (a) we have clarified that the

State needs to determine the extent to

which requirements pertaining to initial

and ongoing screenings and

assessments, and primary care are

appropriate requirements for PHPs

based on the scope of the PHP’s

services, and the way the State has

organized the delivery of managed care

services. New paragraph (b) requires the

State to implement mechanisms to

identify to the MCO and PHP upon

enrollment, the following groups:

• Enrollees at risk of having special

health care needs, including —

++Children and adults who are

receiving SSI benefits;

++Children in Title IV-E foster care;

++Enrollees over the age of 65;

++Enrollees in relevant, Stateestablished, risk-adjusted, highercost payment categories; and

++Any other category of recipients

identified by HCFA

• Other enrollees known to be

pregnant or to have special health care

needs

• Children under the age of 2

We have revised paragraph (d) to

clarify and expand upon MCO and PHP

responsibilities for screening and

assessment. In subparagraph (d)(1)(i),

we require that for enrollees identified

by the State as being at risk of having

special health care needs, the MCO (and

PHP as determined appropriate by the

State) must make a best effort attempt to

perform a screening within 30 days of

receiving the identification from the

State. For any enrollee that the

screening identifies as being pregnant or

having special health care needs, the

MCO (and PHP as determined

appropriate by the State) must perform

a comprehensive assessment as

expeditiously as the enrollee’s health

requires, but no later than 30 days from

the date of identification.

In subparagraph(d)(2), we require that

for enrollees under the age of two or

other enrollees known by the State to be

pregnant or to have special health care

needs, each MCO (and PHP as

determined appropriate by the State)

must perform a comprehensive

assessment as expeditiously as the

enrollee’s health requires, but no later

than 30 days from the date of

identification.

In subparagraph (d)(3), we require

that for all other enrollees, each MCO

(and PHP as determined appropriate by

the State) must screen them within 90

days from the date of enrollment. For

any enrollee that the screening

identifies as being pregnant or having

special health care needs, each MCO

(and PHP as determined appropriate by

the State) must perform a

comprehensive assessment as

expeditiously as the enrollee’s health

requires, but no later than 30 days from

the date of identification.

We have also added a requirement in

subparagraph (e) for MCOs (and PHPs as

determined appropriate by the State) to

implement mechanisms to identify

enrollees who develop special health

care needs after enrollment in the MCO

or PHP and perform comprehensive

assessments as expeditiously as the

enrollee’s health requires, but no later

than 30 days from the date of

identification.

In subparagraph (f), we have revised

the requirements relating to treatment

plans. We require that each MCO and

PHP must implement a treatment plan

for pregnant women and for enrollees

determined to have special health care

needs. The treatment plan must —

• Be appropriate to the conditions

and needs identified and assessed;

• Be for a specific period of time and

periodically updated;

• Specify a standing referral or an

adequate number of direct access visits

to specialists;

• Ensure adequate coordination of

care among providers;

• Be developed with enrollee

participation; and

• Ensure periodic reassessment of

each enrollee as his or her health

requires.

In subparagraph (g), we clarify that

MCOs and PHPs must use appropriate

health care professionals to perform any

comprehensive assessments required by

this section and develop and implement

any treatment plans required by this

section. In paragraph (h) and

subparagraph (h)(1), we have revised the

requirements relating to primary care

and over-all coordination to clarify that

the MCO (and PHP as determined

appropriate by the State) must have a

coordination program that meets State

requirements and ensures that each

enrollee has an ongoing source of

primary care appropriate to his or her

needs and a person or entity formally

designated as primarily responsible for

coordinating the health care furnished

to the enrollee. In subparagraph (h)(2)

we require the MCO or PHP to

coordinate the services it furnishes to

the enrollee with the services the

enrollee receives from any other MCOs

or PHPs. In addition, subparagraph

(h)(3) requires the MCO’s or PHP’s

coordination program to ensure that the

results of its screening and assessment

of an enrollee is shared with the other

entities serving the enrollee, so that

those entities need not duplicate the

screening or assessment. Subparagraph

(h)(4) requires that in the process of

coordinating care, the MCO or PHP

ensures that each enrollee’s privacy is

protected consistent with

confidentiality requirements at

§ 438.224. Subparagraph (h)(5) requires

MCOs and PHPs to ensure that each

provider maintains health records that

meet professional standards and that

there is appropriate and confidential

sharing of information among providers.

In subparagraph (h)(6), we require

each MCO and PHP to have in effect

procedures to address factors that

hinder enrollee adherence to prescribed

treatments or regimens. In subparagraph

(h)(7), we require the MCO to ensure

that its providers have the information

necessary for effective and continuous

patient care and quality improvement,

consistent with the confidentiality

requirements in § 438.224 and the

information system requirements of

§ 438.242.

6392 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

Section 438.210 Coverage and

Authorization of Services

We have revised paragraph (a) to

clarify the contract requirements

relating to coverage of services. In

subparagraph (a)(1), we require that

each contract identify, define and

specify each service that the MCO or

PHP is required to offer. In

subparagraph (a)(2), we require that the

MCO or PHP make available the services

it is required to offer at least in the

amount, duration, and scope that are

specified in the State plan and can

reasonably be expected to achieve the

purpose for which the services are

furnished. Subparagraph (a)(3) specifies

that the MCO or PHP may not arbitrarily

deny or reduce the amount, duration, or

scope of a required services solely

because of the diagnosis, type of illness,

or condition and that the MCO or PHP

may place appropriate limits on a

service on the basis of criteria such as

medical necessity or for the purposes of

utilization control (provided the

services furnished can reasonably be

expected to achieve their purpose).

In subparagraph (a)(4), we require the

contract to specify what constitutes

medically necessary services in a

manner that is no more restrictive than

the State Medicaid program as indicated

in State statutes and regulations, the

State plan, and other State policy and

procedures. The contract must specify

the extent to which ‘‘medically

necessary services’’ includes services to

prevent, diagnose, treat, or cure health

impairments, enable the enrollee to

achieve age-appropriate growth and

development, and enable the enrollee to

attain, maintain, or regain functional

capacity. Subparagraph (a)(5) requires

the MCO or PHP to furnish services in

accordance with their contract

specifications.

We have revised paragraph (b) to

specify that with respect to the

processing of requests for initial and

continuing authorization of services,

each contract must not have information

requirements that are unnecessary or

unduly burdensome for the provider or

the enrollee. We have also included a

requirement that any decision to deny a

service authorization request or to

authorize service in an amount,

duration, or scope that is less than

requested, be made by an individual

who has appropriate expertise in the

field of medicine that encompasses the

enrollee’s condition or disease.

We have revised paragraph (c) to

clarify that each contract must provide

for the MCO or PHP to notify the

requesting provider and give the

enrollee written notice of any decision

to deny a service authorization request,

or to authorize a service in an amount,

duration, or scope that is less than

requested. We also clarify that the

notice must meet the requirements of

§ 438.404, except that the notice to the

provider need not be in writing.

We have revised the time frames for

expedited service authorization

decisions. In paragraph (e), we require

that under specific circumstances, the

contract must provide for the MCO or

PHP to make a decision as expeditiously

as the enrollee’s health condition

requires but not later than 72 hours after

receipt of the request for service.

Section 438.214 Provider Selection

We have changed the name of this

section from ‘‘establishment of provider

networks’’ to ‘‘provider selection.’’ We

have reorganized this section to clarify

the requirements that apply to licensed

independent providers (for example,

physicians) and other providers. In

subparagraph (b)(3), we have created an

exception that applies to providers who

are permitted to furnish services only

under the direct supervision of a

physician or other provider and

hospital-based providers who provide

services only incident to hospital

services. The latter exception does not

apply if the provider contracts

independently with the MCO or PHP or

is promoted by the MCO or PHP as part

of the provider network. In

subparagraph (b)(4) we have added

requirements that the initial

credentialling application be dated and

signed and that applications, updates,

and supporting information submitted

by the applicant include an attestation

of the correctness and completeness of

the information. We have added a new

requirement in paragraph (d) that

specifies that MCOs and PHPs may not

employ or contract with providers

excluded from participation in Federal

health care programs. In addition, we

state in paragraph (e) that each MCO

and PHP must comply with any

additional requirements established by

the State.

Section 438.218 Enrollee Information

We have moved the provisions from

this section to § 438.10 and clarified that

the information requirements that States

must meet under § 438.10 constitute

part of the State’s quality strategy.

Section 438.320 Enrollee Rights

We have moved the requirements

regarding enrollee rights to § 438.100.

Section 438.224 Confidentiality and

Accuracy of Enrollee Records

We have changed the name of this

section from ‘‘confidentiality’’ to

‘‘confidentiality and accuracy of

enrollee records.’’ We have also

reorganized this section to clarify the

requirements that apply to MCOs and

PHPs. We clarify that this section

applies to medical records and any

other health and enrollment information

maintained with respect to enrollees. In

paragraph (c) we require MCOs and

PHPs to establish and implement

procedures that specify for what

purposes the MCO or PHP uses the

information and to which entities

outside the MCO or PHP (and for what

purposes) it discloses the information.

In paragraph (d), we clarify that MCO

and PHP procedures must safeguard the

confidentiality of any information (in

any form) that identifies a particular

enrollee. We have revised the

requirements of paragraph (e) to provide

that MCO and PHP procedures must

ensure that originals of medical records

are released only in accordance with

Federal and State law. We have also

revised the requirements for access in

paragraph (f) to require that, consistent

with applicable Federal and State law,

MCO and PHP procedures must ensure

that each enrollee may request and

receive a copy of his or her records and

information and added a requirement

that the enrollee may request that they

be amended or corrected.

Section 438.228 Grievance Systems

We have added to this section two

new paragraphs. Paragraph (b) requires

that if the State delegates to the MCO or

PHP responsibility for notice of action

under subpart E of part 431 of this

chapter, the State must conduct random

reviews of each MCO and PHP and its

providers and subcontractors to ensure

that they are notifying enrollees in a

timely manner. Paragraph (c) requires

the State to establish a process to

review, upon request by the enrollee,

quality of care grievances not resolved

by the MCO or PHP to the satisfaction

of the enrollee.

Section 438.230 Subcontractual

Relationships and Delegations

We have revised subparagraph (b)(3)

to require each MCO and PHP to

formally review its subcontractors’

performances according to a periodic

schedule established by the State,

consistent with industry standards or

State MCO laws and regulations. In the

proposed rule this formal review was to

be carried out at least once a year. We

have included a new requirement in

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6393

subparagraph (b)(5) that, consistent with

the requirements in §§ 438.604 and

438.606 pertaining to submission of

certain data by the MCO and PHP that

must be certified, each MCO and PHP

must require subcontractors to provide

certifications with respect to the

performance of their duties under the

contract and submissions that may be

related to State payments.

Section 438.236 Practice Guidelines

We have revised the requirements in

paragraph (b) to clarify that each MCO

and PHP must adopt (as opposed to

develop) practice guidelines. We have

further revised the regulation to require

that the guidelines—

• Are based, in part, on valid and

reliable clinical evidence as opposed to

‘‘reasonable medical evidence’’; and

• Are reviewed and updated

periodically as appropriate.

We include an example of practice

guidelines that satisfy the requirements

of this section (The Guidelines for the

Use of Antiretroviral Agents in HIVInfected Adults and Adolescents and

the Guidelines for the Use of

Antiretroviral Agents in Pediatric HIV

Infection).

In paragraph (c), we clarify the

dissemination requirements by

specifying that each MCO and PHP must

disseminate the guidelines to affected

providers, and upon request to enrollees

and potential enrollees.

Section 438.240 Quality Assessment

and Performance Improvement Program

We have added additional provisions

and made clarifications to this section.

We have added in paragraph (a) a

provision that HCFA may specify

standardized quality measures and

topics for performance improvement

projects to be required by States in their

contracts with MCOs and PHPs. We

have added as subparagraph (b)(4) a

provision that the State must require

each MCO and PHP to have in effect

mechanisms to assess the quality and

appropriateness of care furnished to

enrollees with special health care needs.

We have revised subparagraph (c)(1) to

clarify that each MCO and PHP must

measure its performance annually. We

have added in subparagraph (c)(2) a new

requirement that the State must, in

establishing minimum performance

levels for MCOs and PHPs, include any

minimum performance levels specified

by HCFA.

In subparagraph (d)(2) we clarified

that each performance improvement

project must represent the entire

Medicaid enrolled population to which

the measurement specified in paragraph

(d)(1)(i) of this section is relevant. In

subparagraph (d)(3), we have clarified

that the State is to ensure that each

MCO and PHP initiates each year one or

more performance improvement

projects. In subparagraph (d)(4), we

have added ‘‘cultural competence’’ as a

required non-clinical area for MCO and

PHP performance improvement projects.

Section 438.242 Health Information

Systems

In paragraph (a) we have deleted the

requirement that MCO and PHP health

information systems should provide

information on MCO or PHP solvency.

In paragraph (a) we also have clarified

that information on Medicaid enrollee

disenrollments pertains to

disenrollments for other than loss of

Medicaid eligibility.

Subpart F—Grievance System

Section 438.400

We have revised the terms used in

this section, using ‘‘grievance and

appeal’’ to replace ‘‘complaint and

grievance’’. We have added a definition

of ‘‘action’’ and of ‘‘quality of care

grievance’’. We have also defined what

constitutes an action.

Section 438.402

We have revised this section to

include filing requirements as well as

general requirements. In the general

requirements in paragraph (b), we add

that grievances and appeals must be

accepted from the representative of the

enrollee as well as from the enrollee;

that the enrollee or his or her

representative is to receive required

notices and information; that the MCO

or PHP must ensure that punitive action

is neither threatened nor taken against

a provider who requests an expedited

resolution, or supports an enrollee’s

grievance or appeal; that at the

enrollee’s request, the MCO or PHP

must refer to the State quality of care

grievances not resolved to the

satisfaction of the enrollee, and the

MCO or PHP must require providers to

give notice to enrollees of actions.

Under the filing requirements in

paragraph (c) we add that a provider

may file an appeal on behalf of an

enrollee with the enrollee’s written

consent. We clarify that an enrollee has

a reasonable time specified by the State,

not to exceed 90 days, to file an appeal

after the date of an action. We also

provide that a appeal may be filed either

orally or in writing but that an oral

request for standard resolution of the

appeal must be followed by a written

request. We specify that notice of action

for failure to furnish or arrange for a

service or provide payment in a timely

manner must be provided whenever the

entity has delayed access to the service

to the point when there is substantial

risk that further delay will adversely

affect the enrollee’s heart condition.

Section 438.404

We have revised paragraph (a) to

provide that the notice of action must be

in writing and must meet the language

and format requirements of § 438.10. In

paragraph (b), we specify what must be

contained in the notice of action. In this

paragraph we have added that the notice

must include information on the

circumstances under which the enrollee

may be required to pay for the costs of

services furnished while the appeal is

pending and how the enrolees may

decline amortization of benefits; that the

enrollee has the right to represent

himself or herself, to use legal counsel,

or to use a relative, or friend or other

individual as spokesperson; and that

filing an appeal or requesting a State fair

hearing will not negatively affect or

impact the way the MCO and the PHP

and their providers, or the State agency,

treat the enrollee. In paragraph (c), we

refer to § 438.210 for the time frames

that apply to mailing the notice. In

paragraph (d), we specify certain notice

requirements for subcontractors or

providers who are not employees to

furnish a notice of action. We also

moved to § 438.406 the provision on the

right of the enrollee to appear before the

MCO or PHP in person and removed the

provision that the appearance must be

before the person assigned to resolve the

grievance.

Section 438.406

We have revised paragraph (a) to

clarify that each MCO or PHP must give

enrollees any reasonable assistance in

completing forms and taking other

procedural steps, including providing

interpreter services and toll-free

numbers that have adequate TTY/TTD

and interpreter capability. We also

require the MCO or PHP to ensure that

the enrollee’s communication is

correctly classified as a ‘‘grievance’’ or

an ‘‘appeal’’, that each communication

is transmitted timely to staff who have

the authority to act upon it, and that it

is investigated and disposed of or

resolved as required. We expanded the

provision in the proposed rule

concerning the types of appeals that

must be decided by a health care

professional to include, in addition to

denials based on lack of medical

necessity, all grievances and appeals

that involve clinical issues and

grievances regarding a denial to

expedite resolution of an appeal. We

also clarify that a health care

6394 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

professional with appropriate clinical

expertise, not only a physician, can

serve as the decision maker. In

paragraph (b), we have included several

additional requirements that apply only

to appeals, including that the

timeframes for resolution of appeals

must take account of the enrollee’s

health condition, that the enrollee and

his or her representative have the

opportunity to examine the enrollee’s

case file, and that the enrollee and his

or her representative are parties to the

appeal.

Section 438.408

In paragraph (a), we added a basic

rule that an MCO or PHP must dispose

of grievances and resolve appeals as

expeditiously as the enrollee’s health

condition requires within Stateestablished timeframes not exceeding

the timeframes specified in this section.

We have included in paragraph (b) the

provision in paragraph (a)(4) of the

proposed rule regarding the basis for

decisions. In paragraph (c) we specify

the timeframes for disposing of

grievances and resolving appeals. We

have added timeframes for disposing of

grievances, specifying that grievances of

a denial of a request to expedite

resolution of an appeal must be

disposed of within 72 hours of receipt

of the grievance. We also added a

provision that all other grievances must

be disposed of within 90 days. We

continue to provide for a 30-day

timeframe for resolving appeals that are

not expedited. In paragraph (d) we

address extensions of timeframes for

decisions. In the final rule we

eliminated the authority of the MCO or

PHP to grant itself an extension when an

appeal is expedited. In the final rule we

have added a provision that when an

MCO or PHP grants itself an extension

of the timeframe for decision of an

appeal that is not expedited, the

enrollee must be given written notice of

the reason for the delay and of the

enrollee’s right to file a grievance with

the decision. We added in the final rule

the provision in paragraph (e) that the

enrollee must be given written notice of

the disposition of all grievances filed in

writing and of all quality of care

grievances. Oral notices can be provided

to enrollees who file oral grievances not

related to quality of care, unless the

enrollee requests a written notice. In

paragraph (f) we have added to the final

rule that the notice on disposition of a

quality of care grievance must include

information that the enrollee has the

right to seek further review by the State,

and how to request it. In paragraph (h)

we have revised the requirement of the

proposed regulation that the notice of an

appeal resolution must include the

name of the MCO or PHP contact and

now specify that the title of the contact,

not the name, must be included. In

paragraph (h) we add a requirement that

the MCO or PHP must work with the

State to dispose of the grievance if the

State considers that the MCO or PHP

response was insufficient. In paragraph

(i) of the final rule we specify that

expedited appeals not wholly favorable

to the enrollee must be submitted to the

State. In paragraph (j) we provide that

the timeframe for fair hearing decision

is 90 days minus the number of days

taken by the MCO or PHP to resolve the

internal appeal. The time used by the

beneficiary to file for a State fair hearing

does not count toward the 90 days. We

have added a provision stating that the

parties to a State fair hearing are the

enrollee and his or er representative, or

the representative of the deceased

enrollee’s estate. Finally, we add that for

appeals of service authorization denials

that meet the criteria for expedited

resolution, the State fair hearing

decision must be within 72 hours of

receipt of the file.

Section 438.410

In paragraph (a), we retain the

requirement from the proposed rule that

each MCO and PHP must establish and

maintain an expedited review process

for grievances and appeals. In paragraph

(b), we add to the final rule a

requirement for expedited review of

certain grievances. In paragraph (c), we

describe the requirements that apply to

appeals. In the proposed rule we

provided for expedited resolution of

appeal if non-expedited resolution

would jeopardize the enrollee’s life or

health or the enrollee’s ability to regain

maximum function. In the final rule we

add ‘‘attain and maintain’’ maximum

function. In paragraph (d), we specify

the steps that the MCO or PHP must

take if it denies a request for expedited

resolution of an appeal. In the final rule

we require that the enrollee be notified

of the decision within two calendar

days. The proposed rule specified the

timeframe as two working days. We also

specify in the final rule that if the enroll

resubmits the request for expedited

resolution with a provider’s letter of

support, the resolution of the appeal

will be expedited.

Section 438.414

In this section on information about

the grievance system, in the final rule

we differentiate between information

that must be available with respect to

fair hearings from that with respect to

grievances and appeals. We added to the

required items information about the

right of the enrollee to represent himself

or herself or to be represented by legal

counsel, a friend or relative, or other

spokesperson. We also added that

information be provided on the fact that

benefits will be continued if requested

by an enrollee who files an appeal or

requests for fair hearing and that the

enrollee may be required to pay the cost

of services while an appeal is pending

if the final decision is adverse to the

enrollee. In the proposed rule we

provided that benefits would continue

only if requested by the enrollee.

Section 438.416

We have added to the reporting

requirements that grievances and

appeals be tracked according to whether

the disposition and resolution was

standard or expedited and that a record

must be maintained of when grievances

and appeals were acknowledged and

provide that . We have deleted the

requirement to record disenrollments

and that the summary submitted to the

State include trends by particular

providers or services.

Section 438.420

We have revised the provision that for

services to be continued they must have

been ordered by the MCO or PHP

treating physician or another MCO or

PHP physician and that the physician is

authorized to order services under the

MCO or PHP contract. The new

requirement is that the services must

have been ordered by an authorized

provider. The final rule adds in

paragraph (d) specifications for the

duration of continued or reinstated

benefits.

Section 438.421

We have removed this section and

moved the provisions relating to

effectuation of reversed appeal

resolutions from this section to

§ 438.424.

Section 438.422

We have removed this section and

moved the provisions relating to

monitoring of the grievance and appeal

system from this section to § 438.426.

Section 438.424

We have removed the 30-calendar day

and 60-calendar day time periods for

providing services originally denied but

authorized through an appeal or fair

hearing, respectively. We retain as the

sole time determinate that the service

must be provided as expeditiously as

the enrollee’s health condition requires.

We also add to the final rule a provision

that services denied during appeal that

were received and are subsequently

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6395

authorized must be paid for by the

MCO, PHP, or the State, to State policy

and regulations.

Section 438.426

We have added this new section and

moved the requirements relating to

monitoring of the grievance and appeal

system from § 438.422 to this section.

We also provide in this section that if

the summaries of grievances and

appeals reveal a need for changing the

system, the MCO or PHP must conduct

an in-depth review and take corrective

action.

Subpart H—Certifications and Program

Integrity Protections

Section 438.602

We have revised the name and

content of this section to address the

basic rule that as a condition for

contracting and for receiving payment

under the Medicaid managed care

program, an MCO and its subcontractors

must comply with the certification and

program integrity requirements of this

subpart.

Section 438.604

We have added this new section to

identify the types of data that must be

certified. In paragraph (a), we require

that when State payments to the MCO

is based on data submitted by the MCO,

including, but not limited to, enrollment

information, encounter data, and other

information required by the State,

including data in contracts, proposals

and other related documents, the State

must require certification of the data as

provided in § 438.606. In paragraph (b),

we require that the certification must

ensure that the MCO is in substantial

compliance with the terms of the

contract, and must be as provided in

§ 438.606, regardless of whether or not

payment is based on data. In paragraph

(c), we provide that certification is

required for all documents specified by

the State.

Section 438.606

We have revised the name and

content of this section to address the

source, content and timing of

certification. In paragraph (a), we

provide that subcontractors must certify

data that they submit to the MCO and

that the MCO certify the data that it

submits to the State. One of the

following individuals must certify the

MCOs data:

• The MCO’s Chief Executive Officer

(CEO)

• The MCO’s Chief Financial Officer

(CFO)

• An individual who has delegated

authority to sign for, and who reports

directly to, the MCO’s CEO or CFO.

In paragraph (b), in the case of data

and/or other documents specified by the

State, we require that the certification

must attest to the accuracy,

completeness, and truthfulness of the

data/documents, based on best

knowledge, information, and belief. In

paragraph (b), in the case of certification

of contract compliance, we require that

the MCO attest based on best

knowledge, information, and belief that

they are in substantial compliance with

their contract. In paragraph (c), we

require the MCO to submit the

certification concurrently with the

certified data. In paragraph (c), we

require that the MCO submit the

certification of substantial compliance

when requesting payment.

Section 438.608

We have revised the name and

content of this section to include the

program integrity requirements. In

paragraph (a), we specify that the

general rule is that the MCO must have

administrative and management

arrangements or procedures, including a

mandatory compliance plan, that are

designed to guard against fraud and

abuse. In paragraph (b), we describe the

specific requirements that apply to the

administrative and management

arrangements or procedures, which

include:

• Written policies, procedures, and

standards of conduct that articulate the

organization’s commitment to comply

with all applicable Federal and State

standards.

• The designation of a compliance

officer and a compliance committee that

are accountable to senior management.

• Effective training and education for

the compliance officer and the

organization’s employees.

• Effective lines of communication

between the compliance officer and the

organization’s employees.

• Enforcement of standards through

well-publicized disciplinary guidelines.

• Provision of internal monitoring

and auditing.

• Provision for prompt response to

detected offenses and development of

corrective action initiatives relating to

the MCO’s contract, including specific

reporting requirements.

Subpart I—Sanctions

Section 438.700

We have revised paragraph (a) to

clarify that States that contract with

either MCOs or PHPs must establish

intermediate sanctions. We have added

a sentence to paragraph (a) specifying

that a State’s determination may be

based on findings from onsite surveys,

enrollee or other complaints, financial

audits, or any other means. In paragraph

(c) we clarify that the intermediate

sanctions may be imposed if the State

determines that the MCO or PHP

distributes directly, or indirectly

through any agent or independent

contract, marketing materials that have

not been approved by the State or that

contain false or materially misleading

information.

We have moved the requirements that

were previously in § 438.702(b) to this

section for clarity. In the new paragraph

(d) we provide that the intermediate

sanctions described in § 438.702(a)(4)

and (a)(5) may be imposed if the State

determines that an MCO or PHP violates

any of the requirements in section

1903(m) of the Act or an MCO or PHP

violates any of the requirements of

section 1932 of the Act.

Section 438.702

We have revised subparagraph (a)(4)

to provide that the State may impose an

intermediate sanction that suspends all

new enrollment, including default

enrollment, after the effective date of the

sanction. We have revised subparagraph

(a)(5) to provide that the State may

suspend payment for recipients enrolled

after the effective date of the sanction.

We have revised paragraph (b) to specify

that State agencies retain authority to

impose additional sanctions under State

statutes or State regulations that address

areas of noncompliance.

Section 438.704

We have revised subparagraph (b)(3)

to clarify that the penalty is subject to

the overall limit of $100,000 under

subparagraph (b)(2). We have also

revised subparagraph (b)(4) to clarify

that the limit on the penalty is greater

of double the amount of the excess

charge or $25,000.

Section 438.706

We have revised paragraph (a) to

clarify that the State may impose the

sanction of temporary management

under certain circumstances. We also

removed a reference to § 434.67. We

have moved the requirements that were

previously in § 438.708 to paragraph (b)

of this section. That paragraph provides

that the State must impose the sanction

of temporary management if it finds that

an MCO or PHP has repeatedly failed to

meet substantive requirements in

section 1903(m) or 1932 of the Act, or

this subpart. In addition, the State must

also grant enrollees the right to

terminate enrollment without cause. In

6396 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

paragraph (c) we specify that the State

may not delay imposition of temporary

management to carry out due process

procedures and may not provide a

hearing before imposing this sanction.

Section 438.708

We have revised the name and

content of this section to include the

requirements relating to termination of

an MCO or PHP contract that were

previously in § 438.718. We have moved

the requirements relating to mandatory

imposition of the sanction of temporary

management from this section to

§ 438.706. We have revised terminology

in paragraph (a) from ‘‘substantially’’ to

‘‘substantive.’’

Section 438.710

We have revised the name and

content of this section to include the

requirements relating pre-termination

hearing that were previously in

§ 438.720. We have revised paragraph

(b) by removing the required time

frames. Paragraph (b)(2) provides that

prior to a pre-termination hearing, the

State must give the MCO or PHP written

notice of its intent to terminate, the

reason for termination, and the time and

place of the hearing. In addition, after

the hearing, the State must give the

MCO or PHP written notice of the

decision affirming or reversing the

proposed termination and, for an

affirming decision, the effective date of

termination. We have added a statement

at paragraph (b)(2)(iii) that for an

affirming decision, the State must give

enrollees of the MCO or PHP notice of

the termination along with information

on their options for receiving care

following the effective date of

termination.

Section 438.718

We have removed this section and

moved the requirements relating to

termination of an MCE contract to

§ 438.708.

Section 438.720

We have removed this section and

moved the requirements relating to pretermination hearing to § 438.710.

Section 438.724

We have revised the name and

content of this section to by removing

the requirements for providing notice to

HCFA of sanctions and by including

new requirements for providing public

notice of sanctions. In paragraph (a), we

provide that the State must publish a

notice that describes the intermediate

sanction imposed, explains the reasons

for the sanction and specifies the

amount of any civil money penalty. In

paragraph (b), we require the State to

publish the notice no later than 30 days

after it imposes the sanction. The notice

must be a public announcement in

either the newspaper of widest

circulation in each city within the

MCO’s or PHP’s service area that has a

population of 50,000 or more or the

newspaper of widest circulation in the

MCO’s or PHP’s service area, if there is

no city with a population of 50,000 or

more in that area.

Section 438.726

We have added this new section to

include the requirement that was

previously in § 438.730(g). We require

that the State plan must provide for the

State to monitor for violation that

involve the actions and failures to act

specified in this section and to

implement the provisions of this

section.

Section 438.730

We have revised paragraph (a) to

provide that a State agency may

recommend that HCFA impose the

denial of payment sanction on an MCO

with a comprehensive risk contract if

the MCO acts or fails to act as specified

in § 438.700(b)(1) through (b)(6). Under

paragraph (b), we have clarified that if

HCFA accepts a State’s

recommendation, HCFA must convey

the determination to the OIG for

consideration of possible imposition of

civil money penalties under section

1902(m)(5)(A) of the Act and part 1003

of this title. We also explain that, in

accordance with the provisions of part

10003, the OIG may impose civil money

penalties in addition to, or in place of,

the sanctions that may be imposed

under this section.

Subpart J—Conditions for Federal

Financial Participation

Section 438.802

We have revised paragraph (b) to

provide that FFP is available under an

MCO or PHP contract only for periods

during which the MCO or PHP and its

subcontractors are in substantial

compliance with the physician

incentive plan requirements and the

MCO or PHP and the State are in

substantial compliance with the

requirements of the MCO or PHP

contract and of this part.

Section 438.810

We moved the definitions of choice

counseling, enrollment activities, and

enrollment broker from § 438.104 to

paragraph (a) of this section. We have

also included a new definition of

enrollment services, which means

choice counseling, enrollment activities,

or both. We have revised paragraph (b)

to include the conditions that

enrollment brokers must meet so that

State expenditures for their use qualify

for FFP. In subparagraph (b)(1), we

require that the broker and its

subcontractors are independent of any

managed care entity or health care

provider in the State in which they

provide enrollment services. We clarify

that a broker or subcontractor is not

considered ‘‘independent’’ if it is, is

owned by, or owns any MCO, PHP,

PCCM or other health care provider in

the State in which it provides

enrollment services. In subparagraph

(b)(2), we require that the broker and its

subcontractors be free from conflict of

interest.

Section 438.814

We have added this new section to

prohibit FFP for payments in

accordance with risk corridors or

incentive arrangements to the extent

that these arrangements result in

payments that exceed 105% of the

approved capitation rates, for the

services or enrollees covered by the risk

corridor or incentive arrangement.

Part 447—Payments for Services

Section 447.53

We have revised paragraph (e) to

specify that no provider may deny care

or services to an individual eligible for

the care or services on account of the

individual’s inability to pay the cost

sharing.

Section 447.361

This section, which contained the

upper payment limit for risk contracts,

has been deleted and replaced by

expanded requirements for actuarial

soundness of capitation rates in new

§ 438.6(c).

Part 447—Payments for Services

Section 447.53

We have revised paragraph (e) to

specify that no provider may deny care

or services to an individual eligible for

the care or services on account of the

individual’s inability to pay the cost

sharing.

Section 447.361

This section, which contained the

upper payment limit for risk contracts,

has been deleted and replaced by

expanded requirements for actuarial

soundness of capitation rates in new

§ 438.6(c).

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6397

Part 447—Payments for Services

Section 447.53

We have revised paragraph (e) to

specify that no provider may deny care

or services to an individual eligible for

the care or services on account of the

individual’s inability to pay the cost

sharing.

VIII. Regulatory Impact Analysis

A. Introduction

We have examined the impacts of this

final rule as required by Executive

Order 12866 and the Regulatory

Flexibility Act (RFA). Executive Order

12866 directs agencies to assess all costs

and benefits of available regulatory

alternatives and, when regulation is

necessary, to select regulatory

approaches that maximize net benefits,

including potential economic,

environmental, public health and safety

effects, distributive impacts, and equity.

A regulatory impact analysis (RIA) must

be prepared for major rules with

economically significant effects ($100

million or more in any 1 year). This rule

meets the criteria of being economically

significant because the impact will be

over $100 million.

The RFA requires agencies to analyze

options for regulatory relief of small

entities. This rule implements Medicaid

managed care provisions as directed by

BBA. The statute does not permit

significant alternatives to regulation;

however, we have considered ways to

reduce burden on small entities.

This final rule with comment period

primarily impacts beneficiaries, State

Medicaid agencies, enrollment brokers,

MCOs, PHPs, and PCCMs. Small entities

include small businesses, nonprofit

organizations, and other entities that

have annual revenues of $5 million or

less. Individuals and State governments

are not included in this definition.

Thus, most of the entities impacted by

this regulation do not qualify as small

entities. Individual PCCMs and a

limited number of small PHPs would be

considered small entities for purposes of

this regulation.

In publishing this final rule with

comment period, we considered

regulatory alternatives that would

reduce the burden on small entities.

Thus, we have decided against imposing

additional requirements on PCCMs

beyond those specified in the BBA. We

also have not applied all MCO

requirements to all PHPs. For example,

the advance directives requirements do

not apply to PHPs that only cover dental

or nonclinical services. In addition,

PHPs are only required to comply with

quality assessment and performance

improvement provisions to the extent

that they apply services actually

provided by the PHP.

Section 1102(b) of the Act requires us

to prepare a regulatory impact analysis

for any rule that 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 604 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 a Metropolitan

Statistical Area and has fewer than 50

beds.

We do not anticipate that the

provisions in this final rule with

comment period will have a substantial

economic impact on most hospitals,

including small rural hospitals. The

BBA provisions include some new

requirements on States, MCOs, and

PHPs, but no new direct requirements

on individual hospitals. The impact on

individual hospitals will vary according

to each hospital’s current and future

contractual relationships with MCOs

and PHPs. Furthermore, the impact will

also vary according to each hospital’s

current procedures and level of

compliance with existing law and

regulation pertaining to Medicaid

managed care. For these reasons, this

final rule is not expected to have a

significant impact on the operations of

a substantial number of hospitals.

The Unfunded Mandates Reform Act

of 1995 requires that agencies prepare

an assessment of anticipated costs and

benefits before proposing any rule that

may result in an expenditure in any 1

year by State, local and tribal

governments, in the aggregate, or by the

private sector, of $100 million or more

(adjusted annually for inflation). This

rule does not impose any mandates on

State, local, or tribal governments, or the

private sector that will result in an

annual expenditure of $100 million or

more.

B. Summary of the Final Rule

This rule implements the Medicaid

provisions as directed by the BBA. The

primary objectives of these provisions

are to allow for greater flexibility for

State agencies to participate in Medicaid

managed care programs and provide

greater beneficiary protections and

quality assurance standards. The

regulation addresses pertinent areas of

concern between States and MCOs,

PHPs, and PCCMs, including

enrollment, access to care, provider

network adequacy, and grievance and

appeal procedures for beneficiaries.

Specific provisions of the regulation

include the following:

• Permitting States to require in their

State plan that Medicaid beneficiaries

be enrolled in managed care.

• Eliminating the requirement that no

more than 75 percent of enrollees in an

MCO or PHP be Medicaid or Medicare

enrollees.

• Specifying a grievance and appeal

procedure for MCO and PHP enrollees.

• Providing for the types of

information that must be given to

enrollees and potential enrollees,

including language and format

requirements.

• Requiring that MCOs and PHPs

document for the States that they have

adequate capacity to serve their

enrollees and that States certify this to

HCFA.

• Specifying quality standards for

States and MCOs and PHPs.

• Increasing program integrity

protections and requiring certification of

data by MCOs and PHPs.

• Increasing the threshold for prior

approval of MCO and PHP contracts

from $100,000 to $1 million.

• Permitting cost sharing for managed

care enrollees under the same

circumstances as permitted in fee-forservice.

• Expanding the managed care

population for which States can provide

6 months of guaranteed eligibility.

• Revising the rules for setting

capitation rates.

It would be extremely difficult to

accurately quantify the overall impact of

this regulation on States, MCOs, PHPs,

and PCCMs because there is enormous

variation among States and these

entities regarding their current

regulatory and contract requirements, as

well as organizational structure and

capacity. Any generalization would

mask important variations in the impact

by State or managed care program type.

The Lewin Group, under a contract with

the Center for Health Care Strategies,

recently completed a study to measure

the cost impact of the proposed

regulation. The study is the best

information we currently have available

on the potential incremental impact of

the proposed regulation. Further, the

study does not include an analysis of

the proposed regulation in total, as it

only focused on four areas within the

proposed regulation: individual

treatment plans, initial health

assessments, quality improvement

porgrams and grievance systems/State

fair hearings. While the study’s focus is

on some of the proposed regulation

provisions, of which many have

changed, we believe that the overall cost

conclusions are relevant to this final

rule. In addition to examining the four

regulatory requirements, they cited the

6398 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

need to evaluate the incremental and

aggregate effects of the rule; different

managed care models (for example,

overall enrollment; the Medicare,

commercial, and Medicaid mix;

geographic location); and State

regulatory requirements (for example,

State patient rights laws, regulation of

noninsurance entities). The Lewin

report also points out that many of the

BBA provisions were implemented

through previous guidance to the States,

so the regulatory impact only captures

a subset of the actual impact of the

totality of BBA requirements.

According to the MCOs included in

Lewin’s study, many of the proposed

provisions are not expected to have

large incremental costs. The study

mainly focused on the assessment and

treatment management components of

the regulation, as well as the quality

improvement projects. For example,

they estimate the incremental cost of an

initial assessment (called screening in

the final regulation) as ranging from

$0.17 to $0.26 per member per month

(PMPM), but for an MCO that currently

performs an initial assessment, the

incremental cost is estimated as $0.03 to

$0.06 PMPM. Similarly, the costs of

quality improvement projects can vary

from $60,000 to $100,000 in the first

year (start-up), $80,000 to $100,000 in

the second and third years (the

intervention and improvement

measurement cycle), and $40,000 to

$50,000 for the forth and subsequent

years (ongoing performance

measurement).

In summary, according to the Lewin

Study, States and their contracting

managed care plans have already

implemented many provisions of the

BBA. While there are incremental costs

associated with the proposed and final

regulatory requirements, they will vary

widely based on characteristics of

individual managed care plans and

States. Finally, the BBA requirements

are being implemented in an

increasingly regulatory environment.

Therefore, States, MCOs, and PHPs will

likely face additional costs not related to

these regulatory requirements. Thus, the

incremental impact of these

requirements on costs to be incurred

would be difficult if not impossible to

project.

We believe that the overall impact of

this final rule will be beneficial to

Medicaid beneficiaries, MCOs, PHPs,

States, and HCFA. Many of the BBA

Medicaid managed care requirements

merely codify in Federal law standards

widely in place in State law or in the

managed care industry. Some of the

BBA provisions represent new

requirements for States, MCOs, PHPs,

and PCCMs but also provide expanded

opportunities for participation in

Medicaid managed care.

It is clear that all State agencies will

be affected by this Medicaid regulation

but in varying degrees. Much of the

burden will be on MCOs, PHPs, and

PCCMs contracting with States, but this

will also vary by existing and

continuing relationships between State

agencies and MCOs, PHPs, and PCCMs.

This regulation is intended to maximize

State flexibility and minimize the

compliance cost to States, MCOs, and

PHPs to the extent possible consistent

with the detailed BBA requirements. We

believe the final rule will result in

improved patient care outcomes and

satisfaction over the long term.

Recognizing that a large number of

entities, such as hospitals, State

agencies, and MCOs will be affected by

the implementation of these statutory

provisions, and a substantial number of

these entities may be required to make

changes in their operations, we have

prepared the following analysis. This

analysis, in combination with the rest of

the preamble, is consistent with the

standards for analysis set forth by both

the RFA and RIA.

C. State Options to Use Managed Care

1. Managed Care Organizations

Under this provision, a State agency

may amend its State plan to require all

Medicaid beneficiaries in the State to

enroll in either an MCO or PCCM

without the need to apply for a waiver

of ‘‘freedom of choice’’ requirements

under either section 1915(b) or 1115 of

the Act. However, waivers would still

be required to include certain exempted

populations in mandatory managed care

programs, notably SSI populations,

American Indians, and other groups of

children with special needs. Federal

review would be limited to a one-time

State Plan Amendment (SPA) approval,

while States would no longer need to

request waiver renewals every 2 years

for section 1915(b) of the Act and 5

years for section 1115 of the Act

waivers. State agencies may include

‘‘exempted’’ populations as voluntary

enrollees in State plan managed care

programs to maintain parallel waiver

programs. Currently, four States use

SPAs to require beneficiary enrollment

in capitated managed care

organizations. In short, the new State

plan option provides State agencies

with a new choice of method to require

participation in managed care. MCOs,

PHPs, and providers would continue to

provide care in a manner consistent

with current and future standards,

regardless of SPAs, and consequently

Medicaid beneficiaries would receive

the same level of health care in

compliance with current and future

standards.

Pursuing the SPA option rather than

a section 1915(b) or 1115 of the Act

waiver may reduce State administrative

procedures because it would eliminate

the need for States to go through the

waiver renewal process. Likewise, we

will benefit from a reduced

administrative burden if fewer waiver

applications and renewals are

requested. However, we believe the

overall reduction in burden to both

States and to us would be small in

relation to the overall administrative

requirements of the Medicaid program.

2. Primary Care Case Management

Prior to the BBA, many State agencies

elected to implement a PCCM system

through a freedom of choice waiver

under section 1915(b)(1) of the Act.

Under the BBA, States may now require

beneficiaries to use a PCCM provider

under their State plans without the need

for a waiver. As of December 2000, five

States have chosen this option. Most

State agencies, however, have continued

to use waiver authority to require

enrollment in PCCMs. Therefore, while

the BBA provision provides potential

for more PCCM programs to come into

being, we do not expect expansion of

PCCMs to be substantial due to the State

plan option. To the extent that the use

of PCCMs increases, patients of these

providers will benefit from greater

continuity of care and patient

protections deriving from new and

existing standards.

D. Elimination of 75/5 Rule

Prior to the passage of the BBA, nearly

all MCOs and PHPs contracting with

Medicaid were required to limit

combined Medicare and Medicaid

participation to 75 percent of their

enrollment, and State agencies had to

verify enrollment composition as a

contract requirement. Elimination of

this rule allows MCOs and PHPs to

participate without meeting this

requirement and eliminates the need for

States to monitor enrollment

composition in contracting MCOs and

PHPs. This will broaden the number of

MCOs and PHPs available to States for

contracting, leading to more choice for

beneficiaries.

With greater flexibility for State and

MCO or PHP participation in managed

care, providers can serve more Medicaid

beneficiaries under managed care

programs. Medicaid managed care

enrollees will have better access to care

and improved satisfaction.

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6399

E. Increased Beneficiary Protection—

Grievance Procedures

The BBA requires MCOs to establish

internal grievance procedures that

permit an eligible enrollee, or a provider

on behalf of an enrollee, to challenge the

denials of coverage of medical

assistance or denials of payment. While

these requirements were not previously

required by statute, we believe, based on

recent State surveys, such as the

National Academy for State Health

Policy survey of 10 States in 1999, and

the American Public Human Services

Association survey of 13 States in 1997,

that they reflect widespread current

practice and, therefore, do not impose

significant incremental costs on MCOs,

PHPs, or State agencies.

F. Provision of Information

In mandatory managed care programs,

we have required that beneficiaries be

fully informed of the choices available

to them in enrolling with MCOs and

PHPs. Section 1932(a)(5) of the Act,

enacted in section 4701(a)(5) of the

BBA, describes the kind of information

that must be made available to Medicaid

enrollees and potential enrollees. It also

requires that this information, and all

enrollment notices and instructional

materials related to enrollment in MCOs

and PHPs, be in a format that can be

easily understood by the individuals to

which it is directed. We do not believe

that these requirements deviate

substantially from current practice.

Furthermore, there is no way to quantify

the degree of burden on State agencies,

MCOs, and PHPs for several reasons. We

do not have State-specific data on what

information States currently provide, or

the manner in which they provide it.

Variability among States indicates that

implementing or continuing enrollee

information requirements will represent

different degrees of difficulty and

expense.

As a requirement under the provision

of information section, State agencies

opting to implement mandatory

managed care programs under the SPA

option are required to provide

comparative information on MCOs and

PCCMs to potential enrollees. Currently

only eight States have exercised the

option to use an SPA to require

beneficiary enrollment in managed care.

However, for States that do select this

option, we do not believe that providing

the comparative data in itself represents

a burden, as these are elements of

information that most States currently

provide. The regulation specifies that

the information must be presented in a

comparative or chart-like form that

facilitates comparison among MCOs,

PHPs, and PCCMs. This may be

perceived as a burden to States that

have previously provided this

information in some other manner;

however, it is our belief that even in the

absence of the regulation, the trend is

for States, and many accreditation

bodies such as the National Committee

for Quality Assurance (NCQA), to use

chart-like formats. Consequently,

enrollees will benefit from having better

information for selecting MCOs, PHPs,

and PCCMs. Only a few States have

opted for SPAs so far, but it is

anticipated that more States will

participate over the long term. States

that participate in the future will benefit

from any comparative tools developed

by other States.

G. Demonstration of Adequate Capacity

and Services

The BBA requires Medicaid MCOs to

provide the State and the Secretary of

HHS with assurances of adequate

capacity and services, including service

coverage within reasonable time frames.

States currently require assurances of

adequate capacity and services as part of

their existing contractual arrangements

with MCOs and PHPs. However,

certification of adequacy has not been

routinely provided to HCFA in the past.

Under this rule, each State retains its

authority to establish standards for

adequate capacity and services within

MCO and PHP contracts. This may be

perceived as a burden to MCOs and

PHPs, and for States which have to date

not been required to formally certify

that an MCO or PHP meets the State’s

capacity and service requirements.

However, certification to HCFA will

ensure an important beneficiary

protection while imposing only a minor

burden on States to issue a certification

to HCFA.

Quantifying the additional burden on

States, MCOs, or PHPs as a result of

implementing this regulation is not

feasible for several reasons. First, HCFA

does not have State-specific data on the

types of detailed information States

currently require of their MCOs and

PHPs to assure adequate capacity and

services. Second, we do not have Statespecific information on the manner in

which State agencies collect and

evaluate documentation in this area.

Rather, each State agency has its own

documentation requirements and its

own procedures to assure adequate

capacity and services. This regulation

contemplates that States continue to

have that flexibility.

Under this regulation, State agencies

will determine and specify both the

detail and type of documentation to be

submitted by the MCO or PHP to assure

adequate capacity and services and the

type of certification to be submitted to

us. Accordingly, variability among State

agencies implementing this regulation

represents different degrees of detail

and expense. Regardless of the level of

additional burden on MCOs, PHPs, State

agencies, and us, Medicaid beneficiaries

will receive continued protections in

access to health care under both State

and Federal law.

H. New Quality Standards

The BBA requires that each State

agency have an ongoing quality

assessment and improvement strategy

for its Medicaid managed care

contracting program. The strategy,

among other things, must include: (1)

standards for access to care so that

covered services are available within

reasonable time frames and in a manner

that ensures continuity of care and

adequate capacity of primary care and

specialized services providers; (2)

examination of other aspects of care and

service directly related to quality of

care, including grievance procedures,

marketing, and information standards;

(3) procedures for monitoring and

evaluating the quality and

appropriateness of care and service to

enrollees; and (4) regular and periodic

examinations of the scope and content

of the State’s quality strategy.

The provisions of this regulation

establish requirements for State quality

strategies and requirements for MCOs

and PHPs that States are to incorporate

as part of their quality strategy. These

MCO and PHP requirements address: (1)

MCO and PHP structure and operations;

(2) Medicaid enrollees’ access to care;

and (3) MCO and PHP responsibilities

for measuring and improving quality.

While these new Medicaid requirements

are a significant increase in Medicaid

regulatory requirements in comparison

to the regulatory requirements that

existed before the BBA, we believe the

increases are appropriate because many

of the requirements are either identical

to or consistent with quality

requirements placed on MCOs and PHPs

by private sector purchasers, the

Medicare program, State licensing

agencies, and private sector

accreditation organizations. While these

new requirements also will have

implications for State Medicaid agencies

that will be responsible for monitoring

for compliance with the new

requirements, we believe that a number

of recent statutory, regulatory, and

private sector developments will enable

State Medicaid agencies to more easily

monitor for compliance than in the past

at potentially less cost to the State. First,

the BBA also included provisions

6400 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

addressing how States are to fulfill the

statutory requirement for an annual,

external quality review (EQR) of each

Medicaid-contracting MCO and PHP.

(These provisions are addressed in a

separate rulemaking). Prior to the BBA,

75 percent Federal financial

participation in the cost of these

activities was available to States only if

the State used a narrowly defined list of

entities to perform the quality review.

The BBA opened up the possibility for

use of a much wider array of entities to

perform this function. Further, in

HCFA’s proposed rule to implement

these EQR provisions published on

December 1, 1999, we specified that the

75 percent Federal match would also be

available to EQR organizations that

performed activities necessary for

monitoring compliance with these BBA

quality requirements for MCOs and

PHPs. The BBA also provided that

States could exercise an option whereby

MCOs that were accredited by a private

accrediting organization under certain

conditions could be determined to meet

certain of the quality requirements

specified in this rule, thereby avoiding

costs to the State of directly monitoring

for compliance with these requirements.

In response to this, private accrediting

organizations such as the National

Committee for Quality Assurance have

developed Medicaid accreditation

product lines.

In addition, prior to issuance of the

proposed rule, we worked closely with

State Technical Advisory Groups

(TAGs) in developing the managed care

quality regulations and standards.

Requirements under this regulation

build on a variety of initiatives of State

Medicaid agencies and HCFA to

promote the assessment and

improvement of quality in plans

contracting with Medicaid, including:

• The Quality Improvement System

for Managed Care (QISMC), an initiative

with State and Federal officials,

beneficiary advocates, and the managed

care industry to develop a coordinated

quality oversight system for Medicare

and Medicaid that reduces duplicate or

conflicting efforts and emphasizes

demonstrable and measurable

improvement.

• QARI, serving as a foundation to the

development of QISMC, highlights the

key elements in the Health Care Quality

Improvement System (HCQIS),

including internal quality assurance

programs, State agency monitoring, and

Federal oversight. This guidance

emphasizes quality standards developed

in conjunction with all system

participants, such as managed care

contractors, State regulators, Medicaid

beneficiaries or their representatives,

and external review organizations.

Further, we have built on efforts in

other sectors in developing these quality

requirements in order to capitalize on

current activities and trends in the

health care industry. For example, many

employers and cooperative purchasing

groups and some State agencies already

require that organizations be accredited

by the National Committee on Quality

Assurance (NCQA), the Joint

Commission on Accreditation of

Healthcare Organizations (JCAHO), the

American Accreditation Healthcare

Commission (AAHC), or other

independent bodies. Many also require

that organizations report their

performance using Health Plan

Employer Data & Information Set

(HEDIS), Foundation for Accountability

(FACCT), or other measures and

conduct enrollee surveys using the

Consumer Assessment of Health Plans

Study (CAHPS) or other instruments.

NCQA estimates that more than 90

percent of plans are collecting some or

all of HEDIS data for their commercial

population. Also, States have

heightened their regulatory efforts

through insurance or licensing

requirements, and the National

Association of Insurance Commissioners

(NAIC) has developed model acts on

network adequacy, quality assessment

and improvement, and utilization

review.

While we anticipate that many

organizations will need to invest in new

staff and information systems in order to

perform these new quality improvement

activities, it is difficult to quantify these

financial and operational

‘‘investments,’’ as State agencies, MCOs,

and PHPs across the country exhibit

varying capabilities in meeting these

standards. These new quality

requirements will present

administrative challenges for some State

agencies and MCOs; however, PHPs and

States have significant latitude in how

these requirements will be

implemented. Acknowledging that there

likely will be some degree of burden on

States, MCOs, and PHPs, we also believe

that the long-term benefits of greater

accountability and improved quality in

care delivery will outweigh the costs of

implementing and maintaining these

processes over time.

I. Administration

1. Certifications and Program Integrity

Protections

BBA sections 1902(a)(4) and (19)

require that States conduct appropriate

processes and methods to ensure the

efficient operation of the health plans.

This includes mechanisms to not only

safeguard against fraud and abuse but

also to ensure accurate reporting of data

among health plans, States, and HCFA.

Section 438.602 of the regulation

addresses the importance of reliable

data that are submitted to States and

requires MCOs and PHPs to certify the

accuracy of these data to the State.

These data include enrollment

information, encounter data, or other

information that is used for payment

determination. For the most part, States

reimburse MCOs and PHPs on a

capitated basis and do not use claims or

encounter data as a basis for payment.

However, the collection of encounter,

provider, and enrollment data will be

most useful for States in measuring

quality performance and addressing

various methodologies of rate-setting

and risk adjustment. The Medicaid

provision of attesting to the validity of

data presents an additional step in the

process of data submission. MCOs and

PHPs have historically worked closely

with States when reporting Medicaid

data in order to affirm that the data are

accurate and complete. Submitting a

certification of validity could take place

in a variety of ways and will represent

a varying degree of burden for health

plans.

Section 438.606 requires MCOs and

PHPs to have effective operational

capabilities to guard against fraud and

abuse. This will result in reporting

violations of law by MCOs and PHPs to

the State. Providers and health plans

have traditionally ensured compliance

with Federal and State laws when

providing and delivering health care to

members. For example, many health

plans comply with standards set by the

National Association of Insurance

Commissioners (NAIC). However,

additional resources and procedures

will be necessary to have a systematic

process for documenting violations and

formally notifying the State of these

instances.

The requirement for MCOs and PHPs

to certify the accuracy and completeness

of provider contracts or other

documents is consistent with current

practices. These demonstrations are

evident in NCQA accreditation

procedures, Medicaid waiver reviews,

and audits that are necessary for

compliance with other relevant State

and Federal laws. Depending on the

MCO or PHP, new processes may be

necessary to comply with this standard.

This requirement may not necessarily

result in new mechanisms or resources

for MCOs and PHPs but may create the

need for more coordination with

additional State Medicaid Agency

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6401

representatives in the review of provider

contracts.

2. Change in Threshold from $100,000

to $1 Million

Before the passage of the BBA, the

Secretary’s prior approval was required

for all HMO contracts involving

expenditures in excess of $100,000.

Under the BBA, the threshold amount is

increased to $1 million. This change in

threshold will have minimal impact on

plans currently contracting with State

agencies for Medicaid managed care.

Currently, only one or two plans in the

country have annual Medicaid

expenditures of under $1 million.

Therefore, this new provision will not

affect a significant number of plans or

States.

J. Permitting Same Copayments in

Managed Care as in FFP

Under section 4708(c) of the BBA,

States may now allow copayments for

services provided by MCOs and PHPs to

the same extent that they allow

copayments under fee-for-service.

Imposition of copayments in

commercial markets typically results in

lower utilization of medical services,

depending on the magnitude of

payments required of the enrollee. Thus,

we would normally expect State

agencies that implement copayments for

MCO or PHP enrollees to realize some

savings as a result. However, applying

copayments in Medicaid populations

may cause States, MCOs, and PHPs to

incur overhead costs related to

administering these fees that more than

offset these savings. This is due to

several factors including that

copayments are significantly lower for

Medicaid beneficiaries than typical

commercial copayments, that it is

difficult to ensure compliance with

these payments, and that collection

efforts would be necessary for MCOs or

PHPs to obtain all fees due to them.

Also, if State agencies take advantage of

this option, Medicaid managed care

enrollees may defer receipt of health

care services and find their health

conditions deteriorate such that costs of

medical treatment may be greater over

the long term. As a result of these

variables, it is difficult to predict how

many States will take advantage of this

new option of permitting copayments

for MCO or PHP enrollees.

K. Six-Month Guaranteed Eligibility

The legislation has expanded the

States’ option to guarantee up to 6

months eligibility in two ways. First, it

expands the types of MCOs whose

members may have guaranteed

eligibility, in that it now includes

anyone who is enrolled with a Medicaid

managed care organization as defined in

section 1903(m)(1)(A) of the Act.

Second, it expands the option to include

those enrolled with a PCCM as defined

in section 1905(t) of the Act. These

changes are effective October 1, 1997.

To the extent that State agencies choose

this option, we expect MCOs, PHPs, and

PCCMs in those States to support the

use of this provision since it affords

health plans with assurance of

membership for a specified period of

time. Likewise, beneficiaries will gain

from this coverage expansion, and

continuity of care will be enhanced. The

table below displays our estimates of the

impact of the expanded option for 6

months of guaranteed eligibility under

section 4709 of the BBA.

COST OF 6-MONTH GUARANTEED ELIGIBILITY OPTION

[Dollars in millions rounded to the nearest $5 million]

FY

2000

FY

2001

FY

2002

FY

2003

FY

2004

FY

2005

Federal ............................................................................................................................. 40 55 80 115 165 230

State ................................................................................................................................. 30 45 60 905 125 175

Total .......................................................................................................................... 70 100 140 205 290 405

The estimates of Federal costs are

reflected in the current budget baseline.

The estimates assume that half of the

current Medicaid population is enrolled

in managed care and that this

proportion will increase to about twothirds by 2003. We also assume that 15

percent of managed care enrollees are

currently covered by guaranteed

eligibility under rules in effect prior to

enactment of the BBA and that the effect

of the expanded option under section

4709 of the BBA will be to increase this

rate to 20 percent initially and to 30

percent by 2003. The guaranteed

eligibility provision is assumed to

increase average enrollment by 3

percent in populations covered by the

option. This assumption is based on

computer simulations of enrollment and

turnover in the Medicaid program. Per

capita costs used for the estimate were

taken from the President’s FY 1999

budget projections and the costs for

children take into account the

interaction of this provision with the

State option for 12 months of

continuous eligibility under section

4731 of the BBA. The distribution

between Federal and State costs is based

on the average Federal share

representing 57 percent of the total

costs.

In States electing the 6-month

guaranteed eligibility option, Medicaid

beneficiaries will have access to

increased continuity of care, which

should result in better health care

management and improved clinical

outcomes.

L. Financial Impact of Revised Rules for

Setting Capitation Payments

This rule replaces the current upper

payment limit (UPL) requirement at

§ 447.361 with new rate-setting rules

incorporating an expanded requirement

for actuarial soundness of capitation

rates as described in detail in § 438.6(c)

below. In general, we do not expect a

major budget impact from the use of

these new rate setting rules. While the

new rate setting rules may provide some

States additional flexibility in setting

higher capitation rates than what would

have been allowed under current rules,

we believe that the requirements for

actuarial certification of rates, along

with budgetary considerations by State

policy makers, would serve to limit

increases to within reasonable amounts.

Moreover, the Secretary would retain

the authority to look behind rates that

appear questionable and disapprove any

that did not comply with the new rate

setting requirements.

M. Administrative Costs

This regulation requires States to

include certain specifications in their

contracts with MCOs, PHPs, and PCCMs

and to monitor compliance with those

contract provisions. It also requires

States to take a proactive role in

monitoring the quality of their managed

care program. These requirements will

add some administrative burden and

costs to States. The amount of

additional administrative cost will vary

by State depending on how inclusive

current practice is of the new

6402 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

requirements. In addition, for those

States not using like requirements at

present, we believe that most would be

adopting similar requirements on their

own in the future absent this regulation.

The regulation will also increase

Federal responsibilities for monitoring

State performance in managing their

managed care programs. However, no

new Federal costs are expected as HCFA

plans to use existing staff to monitor

these new requirements.

N. Conclusion

This BBA managed care regulation

will affect HCFA, States, MCOs, PHPs,

PCCMs, providers, and beneficiaries in

different ways. The initial investments

that are needed by State agencies and

MCOs, PHPs, and PCCMs will result in

improved and more consistent

standards for the delivery of health care

to Medicaid beneficiaries. Greater

consumer safeguards will result from

new quality improvement and

protection provisions. Consequently,

long term savings will derive from more

consistent standards across States,

MCOs, PHPs, and PCCMs and increased

opportunities for provider and

beneficiary involvement in improved

access, outcomes, and satisfaction.

O. Federalism

Under Executive Order 13132, we are

required to adhere to certain criteria

regarding Federalism in developing

regulations. We have determined that

this final regulation will not

significantly affect States rights, roles,

and responsibilities. The BBA requires

States that contract with section

1903(m) of the Act organizations to have

certain beneficiary protections in place

when mandating managed care

enrollment. This final rule implements

those BBA provisions in accordance

with the Administrative Procedure Act.

This rule also eliminates certain

requirements viewed by States as

impediments to the growth of managed

care programs, such as disenrollment

without cause at any time and the

inability to amend the State plan

without a waiver for mandatory

managed care enrollment. We apply

many of these requirements to prepaid

health plans as set forth in our

September 29, 1998 proposed rule. We

believe this is consistent with the intent

of the Congress in enacting the quality

and beneficiary protection provisions of

the BBA.

We worked closely with States in

developing this regulation. We met with

State officials and other stakeholders to

discuss opportunities and concerns

before the end of the comment period.

Throughout the development of the

regulation, we consulted with State

Medicaid agency representatives in

order to gain more understanding of

potential impacts. At the November

1997 meeting of the Executive Board of

the National Association of State

Medicaid Directors (NASMD), we

discussed the process for providing

initial guidance to States about the

Medicaid provisions of the BBA. We

provided this guidance through

issuance of a series of letters to State

Medicaid Directors. From October 1997

through April 2000, over 50 of these

letters were issued. Much of the policy

included in this regulation relating to

the State plan option provision was

included in these letters. In May 1998,

the Executive Committee of NASMD

was briefed on the general content of the

regulation. More specific State input

was obtained through discussions

throughout the Spring of 1998 with the

Medicaid Technical Advisory Groups

(TAGs) on Managed Care and Quality.

These groups are comprised of Medicaid

agency staff with notable expertise in

the subject area and our regional office

staff and are staffed by the American

Public Human Services Association.

The Managed Care TAG devoted much

of its agenda for several monthly

meetings to BBA issues. The Quality

TAG participated in two conference

calls exclusively devoted to discussion

of BBA quality issues. Through these

contacts, HCFA explored with State

agencies their preferences regarding

policy issues and the feasibility and

practicality of implementing policy

under consideration. We also invited

public comments as part of the

rulemaking process and received

comments from over 300 individuals

and organizations. Most of the

commenters had substantial comments

that addressed many provisions of the

regulation.

We also received hundreds of

comments on every subpart of the final

rule, including comments for many

States and membership organizations

representing States. Many of the

recommendations made by commenters

have been incorporated into this final

rule. For recommendations not

accepted, a response has been included

in this preamble. Moreover, we

discussed technical issues with State

experts through technical advisory

groups to make certain that the final

rule could be practically applied.

In accordance with the provisions of

Executive Order 12866, this regulation

was reviewed by the Office of

Management and Budget.

For the reasons set forth in the

preamble, the Health Care Financing

Administration is amending 42 CFR

Chapter IV as set forth below:

PART 400—INTRODUCTION;

DEFINITIONS

1. The authority citation for part 400

continues to read as follows:

Authority: Secs. 1102 and 1871 of the

Social Security Act (42 U.S.C. 1302 and

1395hh).

§ 400.203 [Amended]

2. In § 400.203, the following

statements are added, in alphabetical

order, and the definition of ‘‘provider’’

is revised to read as set forth below.

PCCM stands for primary care case

manager.

PCP stands for primary care

physician.

Provider means either of the

following:

(1) For the fee-for-service program, it

means any individual or entity

furnishing Medicaid services under an

agreement with the Medicaid agency.

(2) For the managed care program, it

means any individual or entity that is

engaged in the delivery of health care

services and is legally authorized to do

so by the State in which it delivers the

services.

PART 430—GRANTS TO STATES FOR

MEDICAL ASSISTANCE PROGRAMS

1. The authority citation for part 430

continues to read as follows:

Authority: Sec. 1102 of the Social Security

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

2. In part 430 a new § 430.5 is added,

to read as follows:

§ 430.5 Definitions.

As used in this subchapter, unless the

context indicates otherwise—

Contractor means any entity that

contracts with the State agency, under

the State plan and in return for a

payment, to process claims, to provide

or pay for medical services, or to

enhance the State agency’s capability for

effective administration of the program.

Representative has the meaning given

the term by each State consistent with

its laws, regulations, and policies.

PART 431—STATE ORGANIZATION

AND GENERAL ADMINISTRATION

1. The authority citation for part 431

continues to read as follows:

Authority: Sec. 1102 of the Social Security

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

2. In § 431.51, the following changes

are made:

a. In paragraph (a) introductory text,

‘‘and 1915(a) and (b) of the Act.’’ is

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6403

revised to read ‘‘1915(a) and (b) and

1932(a)(3) of the Act.’’

b. Paragraphs (a)(4) and (a)(5) are

revised and a new paragraph (a)(6) is

added, as set forth below.

c. In paragraph (b)(1) introductory

text, ‘‘and part 438 of this chapter’’ is

added immediately before the comma

that follows ‘‘this section’’.

d. In paragraph (b)(2), ‘‘an HMO’’ is

revised to read ‘‘a Medicaid MCO’’.

The additions and revisions read as

follows:

§ 431.51 Free choice of providers.

(a) Statutory basis. ***

(4) Section 1902(a)(23) of the Act

provides that a recipient enrolled in a

primary care case management system

or Medicaid managed care organization

(MCO) may not be denied freedom of

choice of qualified providers of family

planning services.

(5) Section 1902(e)(2) of the Act

provides that an enrollee who, while

completing a minimum enrollment

period, is deemed eligible only for

services furnished by or through the

MCO or PCCM, may, as an exception to

the deemed limitation, seek family

planning services from any qualified

provider.

(6) Section 1932(a) of the Act permits

a State to restrict the freedom of choice

required by section 1902(a)(23), under

specified circumstances, for all services

except family planning services.

* * * * *

3. In § 431.55, a sentence is added at

the end of paragraph (c)(1)(i) to read as

follows:

§ 431.55 Waiver of other Medicaid

requirements.

* * * * *

(c) * * *

(1) * * *

(i) * * * The person or agency must

comply with the requirements set forth

in part 438 of this chapter for primary

care case management contracts and

systems.

4. Section 431.200 is revised to read

as follows:

§ 431.200 Basis and scope.

This subpart—

(a) Implements section 1902(a)(3) of

the Act, which requires that a State plan

provide an opportunity for a fair hearing

to any person whose claim for

assistance is denied or not acted upon

promptly;

(b) Prescribes procedures for an

opportunity for hearing if the State

agency takes action to suspend,

terminate, or reduce services, or an

MCO or PHP takes action under subpart

F of part 438 of this chapter; and

(c) Implements sections 1919(f)(3) and

1919(e)(7)(F) of the Act by providing an

appeals process for any person who—

(1) Is subject to a proposed transfer or

discharge from a nursing facility; or

(2) Is adversely affected by the preadmission screening or the annual

resident review that are required by

section 1919(e)(7) of the Act.

§ 431.201 [Amended]

5. In § 431.201, the following

definition is added in alphabetical

order:

* * * * *

Service authorization request means a

managed care enrollee’s request for the

provision of a service.

6. In § 431.220, the introductory text

of paragraph (a) is revised, the

semicolons after paragraphs (a)(1),

(a)(2), and (a)(3) and the ‘‘and’’ after the

third semicolon are removed and

periods are inserted in their place, and

a new paragraph (a)(5) is added, to read

as follows:

§ 431.220 When a hearing is required.

(a) The State agency must grant an

opportunity for a hearing to the

following:

* * * * *

(5) Any MCO or PHP enrollee who is

entitled to a hearing under subpart F of

part 438 of this chapter.

* * * * *

§ 431.244 [Amended]

7. In § 431.244, paragraph (f) is

revised to read as follows:

* * * * *

(f) The agency must take final

administrative action as follows:

(1) Ordinarily, within 90 days from

the earlier of the following:

(i) The date the enrollee files an MCO

or PHP appeal.

(ii) The date the enrollee files a

request for State fair hearing.

(2) As expeditiously as the enrollee’s

health condition requires, but no later

than 72 hours after the agency receives,

from the MCO or PHP, the case file and

information for any appeal of a denial

of a service that, as indicated by the

MCO or PHP—

(i) Meets the criteria for expedited

resolution as set forth in § 438.410(c)(2)

of this chapter, but was not resolved

within the timeframe for expedited

resolution; or

(ii) Was resolved within the

timeframe for expedited resolution, but

reached a decision wholly or partially

adverse to the enrollee.

(3) As expeditiously as the enrollee’s

health condition requires, but no later

than 72 hours after the agency receives,

directly from an MCO or PHP enrollee,

a fair hearing request on a decision to

deny a service that it determines meets

the criteria for expedited resolution, as

set forth in § 438.410(c)(2) of this

chapter.

PART 434—CONTRACTS

1. The authority citation for part 434

continues to read as follows:

Authority: Sec. 1102 of the Social Security

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

2. In § 434.1, paragraph (a) is revised

to read as follows:

§ 434.1 Basis and scope.

(a) Statutory basis. This part is based

on section 1902(a)(4) of the Act, which

requires that the State plan provide for

methods of administration that the

Secretary finds necessary for the proper

and efficient operation of the plan.

* * * * *

§ 434.2 [Amended]

3. In § 434.2, the definitions of

‘‘Capitation fee’’, ‘‘Clinical laboratory’’,

‘‘Contractor’’, ‘‘Enrolled recipient’’,

‘‘Federally qualified HMO’’, ‘‘Health

insuring organization (HIO)’’, ‘‘Health

maintenance organization (HMO)’’,

‘‘Nonrisk’’, ‘‘Prepaid health plan

(PHP)’’, ‘‘provisional status HMO’’, and

‘‘risk or underwriting risk’’ are removed.

§§ 434.6 [Amended]

4. In paragraph (a)(1), ‘‘Appendix G’’

is removed.

§ 434.20 through 434.38 [Removed]

5. Subpart C, consisting of §§ 434.20

through 434.38, is removed and

reserved.

§§ 434.42 and 434.44 [Removed]

6. In subpart D, §§ 434.42 and 434.44

are removed.

§§ 434.50 and 434.67 [Removed]

7. Subpart E, consisting of §§ 434.50

through 434.67, is removed and

reserved.

8. Section 434.70 is revised to read as

follows:

§ 434.70 Conditions for Federal financial

participation (FFP).

(a) Basic requirements. FFP is

available only for periods during which

the contract—

(1) Meets the requirements of this

part;

(2) Meets the applicable requirements

of 45 CFR part 74; and

(3) Is in effect.

(b) Basis for withholding. HCFA may

withhold FFP for any period during

which—

6404 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

(1) The State fails to meet the State

plan requirements of this part; or

(2) Either party substantially fails to

carry out the terms of the contract.

§§ 434.71 through 434.75 and 434.80

[Removed]

9. Sections 434.71 through 434.75,

and 434.80 are removed.

PART 435—ELIGIBILITY IN THE

STATES, THE DISTRICT OF

COLUMBIA, THE NORTHERN

MARIANA ISLANDS, AND AMERICAN

SAMOA

1. The authority citation for part 435

continues to read as follows:

Authority: Sec. 1102 of the Social Security

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

2. In § 435.212, the following changes

are made:

a. Throughout the section, ‘‘HMO’’,

wherever it appears, is revised to read

‘‘MCO’’.

b. The section heading and the

introductory text are revised to read as

follows:

§ 435.212 Individuals who would be

ineligible if they were not enrolled in an

MCO or PCCM.

The State agency may provide that a

recipient who is enrolled in an MCO or

PCCM and who becomes ineligible for

Medicaid is considered to continue to

be eligible—

* * * * *

3. Section 435.326 is revised to read

as follows:

§ 435.326 Individuals who would be

ineligible if they were not enrolled in an

MCO or PCCM.

If the agency provides Medicaid to the

categorically needy under § 435.212, it

may provide it under the same rules to

medically needy recipients who are

enrolled in MCOs or PCCMs.

§ 435.1002 [Amended]

4. In § 435.1002, in paragraph (a),

‘‘§§ 435.1007 and 435.1008’’ is revised

to read §§ 435.1007, 435.1008, and

438.814 of this chapter,’’

5. A new part 438 is added to chapter

IV to read as follows:

PART 438—MANAGED CARE

PROVISIONS

Subpart A—General Provisions

Sec.

438.1 Basis and scope.

438.2 Definitions.

438.6 Contract requirements.

438.8 Provisions that apply to PHPs.

438.10 Information requirements.

438.12 Provider discrimination prohibited.

Subpart B— State Responsibilities

438.50 State Plan requirements.

438.52 Choice of MCOs, PHPs, and PCCMs.

438.56 Disenrollment: Requirements and

limitations.

438.58 Conflict of interest safeguards.

438.60 Limit on payment to other

providers.

438.62 Continued services to recipients.

438.66 Monitoring procedures.

438.68 Education of MCOs, PHPs, and

PCCMs and subcontracting providers.

Subpart C—Enrollee Rights and Protections

438.100 Enrollee rights.

438.102 Provider-enrollee communications.

438.104 Marketing activities.

438.106 Liability for payment.

438.108 Cost sharing.

438.114 Emergency and post-stabilization

services.

438.116 Solvency standards.

Subpart D—Quality Assessment and

Performance Improvement

438.200 Scope.

438.202 State responsibilities.

438.204 Elements of State quality strategies.

Access Standards

438.206 Availability of services.

438.207 Assurances of adequate capacity

and services.

438.208 Coordination and continuity of

care.

438.210 Coverage and authorization of

services.

Structure and Operation Standards

438.214 Provider selection.

438.218 Enrollee information.

438.224 Confidentiality and accuracy of

enrollee records.

438.226 Enrollment and disenrollment.

438.228 Grievance systems.

438.230 Subcontractual relationships and

delegation.

Measurement and Improvement Standards

438.236 Practice guidelines.

438.240 Quality assessment and

performance improvement program.

438.242 Health information systems.

Subpart E—[Reserved]

Subpart F—Grievance System

438.400 Statutory basis and definitions.

438.402 General requirements.

438.404 Notice of action.

438.406 Handling of grievances and

appeals.

438.408 Resolution and notification:

Grievances and appeals.

438.410 Expedited resolution of grievances

and appeals.

438.414 Information about the grievance

system.

438.416 Recordkeeping and reporting

requirements.

438.420 Continuation of benefits while the

MCO or PHP appeal and the State Fair

Hearing are pending.

438.424 Effectuation of reversed appeal

resolutions.

438.426 Monitoring of the grievance

system.

Subpart G—[Reserved]

Subpart H—Certifications and Program

Integrity Provisions

438.600 Statutory basis.

438.602 Basic rule.

438.604 Data that must be certified.

438.606 Source, content, and timing of

certification.

438.608 Program integrity requirements.

Subpart I—Sanctions

438.700 Basis for imposition of sanctions.

438.702 Types of intermediate sanctions.

438.704 Amounts of civil money penalties.

438.706 Special rules for temporary

management.

438.708 Termination of an MCO or PCCM

contract.

438.710 Due process: Notice of sanction

and pre-termination hearing.

438.722 Disenrollment during termination

hearing process.

438.724 Public notice of sanction.

438.726 State plan requirement.

438.730 Sanction by HCFA: Special rules

for MCOs with risk contracts.

Subpart J—Conditions for Federal Financial

Participation

438.802 Basic requirements.

438.806 Prior approval.

438.808 Exclusion of entities.

438.810 Expenditures for enrollment broker

services.

438.812 Costs under risk and nonrisk

contracts.

438.814 Limit on payments in excess of

capitation rates.

Authority: Sec. 1102 of the Social Security

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

Subpart A—General Provisions

§ 438.1 Basis and scope.

(a) Statutory basis. This part is based

on sections 1902(a)(4), 1903(m), 1905(t),

and 1932 of the Act.

(1) Section 1902(a)(4) requires that

States provide for methods of

administration that the Secretary finds

necessary for proper and efficient

operation of the State Medicaid plan.

The application of the requirements of

this part to PHPs that do not meet the

statutory definition of MCO or to a

PCCM is under the authority in section

1902(a)(4).

(2) Section 1903(m) contains

requirements that apply to

comprehensive risk contracts.

(3) Section 1903(m)(2)(H) provides

that an enrollee who loses Medicaid

eligibility for not more than 2 months

may be enrolled in the succeeding

month in the same MCO or PCCM if that

MCO or PCCM still has a contract with

the State.

(4) Section 1905(t) contains

requirements that apply to PCCMs.

(5) Section 1932—

(i) Provides that, with specified

exceptions, a State may require

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6405

Medicaid recipients to enroll in MCOs

or PCCMs;

(ii) Establishes the rules that MCOs,

PCCMs, the State, and the contracts

between the State and those entities

must meet, including compliance with

requirements in sections 1903(m) and

1905(t) of the Act that are implemented

in this part;

(iii) Establishes protections for

enrollees of MCOs and PCCMs;

(iv) Requires States to develop a

quality assessment and performance

improvement strategy;

(v) Specifies certain prohibitions

aimed at the prevention of fraud and

abuse;

(vi) Provides that a State may not

enter into contracts with MCOs unless

it has established intermediate sanctions

that it may impose on an MCO that fails

to comply with specified requirements;

and

(vii) Makes other minor changes in

the Medicaid program.

(b) Scope. This part sets forth

requirements, prohibitions, and

procedures for the provision of

Medicaid services through MCOs, PHPs,

and PCCMs. Requirements vary

depending on the type of entity and on

the authority under which the State

contracts with the entity. Provisions that

apply only when the contract is under

a mandatory managed care program

authorized by section 1932(a)(1)(A) of

the Act are identified as such.

§ 438.2 Definitions.

As used in this part—

Capitation payment means a payment

the State agency makes periodically to

a contractor on behalf of each recipient

enrolled under a contract for the

provision of medical services under the

State plan. The State agency makes the

payment regardless of whether the

particular recipient receives services

during the period covered by the

payment.

Comprehensive risk contract means a

risk contract that covers comprehensive

services, that is, inpatient hospital

services and any of the following

services, or any three or more of the

following services:

(1) Outpatient hospital services.

(2) Rural health clinic services.

(3) FQHC services.

(4) Other laboratory and X-ray

services.

(5) Nursing facility (NF) services.

(6) Early and periodic screening

diagnostic, and treatment (EPSDT)

services.

(7) Family planning services.

(8) Physician services.

(9) Home health services.

Federally qualified HMO means an

HMO that HCFA has determined to be

a qualified HMO under section 1310(d)

of the PHS Act.

Health insuring organization (HIO)

means an entity that in exchange for

capitation payments, covers services for

recipients—

(1) Through payments to, or

arrangements with, providers; and

(2) Under a risk contract with the

State.

Managed care organization (MCO)

means an entity that has, or is seeking

to qualify for, a comprehensive risk

contract under this part, and that is —

(1) A Federally qualified HMO that

meets the advance directives

requirements of subpart I of part 489 of

this chapter; or

(2) Any public or private entity that

meets the advance directives

requirements and is determined to also

meet the following conditions:

(i) Makes the services it provides to its

Medicaid enrollees as accessible (in

terms of timeliness, amount, duration,

and scope) as those services are to other

Medicaid recipients within the area

served by the entity.

(ii) Meets the solvency standards of

§ 438.116.

Nonrisk contract means a contract

under which the contractor—

(1) Is not at financial risk for changes

in utilization or for costs incurred under

the contract that do not exceed the

upper payment limits specified in

§ 447.362 of this chapter; and

(2) May be reimbursed by the State at

the end of the contract period on the

basis of the incurred costs, subject to the

specified limits.

Prepaid health plan (PHP) means an

entity that—

(1) Provides medical services to

enrollees under contract with the State

agency, and on the basis of prepaid

capitation payments, or other payment

arrangements that do not use State plan

payment rates; and

(2) Does not have a comprehensive

risk contract.

Primary care means all health care

services and laboratory services

customarily furnished by or through a

general practitioner, family physician,

internal medicine physician,

obstetrician/gynecologist, or

pediatrician, to the extent the furnishing

of those services is legally authorized in

the State in which the practitioner

furnishes them.

Primary care case management means

a system under which a PCCM contracts

with the State to furnish case

management services (which include

the location, coordination and

monitoring of primary health care

services) to Medicaid recipients.

Primary care case manager (PCCM)

means a physician, a physician group

practice, an entity that employs or

arranges with physicians to furnish

primary care case management services

or, at State option, any of the following:

(1) A physician assistant.

(2) A nurse practitioner.

(3) A certified nurse-midwife.

Risk contract means a contract under

which the contractor—

(1) Assumes risk for the cost of the

services covered under the contract; and

(2) Incurs loss if the cost of furnishing

the services exceeds the payments

under the contract.

§ 438.6 Contract requirements.

(a) Regional office review. The HCFA

Regional Office must review and

approve all MCO and PHP contracts,

including those risk and nonrisk

contracts that, on the basis of their

value, are not subject to the prior

approval requirement in § 438.806.

(b) Entities eligible for comprehensive

risk contracts. A State agency may enter

into a comprehensive risk contract only

with one of the following:

(1) An MCO.

(2) The entities identified in section

1903(m)(2)(B)(i), (ii), and (iii) of the Act.

(3) Community, Migrant, and

Appalachian Health Centers identified

in section 1903(m)(2)(G) of the Act.

Unless they qualify for a total

exemption under section 1903(m)(2)(B)

of the Act, these entities are subject to

the regulations governing MCOs under

this part.

(4) An HIO that arranges for services

and became operational before January

1986.

(5) An HIO described in section

9517(c)(3) of the Omnibus Budget

Reconciliation Act of 1985 (as added by

section 4734(2) of the Omnibus Budget

Reconciliation Act of 1990).

(c) Payments under risk contracts.—

(1) Terminology. As used in this

paragraph, the following terms have the

indicated meanings:

(i) Actuarially sound capitation rates

means capitation rates that—

(A) Have been developed in

accordance with generally accepted

actuarial principles and practices;

(B) Are appropriate for the

populations to be covered, and the

services to be furnished under the

contract; and

(C) Have been certified, as meeting the

requirements of this paragraph (c), by

actuaries who meet the qualification

standards established by the American

Academy of Actuaries and follow the

practice standards established by the

Actuarial Standards Board.

(ii) Adjustments to smooth data

means adjustments made, by costneutral methods, across rate cells, to

6406 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

compensate for distortions in costs,

utilization, or the number of eligibles.

(2) Basic requirements. (i) All

capitation rates paid under risk

contracts and all risk-sharing

mechanisms in contracts must be

actuarially sound.

(ii) The contract must specify the

payment rates and any risk-sharing

mechanisms, and the actuarial basis for

computation of those rates and

mechanisms.

(3) Requirements for actuarially

sound rates. In setting actuarially sound

capitation rates, the State must apply

the following elements, or explain why

they are not applicable:

(i) Base utilization and cost data that

are derived from the Medicaid

population, or if not, are adjusted to

make them comparable to the Medicaid

population.

(ii) Adjustments made to smooth data

and adjustments to account for factors

such as inflation, MCO or PHP

administration (subject to the limits in

§ 438.6(c)(4)(ii) of this section), and

utilization;

(iii) Rate cells specific to the enrolled

population, by:

(A) Eligibility category;

(B) Age;

(C) Gender;

(D) Locality/region; and

(E) Risk adjustments based on

diagnosis or health status (if used).

(iv) Other payment mechanisms and

utilization and cost assumptions that are

appropriate for individuals with chronic

illness, disability, ongoing health care

needs, or catastrophic claims, using risk

adjustment, risk sharing, or other

appropriate cost-neutral methods.

(4) Documentation. The State must

provide the following documentation:

(i) The actuarial certification of the

capitation rates.

(ii) An assurance (in accordance with

paragraph (c)(3) of this section) that all

payment rates are based only upon

services covered under the State plan

and to be provided under the contract

to Medicaid-eligible individuals.

(iii) Its projection of expenditures

under its previous year’s contract (or

under its FFS program if it did not have

a contract in the previous year)

compared to those projected under the

proposed contract.

(iv) An explanation of any incentive

arrangements, or stop-loss, reinsurance,

or any other risk-sharing methodologies

under the contract.

(5) Special contract provisions. (i)

Contract provisions for reinsurance,

stop-loss limits or other risk-sharing

methodologies (other than risk

corridors) must be computed on an

actuarially sound basis.

(ii) If risk corridors or incentive

arrangements result in payments that

exceed the approved capitation rates,

the FFP limitation of § 438.814 applies.

(iii) For all incentive arrangements,

the contract must provide that the

arrangement is —

(A) For a fixed period of time;

(B) Not to be renewed automatically;

(C) Designed to include withholds or

other payment penalties if the

contractor does not perform the

specified activities or does not meet the

specified targets;

(D) Made available to both public and

private contractors;

(E) Not conditioned on

intergovernmental transfer agreements;

and

(F) Necessary for the specified

activities and targets.

(d) Enrollment discrimination

prohibited. Contracts with MCOs, PHPs,

and PCCMs must provide as follows:

(1) The MCO, PHP or PCCM accepts

individuals eligible for enrollment in

the order in which they apply without

restriction (unless authorized by the

Regional Administrator), up to the

limits set under the contract.

(2) Enrollment is voluntary, except in

the case of mandatory enrollment

programs that meet the conditions set

forth in § 438.50(a).

(3) The MCO, PHP or PCCM will not,

on the basis of health status or need for

health care services, discriminate

against individuals eligible to enroll.

(4) The MCO, PHP or PCCM will not

discriminate against individuals eligible

to enroll on the basis of race, color, or

national origin, and will not use any

policy or practice that has the effect of

discriminating on the basis of race,

color, or national origin.

(e) Services that may be covered. An

MCO or PHP contract may cover, for

enrollees, services that are in addition to

those covered under the State plan.

(f) Compliance with contracting rules.

All contracts under this subpart must:

(1) Comply with all applicable State

and Federal laws and regulations

including Title VI of the Civil Rights Act

of 1964; Title IX of the Education

Amendments of 1972 (regarding

education programs and activities); the

Age Discrimination Act of 1975; the

Rehabilitation Act of 1973; and the

Americans with Disabilities Act; and

(2) Meet all the requirements of this

section.

(g) Inspection and audit of financial

records. Risk contracts must provide

that the State agency and the

Department may inspect and audit any

financial records of the entity or its

subcontractors.

(h) Physician incentive plans. (1)

MCO and PHP contracts must provide

for compliance with the requirements

set forth in §§ 422.208 and 422.210 of

this chapter.

(2) In applying the provisions of

§§ 422.208 and 422.210, references to

‘‘M+C organization’’, ‘‘HCFA’’, and

‘‘Medicare beneficiaries’’ must be read

as references to ‘‘MCO or PHP’’, ‘‘State

agency’’ and ‘‘Medicaid recipients’’,

respectively.

(i) Advance directives. (1) All MCO

and most PHP contracts must provide

for compliance with the requirements of

§ 422.128 of this chapter for maintaining

written policies and procedures with

respect to advance directives. This

requirement does not apply to PHP

contracts where the State has

determined such application would be

inappropriate, as described in

§ 438.8(a)(2).

(2) The MCO or PHP must provide

adult enrollees with written information

on advance directives policies, and

include a description of applicable State

law.

(3) The information must reflect

changes in State law as soon as possible,

but no later than 90 days after the

effective date of the change.

(j) Special rules for certain HIOs.

Contracts with HIOs that began

operating on or after January 1, 1986,

and that the statute does not explicitly

exempt from requirements in section

1903(m) of the Act are subject to all the

requirements of this part that apply to

MCOs and contracts with MCOs. These

HIOs may enter into comprehensive risk

contracts only if they meet the criteria

of paragraph (a) of this section.

(k) Additional rules for contracts with

PCCMs. A PCCM contract must meet the

following requirements:

(1) Provide for reasonable and

adequate hours of operation, including

24-hour availability of information,

referral, and treatment for emergency

medical conditions.

(2) Restrict enrollment to recipients

who reside sufficiently near one of the

manager’s delivery sites to reach that

site within a reasonable time using

available and affordable modes of

transportation.

(3) Provide for arrangements with, or

referrals to, sufficient numbers of

physicians and other practitioners to

ensure that services under the contract

can be furnished to enrollees promptly

and without compromise to quality of

care.

(4) Prohibit discrimination in

enrollment, disenrollment, and reenrollment, based on the recipient’s

health status or need for health care

services.

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6407

(5) Provide that enrollees have the

right to disenroll from their PCCM in

accordance with § 438.56.

(l) Subcontracts. All subcontracts

must fulfill the requirements of this part

that are appropriate to the service or

activity delegated under the

subcontract.

(m) Choice of health professional. The

contract must allow each enrollee to

choose his or her health professional in

the MCO to the extent possible and

appropriate.

§ 438.8 Provisions that apply to PHPs.

The following requirements and

options apply to PHPs, PHP contracts,

and States with respect to PHPs, to the

same extent that they apply to MCOs,

MCO contracts, and States with respect

to MCOs.

(a) The contract requirements of

§ 438.6, except for the following:

(1) Requirements that pertain to HIOs.

(2) Requirements for advance

directives, if the State believes that they

are not appropriate, for example, for a

PHP contract that covers only dental

services or non-clinical services such as

transportation services.

(b) The information requirements in

§ 438.10.

(c) The provision against provider

discrimination in § 438.12.

(d) The State responsibility provisions

of subpart B except § 438.50.

(e) The enrollee rights and protection

provisions in subpart C of this part.

(f) The quality assessment and

performance improvement provisions in

subpart D of this part to the extent that

they are applicable to services furnished

by the PHP.

(g) The grievance system provisions in

subpart F of this part.

(h) The certification and program

integrity protection provisions set forth

in subpart H of this part.

§ 438.10 Information requirements.

(a) Basic rules. (1) Each State or its

contracted representative, and each

MCO, PHP, or PCCM must, in

furnishing information to enrollees and

potential enrollees, meet the

requirements that are applicable to it

under this section.

(2) The information required for all

potential enrollees must be furnished by

the State or its contracted representative

or, at State option, by the MCO or PHP.

(3) The information required for all

enrollees must be furnished by each

MCO or PHP, unless the State chooses

to furnish it directly or through its

contracted representative.

(4) PHPs must comply with the

requirements of this section, as

appropriate. PHPs that contract as

PCCMs must meet all of the

requirements applicable to PCCMs. All

other PHPs must meet all of the

requirements applicable to MCOs.

(5) The language and format

requirements of paragraphs (b) and (c) of

this section apply to all information

furnished to enrollees and potential

enrollees, such as enrollment notices

and instructions, as well as the

information specified in this section.

(6) The State must have in place a

mechanism to help enrollees and

potential enrollees understand the

State’s managed care program.

(7) Each MCO and PHP must have in

place a mechanism to help enrollees

and potential enrollees understand the

requirements and benefits of the plan.

(8) If the State plan provides for

mandatory enrollment under section

1932(a)(1)(A) of the Act (that is, as a

State plan option), the additional

requirements of paragraph (h) of this

section apply.

(b) Language. The State must meet the

following requirements:

(1) Establish a methodology for

identifying the non-English languages

spoken by enrollees and potential

enrollees throughout the State.

(2) Provide written information in

each non-English language that is

necessary for effective communication

with a significant number or percentage

of enrollees and potential enrollees.

(3) Require each MCO, PHP, and

PCCM to make its written information

available in the languages that are

prevalent in its particular service area.

(4) Make oral interpretation services

available and require each MCO, PHP,

and PCCM to make those services

available free of charge to the recipient

to meet the needs of each enrollee and

potential enrollee.

(5) Notify enrollees and potential

enrollees, and require each MCO, PHP,

and PCCM to notify its enrollees and

potential enrollees—

(i) That oral interpretation and written

information are available in languages

other than English; and

(ii) Of how to access those services.

(c) Format. (1) The material must—

(i) Use easily understood language

and format; and

(ii) Be available in alternative formats

and in an appropriate manner that takes

into consideration the special needs of

those who, for example, are visually

limited or have limited reading

proficiency.

(2) The State must provide

instructions to enrollees and potential

enrollees and require each MCO, PHP,

and PCCM to provide instructions to its

enrollees and potential enrollees on

how to obtain information in the

appropriate format.

(d) Information for potential

enrollees.—(1) To whom and when the

information must be furnished. The

State or its contracted representative

must provide the information specified

in paragraph (d)(2) of this section as

follows:

(i) To each potential enrollee residing

in the MCO’s or PHP’s service area;

(ii) At the time the potential enrollee

first becomes eligible for Medicaid, is

considering choice of MCOs or PHPs

under a voluntary program, or is first

required to choose an MCO or PHP

under a mandatory enrollment program;

and

(iii) Within a timeframe that enables

the potential enrollee to use the

information in choosing among

available MCOs or PHPs.

(2) Required information. The

information for potential enrollees must

include the following:

(i) General information about—

(A) The basic features of managed

care;

(B) Which populations are excluded

from enrollment, subject to mandatory

enrollment, or free to enroll voluntarily

in an MCO or PHP; and

(C) MCO and PHP responsibilities for

coordination of enrollee care;

(ii) Information specific to each MCO

and PHP serving an area that

encompasses the potential enrollee’s

service area:

(A) Benefits covered;

(B) Cost sharing, if any;

(C) Service area;

(D) Names, locations, telephone

numbers of, and non-English language

spoken by current network providers,

including at a minimum information on

primary care physicians, specialists, and

hospitals, and identification of

providers that are not accepting new

patients.

(E) Benefits that are available under

the State plan but are not covered under

the contract, including how and where

the enrollee may obtain those benefits,

any cost sharing, and how

transportation is provided. For a

counseling or referral service that the

MCO or PHP does not cover because of

moral or religious objections, the MCO

or PHP need not furnish information

about how and where to obtain the

service, but only about how and where

to obtain information about the service.

The State must furnish information

about where and how to obtain the

service.

(e) Information for enrollees.—(1) To

whom and when the information must

be furnished. The MCO or PHP must—

(i) Furnish to each of its enrollees the

information specified in paragraph (e)(2)

of this section within a reasonable time

6408 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

after the MCO or PHP receives, from the

State or its contracted representative,

notice of the recipient’s enrollment, and

once a year thereafter.

(ii) Give each enrollee written notice

of any change (that the State defines as

‘‘significant’’) in the information

specified in paragraph (e)(2) of this

section, at least 30 days before the

intended effective date of the change.

(iii) Make a good faith effort to give

written notice of termination of a

contracted provider, within 15 days

after receipt or issuance of the

termination notice, to each enrollee who

received his or her primary care from,

or was seen on a regular basis by, the

terminated provider.

(2) Required information. The

information for enrollees must include

the following:

(i) Kinds of benefits, and amount,

duration, and scope of benefits available

under the contract. There must be

sufficient detail to ensure that enrollees

understand the benefits to which they

are entitled, including pharmaceuticals,

and mental health and substance abuse

benefits.

(ii) Enrollee rights as specified in

§ 438.100.

(iii) Procedures for obtaining benefits,

including authorization requirements.

(iv) Names, locations, telephone

numbers of, and non-English languages

spoken by current network providers,

including information at least on

primary care physicians, specialists, and

hospitals, and identification of

providers that are not accepting new

patients.

(v) Any restrictions on the enrollee’s

freedom of choice among network

providers.

(vi) The extent to which, and how,

enrollees may obtain benefits, including

family planning services, from out-ofnetwork providers.

(vii) The extent to which, and how,

after-hours and emergency coverage are

provided.

(viii) Policy on referrals for specialty

care and for other benefits not furnished

by the enrollee’s primary care provider.

(ix) Cost sharing, if any.

(x) Grievance, appeal, and fair hearing

procedures for enrollees, including

timeframes, required under § 438.414(b).

(xi) Any appeal rights that the State

chooses to make available to providers

to challenge the failure of the

organization to cover a service.

(xii) Any benefits that are available

under the State plan but are not covered

under the contract, including how and

where the enrollee may obtain those

benefits, any cost sharing, and how

transportation is provided. For a

counseling or referral service that the

MCO or PHP does not cover because of

moral or religious objections, the MCO

or PHP need not furnish information on

how and where to obtain the service,

but only on how and where to obtain

information about the service. The State

must furnish information about how

and where to obtain the service.

(xiii) Information on how to obtain

continued services during a transition,

as provided in § 438.62.

(xiv) The rules for emergency and

post-stabilization services, as set forth in

§ 438.114.

(xv) Additional information that is

available upon request, and how to

request that information.

(3) Annual notice. At least once a

year, the MCO or PHP, or the State or

its contracted representative, must

notify enrollees of their right to request

and obtain the information listed in

paragraphs (e)(2) and (f) of this section.

(f) MCO or PHP information available

upon request. The following

information must be furnished to

enrollees and potential enrollees upon

request, by the MCO or PHP, or by the

State or its contracted representative if

the State prohibits the MCO or PHP

from providing it:

(1) With respect to MCOs and health

care facilities, their licensure,

certification, and accreditation status.

(2) With respect to health care

professionals, information that includes,

but is not limited to, education,

licensure, and Board certification and

recertification.

(3) Other information on requirements

for accessing services to which they are

entitled under the contract, including

factors such as physical accessibility

and non-English languages spoken.

(4) A description of the procedures

the MCO or PHP uses to control

utilization of services and expenditures.

(5) A summary description of the

methods of compensation for

physicians.

(6) Information on the financial

condition of the MCO or PHP, including

the most recently audited information.

(7) Any element of information

specified in paragraphs (d) and (e) of

this section.

(g) Information on PCCMs and

PHPs.—(1) To whom and when the

information must be furnished. The

State or its contracted representative

must furnish information on PCCMs and

PHPs to potential enrollees—

(i) When potential enrollees first

become eligible for Medicaid or are first

required to choose a PCCM or PHP

under a mandatory enrollment program;

and

(ii) Within a timeframe that enables

them to use the information in choosing

among available PCCMs or PHPs .

(2) Required information.—(i) General

rule. The information must include the

following:

(A) The names of and non-English

languages spoken by PCCMs and PHPs

and the locations at which they furnish

services.

(B) Any restrictions on the enrollee’s

choice of the listed PCCMs and PHPs.

(C) Except as provided in paragraph

(g)(2)(ii) of this section, any benefits that

are available under the State plan but

not under the PCCM or PHP contract,

including how and where the enrollee

may obtain those benefits, any costsharing, and how transportation is

provided.

(ii) Exception. For counseling and

referral services that are not covered

under the PCCM or PHP contract

because of moral or religious objections,

the PCCM or PHP need not furnish

information about how and where to

obtain the service but only about how

and where to obtain information about

the service. The State must furnish the

information on how and where to obtain

the service.

(3) Additional information available

upon request. Each PCCM and PHP

must, upon request, furnish information

on the grievance procedures available to

enrollees, including how to obtain

benefits during the appeals process.

(h) Special rules: States with

mandatory enrollment.—(1) Basic rule.

If the State plan provides for mandatory

enrollment under section 1932(a)(1)(A)

of the Act, the State or its contracted

representative must furnish information

on MCOs, PHPs, and PCCMs (as

specified in paragraph (h)(3) of this

section), either directly or through the

MCO, PHP, or PCCM.

(2) When and how the information

must be furnished. The information

must be furnished to all potential

enrollees—

(i) At least once a year; and

(ii) In a comparative, chart-like

format.

(3) Required information. Some of the

information is the same as the

information required for potential

enrollees under paragraph (d) of this

section. However, all of the information

in this paragraph is subject to the

timeframe and format requirements of

paragraph (h)(2) of this section, and

includes the following for each

contracting MCO, PHP, or PCCM:

(i) The MCO’s, PHP’s, or PCCM’s

service area.

(ii) The benefits covered under the

contract.

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6409

(iii) Any cost sharing imposed by the

MCO, PHP, or PCCM.

(iv) To the extent available, quality

and performance indicators, including,

but not limited to, disenrollment rates

as defined by the State, and enrollee

satisfaction.

§ 438.12 Provider discrimination

prohibited.

(a) General rules. (1) An MCO or PHP

may not discriminate with respect to the

participation, reimbursement, or

indemnification of any provider who is

acting within the scope of his or her

license or certification under applicable

State law, solely on the basis of that

license or certification. If an MCO or

PHP declines to include individual or

groups of providers in its network, it

must give the affected providers written

notice of the reason for its decision.

(2) In all contracts with health care

professionals an MCO or PHP must

comply with the requirements specified

in § 438.214.

(b) Construction. Paragraph (a) of this

section may not be construed to—

(1) Require the MCO or PHP to

contract with providers beyond the

number necessary to meet the needs of

its enrollees;

(2) Preclude the MCO or PHP from

using different reimbursement amounts

for different specialties or for different

practitioners in the same specialty; or

(3) Preclude the MCO or PHP from

establishing measures that are designed

to maintain quality of services and

control costs and are consistent with its

responsibilities to enrollees.

Subpart B—State Responsibilities

§ 438.50 State plan requirements.

(a) General rule. A State plan that

provides for requiring Medicaid

recipients to enroll in managed care

entities must comply with the

provisions of this section, except when

the State imposes the requirement—

(1) As part of a demonstration project

under section 1115 of the Act; or

(2) Under a waiver granted under

section 1915(b) of the Act.

(b) State plan information. The plan

must specify—(1) The types of entities

with which the State contracts;

(2) The payment method it uses (for

example, whether fee-for-service or

capitation);

(3) Whether it contracts on a

comprehensive risk basis; and

(4) The process the State uses to

involve the public in both design and

initial implementation of the program

and the methods it uses to ensure

ongoing public involvement once the

State plan has been implemented.

(c) State plan assurances. The plan

must provide assurances that the State

meets applicable requirements of the

following laws and regulations:

(1) Section 1903(m) of the Act, with

respect to MCOs and MCO contracts.

(2) Section 1905(t) of the Act, with

respect to PCCMs and PCCM contracts.

(3) Section 1932(a)(1)(A) of the Act,

with respect to the State’s option to

limit freedom of choice by requiring

recipients to receive their benefits

through managed care entities.

(4) This part, with respect to MCOs

and PCCMs.

(5) Part 434 of this chapter, with

respect to all contracts.

(6) Section 438.6(c), with respect to

payments under any risk contracts, and

§ 447.362 with respect to payments

under any nonrisk contracts.

(d) Limitations on enrollment. The

State must provide assurances that, in

implementing the State plan managed

care option, it will not require the

following groups to enroll in an MCO or

PCCM:

(1) Recipients who are also eligible for

Medicare.

(2) Indians who are members of

Federally recognized tribes, except

when the MCO or PCCM is—

(i) The Indian Health Service; or

(ii) An Indian health program or

Urban Indian program operated by a

tribe or tribal organization under a

contract, grant, cooperative agreement

or compact with the Indian Health

Service.

(3) Children under 19 years of age

who are—

(i) Eligible for SSI under title XVI;

(ii) Eligible under section 1902(e)(3)

of the Act;

(iii) In foster care or other out-of-home

placement;

(iv) Receiving foster care or adoption

assistance; or

(v) Receiving services through a

family-centered, community-based,

coordinated care system that receives

grant funds under section 501(a)(1)(D) of

title V, and is defined by the State in

terms of either program participation or

special health care needs.

(e) Priority for enrollment. The State

must have an enrollment system under

which recipients already enrolled in an

MCO or PCCM are given priority to

continue that enrollment if the MCO or

PCCM does not have the capacity to

accept all those seeking enrollment

under the program.

(f) Enrollment by default. (1) For

recipients who do not choose an MCO

or PCCM during their enrollment

period, the State must have a default

enrollment process for assigning those

recipients to contracting MCOs and

PCCMs.

(2) The process must seek to preserve

existing provider-recipient relationships

and relationships with providers that

have traditionally served Medicaid

recipients. If that is not possible, the

State must distribute the recipients

equitably among qualified MCOs and

PCCMs available to enroll them,

excluding those that are subject to the

intermediate sanction described in

§ 438.702(a)(4).

(3) An ‘‘existing provider-recipient

relationship’’ is one in which the

provider was the main source of

Medicaid services for the recipient

during the previous year. This may be

established through State records of

previous managed care enrollment or

fee-for-service experience, or through

contact with the recipient.

(4) A provider is considered to have

‘‘traditionally served’’ Medicaid

recipients if it has experience in serving

the Medicaid population.

§ 438.52 Choice of MCOs, PHPs, and

PCCMs.

(a) General rule. Except as specified in

paragraphs (b) and (c) of this section, a

State that requires Medicaid recipients

to enroll in an MCO, PHP, or PCCM

must give those recipients a choice of at

least two entities.

(b) Exception for rural area residents.

(1) Under any of the following

programs, and subject to the

requirements of paragraph (b)(2) of this

section, a State may limit a rural area

resident to a single MCO, PHP, or PCCM

system:

(i) A program authorized by a plan

amendment under section 1932(a) of the

Act.

(ii) A waiver under section 1115 of

the Act.

(iii) A waiver under section 1915(b) of

the Act.

(2) A State that elects the option

provided under paragraph(b)(1) of this

section, must permit the recipient—

(i) To choose from at least two

physicians or case managers; and

(ii) To obtain services from any other

provider under any of the following

circumstances:

(A) The service or type of provider is

not available within the MCO, PHP, or

PCCM network.

(B) The provider is not part of the

network, but is the main source of a

service to the recipient. (This provision

applies as long as the provider

continues to be the main source of the

service).

(C) The only plan or provider

available to the recipient does not,

because of moral or religious objections,

provide the service the enrollee seeks.

(D) The recipient’s primary care

provider or other provider determines

6410 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

that the recipient needs related services

that would subject the recipient to

unnecessary risk if received separately

(for example, a cesarean section and a

tubal ligation) and not all of the related

services are available within the

network.

(E) The State determines that other

circumstances warrant out-of-network

treatment.

(3) As used in this paragraph, ‘‘rural

area’’is any area other than an ‘‘urban

area’’ as defined in § 412.62(f)(1)(ii) of

this chapter.

(c) Exception for certain health

insuring organizations (HIOs). The State

may limit recipients to a single HIO if—

(1) The HIO is one of those described

in section 1932(a)(3)(C) of the Act;

(2) The recipient who enrolls in the

HIO has a choice of at least two primary

care providers within the entity.

(d) Limitations on changes between

primary care providers. For an enrollee

of a single MCO, PHP, or HIO under

paragraph (b)(2) or (b)(3) of this section,

any limitation the State imposes on his

or her freedom to change between

primary care providers may be no more

restrictive than the limitations on

disenrollment under § 438.56(c).

§ 438.56 Disenrollment: Requirements and

limitations.

(a) Applicability. The provisions of

this section apply to all managed care

arrangements whether enrollment is

mandatory or voluntary and whether the

contract is with an MCO, a PHP, or a

PCCM.

(b) Disenrollment requested by the

MCO, PHP or PCCM. All MCO, PHP,

and PCCM contracts must—(1) Specify

the reasons for which the MCO, PHP or

PCCM may request disenrollment of an

enrollee;

(2) Provide that the MCO, PHP or

PCCM may not request disenrollment

because of a change in the enrollee’s

health status, or because of the

enrollee’s utilization of medical

services, diminished mental capacity, or

uncooperative or disruptive behavior

resulting from his or her special needs

(except where his or her continued

enrollment in the MCO, PHP or PCCM

seriously impairs the entity’s ability to

furnish services to either this particular

enrollee or other enrollees); and

(3) Specify the methods by which the

MCO, PHP or PCCM assures the agency

that it does not request disenrollment

for reasons other than those permitted

under the contract.

(c) Disenrollment requested by the

enrollee. If the State chooses to limit

disenrollment, its MCO, PHP, and

PCCM contracts must provide that a

recipient may request disenrollment as

follows:

(1) For cause, at any time.

(2) Without cause, at the following

times:

(i) During the 90 days following the

date of the recipient’s initial enrollment

with the MCO, PHP or PCCM, or the

date the State sends the recipient notice

of the enrollment, whichever is later.

(ii) At least once every 12 months

thereafter.

(iii) Upon automatic reenrollment

under paragraph (g) of this section, if

the temporary loss of Medicaid

eligibility has caused the recipient to

miss the annual disenrollment

opportunity.

(iv) When the State imposes the

intermediate sanction specified in

§ 438.702(a)(3).

(d) Procedures for disenrollment. (1)

Request for disenrollment. The recipient

(or his or her representative) must

submit an oral or written request—

(i) To the State agency (or its agent);

or

(ii) To the MCO, PHP or PCCM, if the

State permits MCOs, PHPs, and PCCMs

to process disenrollment requests.

(2) Cause for disenrollment. The

following are cause for disenrollment:

(i) The enrollee was homeless (as

defined by the State) or a migrant

worker at the time of enrollment and

was enrolled in the MCO, PHP or PCCM

by default.

(ii) The plan does not, because of

moral or religious objections, cover the

service the enrollee seeks.

(iii) The enrollee needs related

services (for example a cesarean section

and a tubal ligation) to be performed at

the same time; not all related services

are available within the network; and

the enrollee’s primary care provider or

another provider determines that

receiving the services separately would

subject the enrollee to unnecessary risk.

(iv) Other reasons, including but not

limited to, poor quality of care, lack of

access to services covered under the

contract, or lack of access to providers

experienced in dealing with the

enrollee’s health care needs.

(3) MCO, PHP or PCCM action on

request. (i) An MCO, PHP or PCCM may

either approve a request for

disenrollment or refer the request to the

State.

(ii) If the MCO, PHP, PCCM, or State

agency (whichever is responsible) fails

to make a disenrollment determination

so that the recipient can be disenrolled

within the timeframes specified in

paragraphs (e)(1) of this section, the

disenrollment is considered approved.

(4) State agency action on request. For

a request received directly from the

recipient, or one referred by the MCO,

PHP or PCCM, the State agency must

take action to approve or disapprove the

request based on the following:

(i) Reasons cited in the request.

(ii) Information provided by the MCO,

PHP or the PCCM at the agency’s

request.

(iii) Any of the reasons specified in

paragraph (d)(2) of this section.

(5) Use of the MCO, PHP, or PCCM

grievance procedures. (i) The State

agency may require that the enrollee

seek redress through the MCO, PHP, or

PCCM’s grievance system before making

a determination on the enrollee’s

request.

(ii) The grievance process, if used,

must be completed in time to permit the

disenrollment (if approved) to be

effective in accordance with the

timeframe specified in § 438.56(e)(1).

(iii) If, as a result of the grievance

process, the MCO, PHP, or PCCM

approves the disenrollment, the State

agency is not required to make a

determination.

(e) Timeframe for disenrollment

determinations. (1) Regardless of the

procedures followed, the effective date

of an approved disenrollment must be

no later than the first day of the second

month following the month in which

the enrollee or the MCO, PHP or PCCM

files the request.

(2) If the MCO, PHP or PCCM or the

State agency (whichever is responsible)

fails to make the determination within

the timeframes specified in paragraphs

(e)(1) and (e)(2) of this section, the

disenrollment is considered approved.

(f) Notice and appeals. A State that

restricts disenrollment under this

section must take the following actions:

(1) Provide that enrollees and their

representatives are given written notice

of disenrollment rights at least 60 days

before the start of each enrollment

period.

(2) Ensure access to State fair hearing

for any enrollee dissatisfied with a State

agency determination that there is not

good cause for disenrollment.

(g) Automatic reenrollment: Contract

requirement. If the State plan so

specifies, the contract must provide for

automatic reenrollment of a recipient

who is disenrolled solely because he or

she loses Medicaid eligibility for a

period of 2 months or less.

§ 438.58 Conflict of interest safeguards.

(a) As a condition for contracting with

MCOs or PHPs, a State must have in

effect safeguards against conflict of

interest on the part of State and local

officers and employees and agents of the

State who have responsibilities relating

to MCO or PHP contracts or the default

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6411

enrollment process specified in

§ 438.50(f).

(b) These safeguards must be at least

as effective as the safeguards specified

in section 27 of the Office of Federal

Procurement Policy Act (41 U.S.C. 423).

§ 438.60 Limit on payment to other

providers.

The State agency must ensure that no

payment is made to a provider other

than the MCO or PHP for services

available under the contract between the

State and the MCO or PHP, except

where such payments are provided for

in title XIX of the Act or 42 CFR.

§ 438.62 Continued services to recipients.

(a) The State agency must arrange for

Medicaid services to be provided

without delay to any Medicaid enrollee

of an MCO, PHP or PCCM whose

contract is terminated and for any

Medicaid enrollee who is disenrolled

from an MCO, PHP or PCCM for any

reason other than ineligibility for

Medicaid.

(b) The State agency must have in

effect a mechanism to ensure continued

access to services when an enrollee with

ongoing health care needs is

transitioned from fee-for-service to an

MCO, PHP or PCCM, from one MCO,

PHP or PCCM to another, or from an

MCO, PHP or PCCM to fee-for-service.

(1) The mechanism must apply at

least to the following:

(i) Children and adults receiving SSI

benefits.

(ii) Children in title IV–E foster care.

(iii) Recipients aged 65 or older.

(iv) Pregnant women.

(v) Any other recipients whose care is

paid for under State-established, riskadjusted, high-cost payment categories.

(vi) Any other category of recipients

identified by HCFA.

(2) The State must notify the enrollee

that a transition mechanism exists, and

provide instructions on how to access

the mechanism.

(3) The State must ensure that an

enrollee’s ongoing health care needs are

met during the transition period, by

establishing procedures to ensure that,

at a minimum—

(i) The enrollee has access to services

consistent with the State plan, and is

referred to appropriate health care

providers;

(ii) Consistent with Federal and State

law, new providers are able to obtain

copies of appropriate medical records;

and

(iii) Any other necessary procedures

are in effect.

§ 438.66 Monitoring procedures.

The State agency must have in effect

procedures for monitoring the MCO’s or

PHP’s operations, including, at a

minimum, operations related to:

(a) Recipient enrollment and

disenrollment.

(b) Processing of grievances and

appeals.

(c) Violations subject to intermediate

sanctions, as set forth in subpart I of this

part.

(d) Violations of the conditions for

FFP, as set forth in subpart J of this part.

(e) All other provisions of the

contract, as appropriate.

§ 438.68 Education of MCOs, PHPs, and

PCCMs and subcontracting providers.

The State agency must have in effect

procedures for educating MCOs, PHPs,

PCCMs and any subcontracting

providers about the clinical and other

needs of enrollees with special health

care needs.

Subpart C—Enrollee Rights and

Protections

§ 438.100 Enrollee rights.

(a) General rule. The State must

ensure that—

(1) Each MCO and each PHP has

written policies regarding the enrollee

rights specified in this section; and

(2) Each MCO, PHP, and PCCM

complies with any applicable Federal

and State laws that pertain to enrollee

rights, and ensures that its staff and

affiliated providers take those rights into

account when furnishing services to

enrollees.

(b) Specific rights—(1) Basic

requirement. The State must ensure that

each managed care enrollee is

guaranteed the rights as specified in

paragraphs (b)(2) and (b)(3) of this

section.

(2) An enrollee of an MCO, PHP, or

PCCM has the following rights: The

right

(i) To receive information in

accordance with § 438.10.

(ii) To be treated with respect and

with due consideration for his or her

dignity and privacy.

(iii) To receive information on

available treatment options and

alternatives, presented in a manner

appropriate to the enrollee’s condition

and ability to understand. (The

information requirements for services

that are not covered under the contract

because of moral or religious objections

are set forth in § 438.10(e).)

(iv) To participate in decisions

regarding his or her health care,

including the right to refuse treatment.

(v) To be free from any form of

restraint or seclusion used as a means of

coercion, discipline, convenience or

retaliation, as specified in other Federal

regulations on the use of restraints and

seclusion.

(3) An enrollee of an MCO or a PHP

also has the following rights—The right

(i) To be furnished health care

services in accordance with §§ 438.206

through 438.210.

(ii) To obtain a second opinion from

an appropriately qualified health care

professional in accordance with

§ 438.206(d)(3).

(iii) To request and receive a copy of

his or her medical records, and to

request that they be amended or

corrected, as specified in § 438.224.

(c) Free exercise of rights. The State

must ensure that each enrollee is free to

exercise his or her rights, and that the

exercise of those rights does not

adversely affect the way the MCO, PHP

or PCCM and its providers or the State

agency treat the enrollee.

(d) Compliance with other Federal

and State laws. The State must ensure

that each MCO, PHP, and PCCM

complies with any other applicable

Federal and State laws (such as: Title VI

of the Civil Rights Act of 1964 as

implemented by regulations at 45 CFR

part 484; the Age Discrimination Act of

1975 as implemented by regulations at

45 CFR part 91; the Rehabilitation Act

of 1973; and Titles II and III of the

Americans with Disabilities Act and

other laws regarding privacy and

confidentiality).

§ 438.102 Provider-enrollee

communications.

(a) Health care professional defined.

As used in this subpart, ‘‘health care

professional’’ means a physician or any

of the following: a podiatrist,

optometrist, chiropractor, psychologist,

dentist, physician assistant, physical or

occupational therapist, therapist

assistant, speech-language pathologist,

audiologist, registered or practical nurse

(including nurse practitioner, clinical

nurse specialist, certified registered

nurse anesthetist, and certified nurse

midwife), licensed certified social

worker, registered respiratory therapist,

and certified respiratory therapy

technician.

(b) General rules. (1) An MCO or PHP

may not prohibit, or otherwise restrict a

health care professional acting within

the lawful scope of practice, from

advising or advocating on behalf of an

enrollee who is his or her patient, with

respect to the following:

(i) The enrollee’s health status,

medical care, or treatment options,

including any alternative treatment that

may be self-administered.

(ii) Any information the enrollee

needs in order to decide among all

relevant treatment options.

6412 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

(iii) The risks, benefits, and

consequences of treatment or nontreatment.

(iv) The enrollee’s right to participate

in decisions regarding his or her health

care, including the right to refuse

treatment, and to express preferences

about future treatment decisions.

(2) MCOs and PHPs must take steps

to ensure that health care

professionals—

(i) Furnish information about

treatment options (including the option

of no treatment) in a culturally

competent manner; and

(ii) Ensure that enrollees with

disabilities have effective

communication with all health system

participants in making decisions with

respect to treatment options.

(3) Subject to the information

requirements of paragraph (c) of this

section, an MCO or PHP that would

otherwise be required to provide,

reimburse for, or provide coverage of, a

counseling or referral service because of

the requirement in paragraph (b)(1) of

this section is not required to do so if

the MCO or PHP objects to the service

on moral or religious grounds.

(c) Information requirements: MCO

and PHP responsibility. (1) An MCO or

PHP that elects the option provided in

paragraph (b) (3) of this section must

furnish information about the services it

does not cover as follows:

(i) To the State—

(A) With its application for a

Medicaid contract; and

(B) Whenever it adopts the policy

during the term of the contract.

(ii) Consistent with the provisions of

§ 438.10—

(A) To potential enrollees, before and

during enrollment; and

(B) To enrollees, within 90 days after

adopting the policy with respect to any

particular service. (Although this

timeframe would be sufficient to entitle

the MCO or PHP to the option provided

in paragraph (b)(3) of this section, the

overriding rule in § 438.10(e)(1)(ii)

requires the MCO or the PHP to furnish

the information at least 30 days before

the effective date of the policy.)

(2) As specified in § 438.10(d) and (e),

the information that MCOs and PHPs

must furnish to enrollees and potential

enrollees does not include how and

where to obtain the service excluded

under paragraph (b)(3) of this section,

but only how and where to obtain

information about the service.

(d) Information requirements: State

responsibility. For each service

excluded by an MCO or PHP under

paragraph (b)(2) of this section, the State

must furnish information on how and

where to obtain the service, as specified

in §§ 438.10(e)(2)(xii) and 438.206(c).

(e) Sanction. An MCO or PHP that

violates the prohibition of paragraph

(b)(1) of this section is subject to

intermediate sanctions under subpart I

of this part.

§ 438.104 Marketing activities.

(a) Terminology. As used in this

section, the following terms have the

indicated meanings:

Cold-call marketing means any

unsolicited personal contact by the

MCO, PHP, or PCCM with a potential

enrollee for the purpose of marketing as

defined in this paragraph.

Marketing means any communication,

from an MCO, PHP, or PCCM to an

enrollee or potential enrollee, that can

reasonably be interpreted as intended to

influence the recipient to enroll or

reenroll in that particular MCO’s, PHP’s,

or PCCM’s Medicaid product, or either

to not enroll in, or to disenroll from,

another MCO’s, PHP’s, or PCCM’s

Medicaid product.

Marketing materials means materials

that—

(1) Are produced in any medium, by

or on behalf of an MCO, PHP, or PCCM;

and

(2) Can reasonably be interpreted as

intended to market to enrollees or

potential enrollees.

MCO, PHP, PCCM, and entity include

any of the entity’s employees, affiliated

providers, agents, or contractors.

(b) Contract requirements. Each

contract with an MCO, PHP, or PCCM

must comply with the following

requirements:

(1) Provide that the entity—

(i) Does not distribute any marketing

materials without first obtaining State

approval;

(ii) Distributes the materials to its

entire service area as indicated in the

contract;

(iii) Complies with the information

requirements of § 438.10 to ensure that,

before enrolling, the recipient receives,

from the entity or the State, the accurate

oral and written information he or she

needs to make an informed decision on

whether to enroll;

(iv) Does not seek to influence

enrollment in conjunction with the sale

or offering of any other insurance; and

(v) Does not, directly or indirectly,

engage in door-to-door, telephone, or

other cold-call marketing activities.

(2) Specify the methods by which the

entity assures the State agency that

marketing, including plans and

materials, is accurate and does not

mislead, confuse, or defraud the

recipients or the State agency.

Statements that would be considered

inaccurate, false, or misleading include,

but are not limited to, any assertion or

statement (whether written or oral)

that—

(i) The recipient must enroll in the

MCO, PHP, or PCCM in order to obtain

benefits or in order to not lose benefits;

or

(ii) The MCO, PHP, or PCCM is

endorsed by HCFA, the Federal or State

government, or similar entity.

(c) State agency review. In reviewing

the marketing materials submitted by

the entity, the State must consult with

the Medical Care Advisory Committee

established under § 431.12 of this

chapter or an advisory committee with

similar membership.

§ 438.106 Liability for payment.

Each MCO and PHP must provide that

its Medicaid enrollees are not held

liable for any of the following:

(a) The MCO’s or PHP’s debts, in the

event of the entity’s insolvency.

(b) Covered services provided to the

enrollee, for which—

(1) The State does not pay the MCO

or the PHP; or

(2) The State, or the MCO or PHP does

not pay the individual or health care

provider that furnishes the services

under a contractual, referral, or other

arrangement.

(c) Payments for covered services

furnished under a contract, referral, or

other arrangement, to the extent that

those payments are in excess of the

amount that the enrollee would owe if

the MCO or PHP provided the services

directly.

§ 438.108 Cost sharing.

The contract must provide that any

cost sharing imposed on Medicaid

enrollees is in accordance with

§§ 447.50 through 447.60 of this

chapter.

§ 438.114 Emergency and poststabilization services.

(a) Definitions. As used in this

section—

Emergency medical condition has the

meaning given the term in § 422.113(b)

of this chapter.

Emergency services has the meaning

given the term in § 422.113(b) of this

chapter.

Post-stabilization care services has the

meaning given the term in § 422.113(c)

of this chapter.

(b) Information requirements. To

enrollees and potential enrollees upon

request, and to enrollees during

enrollment and at least annually

thereafter, each State (or at State option,

each MCO, PHP, and PCCM) must

provide, in clear, accurate, and

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6413

standardized form, information that

describes or explains at least the

following:

(1) What constitutes emergency

medical condition, emergency services,

and post-stabilization services, with

reference to the definitions in paragraph

(a) of this section.

(2) The fact that prior authorization is

not required for emergency services.

(3) The process and procedures for

obtaining emergency services, including

use of the 911 telephone system or its

local equivalent.

(4) The locations of any emergency

settings and other locations at which

MCO, PHP, and PCCM providers and

hospitals furnish emergency services

and post-stabilization services covered

under the contract.

(5) The fact that, subject to the

provisions of this section, the enrollee

has a right to use any hospital or other

setting for emergency care.

(6) The post-stabilization care services

rules set forth at § 422.113(c) of this

chapter.

(c) Coverage and payment: General

rule. The following entities are

responsible for coverage and payment of

emergency services and poststabilization care services.

(1) The MCO or PHP.

(2) The PCCM that has a risk contract

that covers such services.

(3) The State, in the case of a PCCM

that has a fee-for-service contract.

(d) Coverage and payment: Emergency

services. (1) The entities identified in

paragraph (c) of this section—

(i) Must cover and pay for emergency

services regardless of whether the entity

that furnishes the services has a contract

with the MCO, PHP, or PCCM; and

(ii) May not deny payment for

treatment obtained under either of the

following circumstances:

(A) An enrollee had an emergency

medical condition, including cases in

which the absence of immediate

medical attention would not have had

the outcomes specified in paragraphs

(b)(1)(A), (B), and (C) of the definition

of emergency medical condition in

§ 422.113 of this chapter.

(B) A representative of the MCO, PHP,

or PCCM instructs the enrollee to seek

emergency services.

(2) A PCCM must—

(i) Allow enrollees to obtain

emergency services outside the primary

care case management system regardless

of whether the case manager referred the

enrollee to the provider that furnishes

the services; and

(ii) Pay for the services if the

manager’s contract is a risk contract that

covers those services.

(e) Additional rules for emergency

services. (1) The entities specified in

paragraph (c) of this section—

(i) May not limit what constitutes an

emergency medical condition with

reference to paragraph (a) of this

section, on the basis of lists of diagnoses

or symptoms; and

(ii) May not refuse to process any

claim because it does not contain the

primary care provider’s authorization

number.

(2) An enrollee who has an emergency

medical condition may not be held

liable for payment of subsequent

screening and treatment needed to

diagnose the specific condition or

stabilize the patient.

(3) The attending emergency

physician, or the provider actually

treating the enrollee, is responsible for

determining when the enrollee is

sufficiently stabilized for transfer or

discharge, and that determination is

binding on the entities identified in

paragraph (c) of this section as

responsible for coverage and payment.

(f) Coverage and payment: Poststabilization services. Post-stabilization

care services are covered and paid for in

accordance with provisions set forth at

§ 422.113(c) of this chapter. In applying

those provisions, reference to ‘‘M+C

organization’’ must be read as reference

to the entities responsible for Medicaid

payment, as specified in paragraph (c) of

this section.

§ 438.116 Solvency standards.

(a) Requirement for assurances. (1)

Each MCO and PHP that is not a

Federally qualified HMO (as defined in

section 1310 of the Public Health

Service Act) must provide assurances

satisfactory to the State showing that its

provision against the risk of insolvency

is adequate to ensure that its Medicaid

enrollees will not be liable for the

MCO’s or PHP’s debts if the entity

becomes insolvent.

(2) Federally qualified HMOs, as

defined in section 1310 of the Public

Health Service Act, are exempt from this

requirement.

(b) Other requirements.—(1) General

rule. Except as provided in paragraph

(b)(2) of this section, a MCO and a PHP

must meet the solvency standards

established by the State for private

health maintenance organizations, or be

licensed or certified by the State as a

risk-bearing entity.

(2) Exception. Paragraph (b)(1) of this

section does not apply to an MCO or

PHP that meets any of the following

conditions:

(i) Does not provide both inpatient

hospital services and physician services.

(ii) Is a public entity.

(iii) Is (or is controlled by) one or

more Federally qualified health centers

and meets the solvency standards

established by the State for those

centers.

(iv) Has its solvency guaranteed by

the State.

Subpart D—Quality Assessment and

Performance Improvement

§ 438.200 Scope.

This subpart implements section

1932(c)(1) of the Act and sets forth

specifications for quality assessment

and performance improvement

strategies that States must implement to

ensure the delivery of quality health

care by all MCOs and PHPs. It also

establishes standards that States, MCOs

and PHPs must meet.

§ 438.202 State responsibilities.

Each State contracting with an MCO

or PHP must—

(a) Have a strategy for assessing and

improving the quality of managed care

services offered by all MCOs and PHPs:

(b) Document the strategy in writing.

(c) Provide for the input of recipients

and other stake-holders in the

development of the strategy, including

making the strategy available for public

comment before adopting it in final;

(d) Ensure compliance with standards

established by the State, consistent with

this subpart; and

(e) Conduct periodic reviews to

evaluate the effectiveness of the

strategy, and update the strategy as often

as the State considers appropriate, but at

least every 3 years.

(f) Submit to HCFA the following:

(1) A copy of the initial strategy, and

a copy of the revised strategy, whenever

significant changes are made.

(2) Regular reports on the

implementation and effectiveness of the

strategy, consistent with paragraph (e),

at least every 3 years.

§ 438.204 Elements of State quality

strategies.

At a minimum, State strategies must

include the following—

(a) MCO and PHP contract provisions

that incorporate the standards specified

in this subpart.

(b) Procedures for assessing the

quality and appropriateness of care and

services furnished to all Medicaid

enrollees under the MCO and PHP

contracts. These include, but are not

limited to—

(1) Procedures that—

(i) Identify enrollees with special

health-care needs; and

(ii) Assess the quality and

appropriateness of care furnished to

6414 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

enrollees with special health-care needs;

and

(iii) Identify the race, ethnicity, and

primary language spoken of each

Medicaid enrollee. States must provide

this information to the MCO and PHP

for each Medicaid enrollee at the time

of enrollment.

(2) Continuous monitoring and

evaluation of MCO and PHP compliance

with the standards.

(c) Performance measures and levels

prescribed by HCFA consistent with

section 1932(c)(1) of the Act.

(d) Arranging for annual, external

independent reviews of the quality

outcomes and timeliness of, and access

to the services covered under each MCO

and PHP contract.

(e) Appropriate use of intermediate

sanctions that, at a minimum, meet the

requirements of Subpart I of this part.

(f) An information system that

supports initial and ongoing operation

and review of the State’s quality

strategy.

(g) Standards, at least as stringent as

those in the following sections of this

subpart, for access to care, structure and

operations, and quality measurement

and improvement.

Access Standards

§ 438.206 Availability of services.

(a) Basic rule. Each State must ensure

that all covered services are available

and accessible to enrollees.

(b) Choice of entities. If a State limits

freedom of choice, it must comply with

the requirements of § 438.52, which

specifies the choices that the State must

make available.

(c) Services not covered by an MCO,

PHP, or PCCM contract. If an MCO,

PHP, or PCCM contract does not cover

all of the services under the State plan,

the State must make those services

available from other sources and

provide to enrollees information on

where and how to obtain them,

including how transportation is

provided.

(d) Delivery network. The State must

ensure that each MCO, and each PHP

consistent with the scope of PHP’s

contracted services, meets the following

requirements:

(1) Maintains and monitors a network

of appropriate providers that is

supported by written agreements and is

sufficient to provide adequate access to

all services covered under the contract.

In establishing and maintaining the

network, each MCO and PHP must

consider the following:

(i) The anticipated Medicaid

enrollment, with particular attention to

pregnant women, children, and persons

with special health-care needs.

(ii) The expected utilization of

services, considering Medicaid enrollee

characteristics and health care needs.

(iii) The numbers and types (in terms

of training, experience, and

specialization) of providers required to

furnish the contracted Medicaid

services.

(iv) The numbers of network

providers who are not accepting new

Medicaid patients.

(v) The geographic location of

providers and Medicaid enrollees,

considering distance, travel time, the

means of transportation ordinarily used

by Medicaid enrollees, and whether the

location provides physical access for

Medicaid enrollees with disabilities.

(2) Provides female enrollees with

direct access to a women’s health

specialist within the network for

covered care necessary to provide

women’s routine and preventive health

care services. This is in addition to the

enrollee’s designated source of primary

care if that source is not a women’s

health specialist.

(3) Provides for a second opinion from

a qualified health care professional

within the network, or arranges for the

enrollee to obtain one outside the

network, at no cost to the enrollee, if an

additional qualified professional is not

currently available within the network.

(4) When seeking an expansion of its

service area, demonstrates that it has

sufficient numbers and types (in terms

of training, experience, and

specialization) of providers to meet the

anticipated additional volume and types

of services the added Medicaid enrollee

population may require.

(5) If the network is unable to provide

necessary medical services, covered

under the contract, to a particular

enrollee, the MCO or PHP must

adequately and timely cover these

services out of network for the enrollee,

for as long as the MCO or PHP is unable

to provide them.

(6) Demonstrates that its providers are

credentialed as required by § 438.214.

(7) Ensures that its providers do not

discriminate against Medicaid enrollees.

(8) Requires out-of-network providers

to coordinate with the MCO or PHP

with respect to payment and ensures

that cost to the enrollee is no greater

than it would be if the services were

furnished within the network.

(e) Furnishing of services. The State

must ensure that each MCO and PHP

complies with the requirements of this

paragraph.

(1) Timely access. Each MCO and

each PHP must —

(i) Meet and require its providers to

meet State standards for timely access to

care and services, taking into account

the urgency of need for services;

(ii) Ensure that its network’s provider

hours of operation are convenient for

the enrollees, as determined by a Stateestablished methodology, and at least

comparable to Medicaid fee-for-service.

(iii) Make services available 24 hours

a day, 7 days a week, when medically

necessary.

(iv) Establish mechanisms to ensure

compliance;

(v) Monitor continuously to determine

compliance; and

(vi) Take corrective action if there is

a failure to comply.

(2) Cultural considerations. Each

MCO and each PHP ensures that

services are provided in a culturally

competent manner to all enrollees,

including those with limited English

proficiency and diverse cultural and

ethnic backgrounds.

§ 438.207 Assurances of adequate

capacity and services.

(a) Basic rule. Each MCO and each

PHP must give assurances to the State

that it has the capacity to serve the

expected enrollment in its service area

in accordance with the State’s standards

for access to care under this subpart.

(b) Nature of assurances. Each MCO

and each PHP must submit

documentation to the State, in a format

specified by the State and acceptable to

HCFA, to demonstrate that it complies

with the following requirements:

(1) Offers an appropriate range of

services, including preventive services,

primary care services and specialty

services that is adequate for the

anticipated number of enrollees for the

service area.

(2) Maintains a network of providers

that is sufficient in number, mix, and

geographic distribution to meet the

needs of the anticipated number of

enrollees in the service area.

(3) Meets the availability of services

requirements in § 438.206.

(4) Has in place policies and practices

to deal with situations in which there

is—

(i) Unanticipated need for providers

with particular types of experience; or

(ii) Unanticipated limitation of the

availability of such providers.

(c) Timing of documentation. Each

MCO and each PHP must submit the

documentation described in paragraph

(b) of this section at least once a year,

and specifically—

(1) At the time it enters into a contract

with the State; and

(2) At any time there has been a

significant change (as defined by the

State) in the MCO’s or PHP’s operations

that would affect adequate capacity and

services, including—

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6415

(i) A significant change in the MCO’s

or PHP’s services or benefits;

(ii) An expansion or reduction of the

MCO’s or PHP’s geographic service area;

(iii) The enrollment of a new

population in the MCO or PHP; and

(iv) A significant change in the MCO

or PHP rates.

(d) State review and submission to

HCFA. After the State reviews the

documentation submitted by the MCO

or PHP, the State must certify to HCFA

that the MCO or PHP has complied with

the State’s requirements for availability

of services, as set forth in § 438.206.

(e) HCFA’s right to inspect

documentation. The State must make

available to HCFA, upon request, all

documentation collected by the State

from the MCO or PHP.

§ 438.208 Coordination and continuity of

care.

(a) Basic requirement.—(1) General

rule. Except as specified in paragraphs

(a)(2) and (a)(3) of this section, the State

must ensure that MCOs and PHPs

comply with the requirements of this

section.

(2) PHP exception. For PHPs, the State

determines, based on the scope of the

entity’s services, and on the way the

State has organized the delivery of

managed care services, whether a

particular PHP is required—

(i) To perform the initial and ongoing

screenings and assessments specified in

paragraphs (d) and (e) of this section;

and

(ii) To meet the primary care

requirement of paragraph (h)(1) of this

section.

(3) Exception for MCOs that serve

dually eligible enrollees. (i) For an MCO

that serves enrollees who are also

enrolled in a Medicare+Choice plan and

also receive Medicare benefits, the State

determines to what extent that MCO

must meet the initial screening,

assessment, and treatment planning

provisions of paragraphs (d), (e), and (f)

of this section.

(ii) The State bases its determination

on the services it requires the MCO to

furnish to dually eligible enrollees.

(b) State responsibility to identify

enrollees with special health care needs.

The State must implement mechanisms

to identify to the MCO and PHP, upon

enrollment, the following groups:

(1) Enrollees at risk of having special

health care needs, including—

(i) Children and adults who are

receiving SSI benefits;

(ii) Children in Title IV–E foster care;

(iii) Enrollees over the age of 65; and

(iv) Enrollees in relevant, Stateestablished, risk-adjusted, higher-cost

payment categories.

(v) Any other category of recipients

identified by HCFA.

(2) Children under the age of 2.

(3) Other enrollees known by the State

to be pregnant or to have special health

care needs.

(c) Requirements for MCOs and PHPs.

The State must ensure—

(1) That each MCO, and each PHP for

which the State determines it is

appropriate in accordance with

paragraphs (a)(2) and (a)(3) of this

section, meets the requirements of

paragraphs (d), (e), and (h)(1) of this

section; and

(2) That each MCO and each PHP

meets the requirements of paragraphs

(f), (g), and (h)(2) through (h)(6) of this

section.

(d) Initial screening and assessment.

Each MCO and each PHP must make a

best effort attempt to meet the following

standards:

(1) For enrollees identified under

paragraph (b)(1) of this section,

(i) Performs enrollee screening within

30 days of receiving the identification;

and

(ii) For any enrollee the screening

identifies as being pregnant or having

special health care needs, performs a

comprehensive health assessment as

expeditiously as the enrollee’s health

requires, but no later than 30 days from

the date of identification.

(2) For enrollees identified under

paragraphs (b)(2) and (b)(3) of this

section, or who identify themselves as

being pregnant or having special health

care needs, performs a comprehensive

health assessment as expeditiously as

the enrollee’s health requires, but no

later than 30 days from the date of

identification.

(3) For all other enrollees—

(i) Performs screening within 90 days

from the date of enrollment; and

(ii) For any enrollee the screening

identifies as being pregnant or having

special health care needs, performs the

comprehensive health assessment as

expeditiously as the enrollee’s health

requires but no later than 30 days from

the date of identification.

(e) On-going screening and

assessment. Each MCO and each PHP

must implement mechanisms to—

(1) Identify enrollees who develop

special health care needs after they

enroll in the MCO or PHP; and

(2) Perform comprehensive health

assessments as expeditiously as the

enrollee’s health requires, but no later

than 30 days from the date of

identification.

(f) Treatment plans. For pregnant

women and for enrollees determined to

have special health care needs, each

MCO and each PHP implements a

treatment plan that—

(1) Is appropriate to the conditions

and needs identified and assessed under

paragraphs (d) and (e) of this section;

(2) Is for a specific period of time and

is updated periodically;

(3) Specifies a standing referral or an

adequate number of direct access visits

to specialists;

(4) Ensures adequate coordination of

care among providers;

(5) Is developed with enrollee

participation; and

(6) Ensures periodic reassessment of

each enrollee as his or her health

condition requires.

(g) Use of health care professionals.

Each MCO and each PHP uses

appropriate health care professionals

to—

(1) Perform any comprehensive health

assessments required by this section;

and

(2) Develop, implement, and update

any treatment plans required by this

section.

(h) Primary care and coordination

program. Each MCO and each PHP must

implement a coordination program that

meets State requirements and achieves

the following:

(1) Ensures that each enrollee has an

ongoing source of primary care

appropriate to his or her needs and a

person or entity formally designated as

primarily responsible for coordinating

the health care services furnished to the

enrollee.

(2) Coordinates the services the MCO

or PHP furnishes to the enrollee with

the services the enrollee receives from

any other MCOs and PHPs;

(3) Shares with other MCOs and PHPs

serving the enrollee the results of its

screenings and assessments of the

enrollee so that those activities need not

be duplicated.

(4) Ensures that in the process of

coordinating care, each enrollee’s

privacy is protected consistent with the

confidentiality requirements in

§ 438.224.

(5) Ensures that each provider

maintains health records that meet

professional standards and that there is

appropriate and confidential sharing of

information among providers.

(6) Has in effect procedures to address

factors (such as a lack of transportation)

that may hinder enrollee adherence to

prescribed treatments or regimens.

(7) Ensures that its providers have the

information necessary for effective and

continuous patient care and quality

improvement, consistent with the

confidentiality and accuracy

requirements of § 438.224 and the

information system requirements of

§ 438.242.

6416 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

§ 438.210 Coverage and authorization of

services.

(a) Coverage. Each contract with an

MCO, PHP, or PCCM must identify,

define, and specify each service that the

MCO, PHP, or PCCM is required to offer,

and each contract with an MCO or PHP

must meet the following requirements:

(1) Require that the MCO or PHP

make available the services it is required

to offer at least in the amount, duration,

and scope that—

(i) Are specified in the State plan; and

(ii) Are sufficient to reasonably be

expected to achieve the purpose for

which the services are furnished.

(2) Provide that the MCO or PHP—

(i) May not arbitrarily deny or reduce

the amount, duration, or scope of a

required service solely because of the

diagnosis, type of illness, or condition;

and

(ii) May place appropriate limits on a

service—

(A) On the basis of criteria such as

medical necessity; or

(B) For the purpose of utilization

control, provided the services furnished

can reasonably be expected to achieve

their purpose, as required in paragraph

(a)(1)(ii) of this section.

(3) Specify what constitutes

‘‘medically necessary services’’ in a

manner that—

(i) Is no more restrictive than the State

Medicaid program as indicated in State

statutes and regulations, the State Plan,

and other State policy and procedures;

and

(ii) Addresses the extent to which the

MCO or PHP is responsible for covering

services related to the following:

(A) The prevention, diagnosis, and

treatment of health impairments.

(B) The ability to achieve ageappropriate growth and development.

(C) The ability to attain, maintain, or

regain functional capacity.

(4) Provide that the MCO or PHP

furnishes the services in accordance

with the specifications of paragraph

(a)(3) of this section.

(b) Processing of requests. With

respect to the processing of requests for

initial and continuing authorizations of

services, each contract must require—

(1) That the MCO or PHP and its

subcontractors have in place, and

follow, written policies and procedures

that reflect current standards of medical

practice;

(2) That the MCO or PHP—

(i) Not have information requirements

that are unnecessary, or unduly

burdensome for the provider or the

enrollee;

(ii) Have in effect mechanisms to

ensure consistent application of review

criteria for authorization decisions; and

(iii) Consult with the requesting

provider when appropriate.

(3) That any decision to deny a

service authorization request or to

authorize a service in an amount,

duration, or scope that is less than

requested, be made by a health care

professional who has appropriate

clinical expertise in treating the

enrollees’s condition or disease.

(c) Notice of adverse action. Each

contract must provide for the MCO or

PHP to notify the requesting provider,

and give the enrollee written notice of

any decision by the MCO or PHP to

deny a service authorization request, or

to authorize a service in an amount,

duration, or scope that is less than

requested. The notice must meet the

requirements of § 438.404, except that

the notice to the provider need not be

in writing.

(d) Timeframe for standard

authorization decisions. Each contract

must provide for the MCO or PHP to

make a standard authorization decision

and provide notice—

(1) As expeditiously as the enrollee’s

health condition requires and within

State-established timeframes that may

not exceed 14 calendar days following

receipt of the request for service, with

a possible extension of up to 14

additional calendar days, if—

(i) The enrollee, or the provider,

requests extension; or

(ii) The MCO or the PHP justifies (to

the State agency upon request) a need

for additional information and how the

extension is in the enrollee’s interest.

(e) Timeframe for expedited

authorization decisions. (1) For cases in

which a provider indicates, or the MCO

or PHP determines, that following the

standard timeframe could seriously

jeopardize the enrollee’s life or health or

ability to attain, maintain, or regain

maximum function, each contract must

provide for the MCO or PHP to make an

expedited authorization decision and

provide notice as expeditiously as the

enrollee’s health condition requires and

no later than 72 hours after receipt of

the request for service.

(2) The MCO or PHP may extend the

72-hour time period by up to 14

calendar days if the enrollee requests

extension.

(f) Compensation for utilization

management activities. Each contract

must provide that, consistent with

§ 438.6(g), and § 422.208 of this chapter,

compensation to individuals or entities

that conduct utilization management

activities is not structured so as to

provide incentives for the individual or

entity to deny, limit, or discontinue

medically necessary services to any

enrollee.

Structure and Operation Standards

§ 438.214 Provider selection.

(a) General rules. The State must

ensure that each contracted MCO and

PHP implements written policies and

procedures for selection and retention of

providers and that those policies and

procedures include, at a minimum, the

requirements of this section.

(b) Credentialing and recredentialing

requirements. Each MCO and each PHP

must follow a documented credentialing

process for providers who have signed

contracts or participation agreements

with the MCO or the PHP.

(1) Physicians and other licensed

independent providers. The process for

physicians, including members of

physician groups, and other licensed

independent providers, includes—

(i) Initial credentialing when a

physician or other provider enters the

MCO or PHP network or a physician

enters a physician group; and

(ii) Recredentialing within timeframes

set by the State, which may be no less

than the State requires for private

MCOs.

(2) Other providers. The process for

other providers must include an initial

determination, and redetermination at

specified intervals. The redetermination

cycles must be the same as Federal or

State credentialing cycles. The purpose

is to ensure that, at a minimum, the

provider—

(i) Is licensed (if required by the

State); and

(ii) Has met any other applicable

Federal or State requirements.

(3) Exception. The requirements of

paragraphs (b)(1) and (b)(2) of this

section do not apply to either of the

following:

(i) Providers who are permitted to

furnish services only under the direct

supervision of a physician or other

provider.

(ii) Hospital-based providers (such as

emergency room physicians,

anesthesiologists, or certified nurse

anesthetists) who provide services only

incident to hospital services. This

exception does not apply if the provider

contracts independently with the MCO

or PHP or is promoted by the MCO or

PHP as part of the provider network.

(4) Initial credentialing. Initial

credentialing—

(i) Requires a written, dated and

signed application that is updated in

writing at recredentialing;

(ii) Requires that applications,

updates, and supporting information

submitted by the applicant include an

attestation of the correctness and

completeness of the information; and

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6417

(iii) Is based on primary source

verification of licensure, disciplinary

status, and a site visit as appropriate.

(5) Recredentialing. Recredentialing

includes updating of information

obtained during initial credentialing

and an assessment of provider

performance indicators obtained

through the following:

(i) Quality Assessment and

Performance Improvement Programs.

(ii) The utilization management

system.

(iii) The grievance system.

(iv) Enrollee satisfaction surveys.

(v) Other MCO or PHP activities

specified by the State.

(c) Nondiscrimination. MCO and PHP

provider selection policies and

procedures, consistent with § 438.12, do

not discriminate against particular

providers that serve high risk

populations or specialize in conditions

that require costly treatment.

(d) Excluded providers. MCOs or

PHPs may not employ or contract with

providers excluded from participation

in Federal health care programs under

either section 1128 or section 1128A of

the Act.

(e) State requirements. Each MCO and

PHP must comply with any additional

requirements established by the State.

§ 438.218 Enrollee information.

The requirements that States must

meet under § 438.10 constitute part of

the State’s quality strategy at § 438.204.

§ 438.224 Confidentiality and accuracy of

enrollee records.

The State must ensure that (consistent

with subpart F of part 431 of this

chapter), for medical records and any

other health and enrollment information

that identifies a particular enrollee, each

MCO and PHP establishes and

implements procedures to do the

following:

(a) Maintain the records and

information in a timely and accurate

manner.

(b) Abide by all Federal and State

laws regarding confidentiality and

disclosure.

(c) Specify—

(1) For what purposes the MCO or

PHP uses the information; and

(2) To which entities outside the MCO

or PHP, and for what purposes, it

discloses the information.

(d) Except as provided in applicable

Federal and State law, ensure that each

enrollee may request and receive a copy

of records and information pertaining to

him or her and request that they be

amended or corrected.

(e) Ensure that each enrollee may

request and receive information on how

the MCO or PHP uses and discloses

information that identifies the enrollee.

§ 438.226 Enrollment and disenrollment.

The State must ensure that each MCO

and PHP complies with the enrollment

and disenrollment requirements and

limitations set forth in § 438.56.

§ 438.228 Grievance systems.

(a) The State must ensure that each

MCO and PHP has in effect a grievance

system that meets the requirements of

subpart F of this part.

(b) If the State delegates to the MCO

or PHP responsibility for notice of

action under subpart E of part 431 of

this chapter, the State must conduct

random reviews of each delegated MCO

or PHP and its providers and

subcontractors to ensure that they are

notifying enrollees in a timely manner.

(c) The State must establish a process

to review, upon request by the enrollee,

any quality of care grievance that the

MCO or the PHP does not resolve to the

enrollee’s satisfaction.

§ 438.230 Subcontractual relationships

and delegation.

(a) General rule. The State must

ensure that each MCO and PHP—

(1) Oversees and is accountable for

any functions and responsibilities that it

delegates to any subcontractor; and

(2) Meets the conditions of paragraph

(b) of this section.

(b) Specific conditions. (1) Before any

delegation, each MCO and PHP

evaluates the prospective

subcontractor’s ability to perform the

activities to be delegated.

(2) There is a written agreement that—

(i) Specifies the activities and report

responsibilities delegated to the

subcontractor; and

(ii) Provides for revoking delegation

or imposing other sanctions if the

subcontractor’s performance is

inadequate.

(3) The MCO or PHP monitors the

subcontractor’s performance on an

ongoing basis and subjects it to formal

review according to a periodic schedule

established by the State, consistent with

industry standards or State MCO laws

and regulations.

(4) If any MCO or PHP identifies

deficiencies or areas for improvement,

the MCO and the subcontractor take

corrective action.

(5) Consistent with §§ 438.604 and

438.606, each MCO and PHP requires

from subcontractors certifications with

respect to—

(i) Submissions that may be related to

State payments; and

(ii) The performance of their duties

under the contract.

Measurement and Improvement

Standards

§ 438.236 Practice guidelines.

(a) Basic rule. The State must ensure

that each MCO and PHP meets the

requirements of this section.

(b) Adoption of practice guidelines.

Each MCO and PHP adopts practice

guidelines (for example, The Guidelines

for the Use of Antiretroviral Agents in

HIV–Infected Adults and Adolescents

and the Guidelines for the Use of

Antiretroviral Agents in Pediatric HIV

Infection) that meet the following

requirements:

(1) Are based on valid and reliable

clinical evidence or a consensus of

health care professionals in the

particular field;

(2) Consider the needs of the MCO’s

or PHP’s enrollees;

(3) Are adopted in consultation with

contracting health care professionals;

and

(4) Are reviewed and updated

periodically as appropriate.

(c) Dissemination of guidelines. Each

MCO and PHP disseminates the

guidelines to all affected providers and,

upon request, to enrollees and potential

enrollees.

(d) Application of guidelines.

Decisions with respect to utilization

management, enrollee education,

coverage of services, and other areas to

which the guidelines apply are

consistent with the guidelines.

§ 438.240 Quality assessment and

performance improvement program.

(a) General rules. (1) The State must

require, through its contracts, that each

MCO and PHP have an ongoing quality

assessment and performance

improvement program for the services it

furnishes to its enrollees.

(2) Paragraphs (b) through (d) of this

section set forth the basic elements,

minimum performance levels, and

performance improvement projects

required for MCOs and PHPs.

(3) HCFA may specify standardized

quality measures, and topics for

performance improvement projects to be

required by States in their contracts

with MCOs and PHPs.

(b) Basic elements of MCO and PHP

quality assessment and performance

improvement programs. At a minimum,

the State must require that each MCO

and PHP comply with the following

requirements:

(1) Achieve required minimum

performance levels on standardized

quality measures, in accordance with

paragraph (c) of this section;

(2) Conduct performance

improvement projects as described in

6418 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

paragraph (d) of this section. These

projects must achieve, through ongoing

measurements and intervention,

demonstrable and sustained

improvement in significant aspects of

clinical care and non-clinical care areas

that can be expected to have a favorable

effect on health outcomes and enrollee

satisfaction; and

(3) Have in effect mechanisms to

detect both underutilization and

overutilization of services.

(4) Have in effect mechanisms to

assess the quality and appropriateness

of care furnished to enrollees with

special health care needs.

(c) Minimum performance levels. (1)

Each MCO and PHP must meet the

following requirements:

(i) Annually measure its performance,

using standard measures required by the

State, consistent with the requirements

of § 438.204(c), and report its

performance to the State.

(ii) Achieve all minimum

performance levels that the State

establishes with respect to the standard

measures.

(2) The State—

(i) May specify the standard measures

in uniform data collection and reporting

instruments; and

(ii) Must, in establishing minimum

performance levels for the MCOs and

PHPs—

(A) Include any minimum

performance measures and levels

specified by HCFA;

(B) Consider data and trends for both

the MCOs and PHPs and fee-for-service

Medicaid in that State; and

(C) Establish the minimum

performance levels prospectively, each

time a contract is initiated or renewed.

(d) Performance improvement

projects. (1) Performance improvement

projects are MCO and PHP initiatives

that focus on clinical and non-clinical

areas, and that involve the following:

(i) Measurement of performance using

objective quality indicators.

(ii) Implementation of system

interventions to achieve improvement

in quality.

(iii) Evaluation of the effectiveness of

the interventions.

(iv) Planning and initiation of

activities for increasing or sustaining

improvement.

(2) Each project must represent the

entire Medicaid enrollee population to

which the measurement specified in

paragraph (d)(1)(i) of this section is

relevant.

(3) The State must ensure that each

MCO and PHP initiates each year one or

more projects among the required

clinical and non-clinical areas specified

in paragraphs (d)(4) and (d)(5) of this

section. To ensure that the projects are

representative of the entire spectrum of

clinical and non-clinical areas

associated with MCOs and PHPs, the

State must specify the appropriate

distribution of projects.

(4) Clinical areas include—

(i) Prevention and care of acute and

chronic conditions;

(ii) High-volume services;

(iii) High-risk services; and

(iv) Continuity and coordination of

care.

(5) Non-clinical areas include—

(i) Grievances and appeals;

(ii) Access to, and availability of,

services; and

(iii) Cultural competence.

(6) In addition to requiring each MCO

and PHP to initiate its own performance

improvement projects, the State may

require that an MCO or PHP—

(i) Conduct particular performance

improvement projects on a topic

specified by the State; and

(ii) Participate annually in at least one

Statewide performance improvement

project.

(7) For each project, each MCO and

PHP must assess its performance using

quality indicators that are—

(i) Objective, clearly and

unambiguously defined, and based on

current clinical knowledge or health

services research; and

(ii) Capable of measuring outcomes

such as changes in health status,

functional status, and enrollee

satisfaction, or valid proxies of these

outcomes.

(8) Performance assessment on the

selected indicators must be based on

systematic ongoing collection and

analysis of valid and reliable data.

(9) Each MCO’s and PHP’s

interventions must achieve

improvement that is significant and

sustained over time.

(10) Each MCO and PHP must report

the status and results of each project to

the State as requested.

(e) Program review by the State. (1)

The State must review, at least annually,

the impact and effectiveness of each

MCO’s and PHP’s quality assessment

and performance improvement program.

The review must include—

(i) The Each MCO’s and PHP’s

performance on the standard measures

on which it is required to report; and

(ii) The results of the each MCO’s and

PHP’s performance improvement

projects.

(2) The State may require that an

MCO or PHP have in effect a process for

its own evaluation of the impact and

effectiveness of its quality assessment

and performance improvement program.

§ 438.242 Health information systems.

(a) General rule. The State must

ensure that each MCO and PHP

maintains a health information system

that collects, analyzes, integrates, and

reports data and can achieve the

objectives of this subpart. The system

should provide information on areas

including, but not limited to, utilization,

grievances, and disenrollments for other

than loss of Medicaid eligibility.

(b) Basic elements of a health

information system. The State must

require, at a minimum, that each MCO

and PHP comply with the following:

(1) Collect data on enrollee and

provider characteristics as specified by

the State, and on services furnished to

enrollees through an encounter data

system or such other methods as may be

specified by the State.

(2) Ensure that data received from

providers is accurate and complete by—

(i) Verifying the accuracy and

timeliness of reported data;

(ii) Screening the data for

completeness, logic, and consistency;

and

(iii) Collecting service information in

standardized formats to the extent

feasible and appropriate.

(3) Make all collected data available to

the State and upon request to HCFA, as

required in this subpart.

Subpart E [Reserved]

Subpart F—Grievance System

§ 438.400 Statutory basis and definitions.

(a) Statutory basis. This subpart is

based on sections 1902(a)(3), 1902(a)(4),

and 1932(b)(4)of the Act.

(1) Section 1902(a)(3) requires that a

State plan provide an opportunity for a

fair hearing to any person whose claim

for assistance is denied or not acted

upon promptly.

(2) Section 1902(a)(4) requires that the

State plan provide for methods of

administration that the Secretary finds

necessary for the proper and efficient

operation of the plan.

(3) Section 1932(b)(4) requires

Medicaid managed care organizations to

establish internal grievance procedures

under which Medicaid enrollees, or

providers acting on their behalf, may

challenge the denial of coverage of, or

payment for, medical assistance.

(b) Definitions. As used in this

subpart, the following terms have the

indicated meanings:

Action means—

(1) In the case of an MCO or PHP or

any of its providers—

(i) The denial or limited authorization

of a requested service, including the

type or level of service;

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6419

(ii) The reduction, suspension, or

termination of a previously authorized

service;

(iii) The denial, in whole or in part,

of payment for a service;

(iv) For a resident of a rural area with

only one MCO or PHP, the denial of a

Medicaid enrollee’s request to exercise

his or her right to obtain services

outside the network; or

(v) The failure to furnish or arrange

for a service or provide payment for a

service in a timely manner.

(vi) The failure, of an MCO or PHP,

to resolve an appeal within the

timeframes provided in § 408(i)(2).

(2) In the case of a State agency, the

denial of a Medicaid enrollee’s request

for disenrollment. An appeal of this

type is to the State Fair Hearing Office.

Appeal means a request for review of

an action, as ‘‘action’’ is defined in this

section.

Governing body means the MCO’s or

PHP’s Board of Directors, or a

designated committee of its senior

management.

Grievance means an expression of

dissatisfaction about any matter other

than an action, as ‘‘action’’ is defined in

this section. The term is also used to

refer to the overall system that includes

grievances and appeals handled at the

MCO or PHP level and access to the

State Fair Hearing process. (Possible

subjects for grievances include, but are

not limited to, the quality of care or

services provided, and aspects of

interpersonal relationships such as

rudeness of a provider or employee, or

failure to respect the enrollee’s rights.)

Quality of care grievance means a

grievance filed because the enrollee

believes that any aspect of the care or

treatment that he or she received failed

to meet accepted standards of health

care and caused or could have caused

harm to the enrollee.

§ 438.402 General requirements.

(a) The grievance system. Each MCO

and PHP must have a system that

includes a grievance process, an appeal

process, and access to the State’s fair

hearing system.

(b) General requirements for the

grievance system. The MCO or PHP

must—

(1) Base its grievance and appeal

processes on written policies and

procedures that, at a minimum, meet the

conditions set forth in this subpart;

(2) Obtain the State’s written approval

of the policies and procedures before

implementing them;

(3) Provide for its governing body to

approve and be responsible for the

effective operation of the system;

(4) Provide for its governing body to

review and dispose of grievances and

resolve appeals, or make written

delegation of this responsibility to a

grievance committee;

(5) Ensure that punitive action is

neither threatened nor taken against a

provider who requests an expedited

resolution, or supports an enrollee’s

grievance or appeal;

(6) Accept grievances and appeals,

and requests for expedited disposition

or resolution or extension of timeframes

from the enrollee, from his or her

representative, or from the provider

acting on the enrollee’s behalf and with

the enrollee’s written consent.

(7) Provide to the enrollee and to his

or her representative the notices and

information required under this subpart;

and

(8) At the enrollee’s request, refer for

State review any quality of care

grievance resolution with which the

enrollee is dissatisfied.

(9) Require providers to give notice in

accordance with § 438.404(d).

(c) Filing requirements.—(1) Authority

to file. (i) An enrollee may file a

grievance and an MCO or PHP level

appeal, and may request a State fair

hearing.

(ii) A provider, acting on behalf of the

enrollee and with the enrollee’s written

consent, may file an appeal. A provider

may not file a grievance or request a

State fair hearing.

(2) Timing. (i) For an action as defined

in § 438.400 (b)(1)(v), the enrollee or the

provider may file an appeal whenever

the entity has delayed access to the

service to the point where there is a

substantial risk that further delay will

adversely affect the enrollee’s health

condition.

(ii) For all other actions, the State

specifies a reasonable timeframe that

may be no less than 20 days and not to

exceed 90 days from the date on the

MCO’s or PHP’s notice of action.

Within that timeframe—

(A) The enrollee or the provider may

file an appeal; and

(B) In a State that does not require

exhaustion of MCO and PHP level

appeals, the enrollee may request a State

fair hearing.

(3) Procedures. (i) The enrollee may

file a grievance either orally or in

writing and, as determined by the State,

either with the State or with the MCO

or the PHP.

(ii) The enrollee or the provider may

file an appeal either orally or in writing,

and unless he or she requests expedited

resolution, must follow an oral filing

with a written, signed, appeal.

§ 438.404 Notice of action.

(a) Language and format

requirements. The notice must be in

writing and must meet the language and

format requirements of § 438.10(b) and

(c) of this chapter to ensure ease of

understanding.

(b) Content of notice. The notice must

explain the following:

(1) The action the MCO or PHP or its

contractor has taken or intends to take.

(2) The reasons for the action.

(3) Any laws and rules that require or

permit the action.

(4) The enrollee’s or the provider’s

right to file an MCO or PHP appeal.

(5) The enrollee’s right to request a

State fair hearing.

(6) The enrollee’s right to present

evidence in person if he or she chooses.

(7) The procedures for exercising the

rights specified in this paragraph.

(8) The circumstances under which

expedited resolution is available and

how to request it.

(9) The enrollees right to have benefits

continue pending resolution of the

appeal or issuance of a fair hearing

decision, if the enrollee or the provider

timely files the appeal or the enrollee

timely requests a State fair hearing.

(10) The circumstances under which

the enrollee may be required to pay the

costs of any services furnished while the

appeal is pending if the final outcome

is an adverse decision.

(11) How the enrollee may request

continuation of benefits.

(12) How to contact the MCO or PHP

to receive assistance in filing an appeal

or requesting a State fair hearing.

(13) How to obtain copies of enrollee

records, including records other than

medical records.

(14) That the enrollee has the right to

represent himself or herself, to use legal

counsel, or to use a relative, or friend or

other individual as spokesperson.

(15) That filing an appeal or

requesting a State fair hearing will not

negatively affect or impact the way the

MCO and the PHP and their providers,

or the State agency, treat the enrollee.

(c) Timing of notice. Except as

provided in paragraph (d) of this

section, the MCO or PHP must mail the

notice within the following timeframes:

(1) For termination, suspension, or

reduction of previously authorized

Medicaid-covered services, within the

timeframes specified in §§ 431.211,

431.213, and 431.214 of this chapter.

(2) For denial of payment, at the time

of any action affecting the claim.

(3) For standard service authorization

decisions that deny or limit services,

within the timeframe specified in

§ 438.210(d)

(4) If the MCO or PHP extends the

timeframe in accordance with

§ 438.210(d), it must—

(i) Give the enrollee written notice of

the reason for the decision to extend the

6420 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

timeframe and inform the enrollee of the

right to file a grievance if he or she

disagrees with that decision; and

(ii) Issue and carry out its

determination as expeditiously as the

enrollee’s health condition requires and

no later than the date the extension

expires.

(5) For service authorization decisions

not reached within the timeframes

specified in § 438.210(d) (which

constitutes a denial and is thus an

adverse action), on the date that the

timeframes expire.

(6) For expedited service

authorization decisions, within the

timeframes specified in § 438.210(e).

(d) Special rule for subcontractors

and providers who are not employees.

(1) An MCO or PHP may permit its

subcontractors and providers who are

not employees to give enrollees notice

that includes only the information

specified in paragraphs (b)(4) through

(b)(15) of this section.

(2) If the MCO or PHP elects the

option provided in paragraph (d)(1) of

this section, and receives an appeal on

any action by the subcontractor or

provider who is not an employee, the

MCO or PHP must, in acknowledging

the appeal, include the information

required under paragraphs (b)(1)

through (b)(3) of this section.

§ 438.406 Handling of grievances and

appeals.

(a) General requirements. In handling

grievances and appeals, each MCO and

each PHP must meet the following

requirements:

(1) Have an adequately staffed office

that is designated as the central point

for enrollee issues, including grievances

and appeals.

(2) Establish an appeals process that

meets the requirements of paragraph (b)

of this section.

(3) Give enrollees any reasonable

assistance in completing forms and

taking other procedural steps. This

includes providing interpreter services

and toll-free numbers that have

adequate TTY/TTD and interpreter

capability.

(4) Ensure that the enrollee’s

communication is correctly classified as

a ‘‘grievance’’ or an ‘‘appeal’.

(5) Acknowledge receipt of each

grievance and appeal.

(6) Ensure that each grievance and

appeal—

(i) Is transmitted timely to staff who

have authority to act upon it; and

(ii) Is investigated and disposed of or

resolved in accordance with § 438.408.

(7) Ensure that the individuals who

make decisions on grievances and

appeals are individuals—

(i) Who were not involved in any

previous level of review or decisionmaking; and

(ii) Who, if deciding any of the

following, are health care professionals

who have the appropriate clinical

expertise in treating the enrollee’s

condition or disease.

(A) An appeal of a denial that is based

on lack of medical necessity.

(B) A grievance regarding denial of

expedited resolution of an appeal.

(C) A grievance or appeal that

involves clinical issues.

(b) Special requirements for appeals.

The process for appeals must consist of

clearly explained steps that meet the

following requirements:

(1) Include, for each step, timeframes

that take account of the enrollee’s health

condition and provide for expedited

resolution in accordance with § 438.410.

(2) Provide that oral inquiries about

the opportunity to appeal are treated as

appeals (to establish the earliest

possible filing date for the appeal) and

must be confirmed in writing, unless the

enrollee or the provider requests

expedited resolution.

(3) Ensure that the acknowledgment

of an oral appeal specifies that, although

the time allowed for the MCO or PHP

to resolve the appeal has begun, unless

the request is for expedited resolution,

the MCO or PHP cannot complete the

resolution until the enrollee or the

provider submits the appeal in writing.

(4) Provide the enrollee a reasonable

opportunity to present evidence, and

allegations of fact or law, in person as

well as in writing. (The MCO or PHP

must inform the enrollee of the limited

time available for this in the case of

expedited resolution.)

(5) Provide the enrollee and his or her

representative opportunity, before and

during the appeals process, to examine

the enrollee’s case file, including

medical records, and any other

documents and records considered

during the appeals process.

(6) Include, as parties to the appeal—

(i) The enrollee and his or her

representative; or

(ii) The legal representative of a

deceased enrollee’s estate.

§ 438.408 Resolution and notification:

Grievances and appeals.

(a) Basic rule. The MCO or PHP must

dispose of each grievance and resolve

each appeal, and provide notice, as

expeditiously as the enrollee’s health

condition requires, within Stateestablished timeframes that may not

exceed the timeframes specified in this

section.

(b) Basis for decision. The MCO or

PHP must base the decision on the

record of the case, including all relevant

Federal and State statutes, program

regulations and policies, and any

evidence presented under

§ 438.406(b)(4), in connection with the

filing of the appeal.

(c) Specific timeframes.—(1) Standard

disposition of grievances. For standard

disposition of a grievance and notice to

the affected parties, the timeframe is

established by the State but may not

exceed 90 days from the day the MCO

or PHP receives the grievance.

(2) Expedited disposition of

grievances. For a grievance on a denial

of a request to expedite resolution of an

appeal, the timeframe is 72 hours after

receipt of the grievance.

(3) Standard resolution of appeals.

For standard resolution of an appeal and

notice to the affected parties, the

timeframe is 30 days after the MCO or

the PHP receives the appeal. This

timeframe may be extended under

paragraph (d) of this section.

(4) Expedited resolution of appeals.

For expedited resolution of an appeal,

the timeframe for resolution and notice

to the enrollee is 72 hours after the MCO

or PHP receives the appeal. This

timeframe may be extended under

paragraph (d) of this section.

(d) Extension of timeframes.—(1)

Limits on extension. (i) For a grievance

on denial of a request to expedite

resolution of an appeal, the timeframe

may not be extended.

(ii) For expedited resolution of an

appeal, the MCO or PHP may extend the

72-hour timeframe by up to 14 calendar

days only if the enrollee requests

extension.

(iii) For standard resolution of an

appeal or for a quality of care grievance,

the MCO or PHP may extend the 30-day

timeframe for up to 14 calendar days

if—

(A) The enrollee requests extension;

or

(B) The MCO or PHP shows (to the

satisfaction of the State agency, upon its

request) that there is need for additional

information and how the delay is in the

enrollee’s interest.

(2) Requirements following extension.

If the MCO or PHP extends the

timeframes, it must—

(i) For any extension not requested by

the enrollee, give the enrollee written

notice of the reason for the delay and of

the enrollee’s right to file a grievance if

he or she disagrees with the decision to

extend the timeframe; and

(ii) For any extension, dispose of the

grievance or resolve the appeal no later

than the date on which the extension

expires.

(e) Format of notice—(1) Grievances.

(i) For all written grievances and all

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6421

grievances that relate to quality of care,

the MCO or PHP must provide a written

notice of disposition.

(ii) For an oral grievance that does not

relate to quality of care, the MCO may

provide oral notice unless the enrollee

requests that it be written.

(2) Appeals. (i) For all appeals, the

MCO or PHP must provide written

notice of disposition.

(ii) For notice of expedited resolution,

the MCO or PHP must also provide oral

notice.

(f) Content of notice of MCO or PHP

grievance disposition. The written

notice must explain the following:

(i) The disposition of the grievance.

(ii) The fact that, if dissatisfied with

the disposition of a quality of care

grievance, the enrollee has the right to

seek further State review, and how to

request it.

(g) Content of notice of appeal

resolution. The written notice of the

resolution must include the following:

(1) The title of the MCO or PHP

contact for the appeal.

(2) The results of the resolution

process and the date it was completed.

(3) A summary of the steps the MCO

or the PHP has taken on the enrollee’s

behalf in resolving the issue.

(4) For appeals not resolved wholly in

favor of the enrollees—

(i) The right to request a State Fair

Hearing, and how to do so;

(ii) The right to request to receive

benefits while the hearing is pending,

and how to make the request; and

(iii) That the enrollee may be held

liable for the cost of those benefits if the

hearing decision upholds the MCO’s or

PHP’s action.

(h) Collaboration on State review of

grievances. The MCO or PHP must work

with the State to dispose of the

grievance if the State considers that the

MCO or PHP response was insufficient.

(i) Referral of adverse or delayed

appeal decisions to the State Fair

Hearing Office—(1) Basis for

submission. The MCO or PHP must

submit to the State Fair Hearing Office

the file and all supporting

documentation—

(i) For any appeal that was subject to

expedited resolution and for which the

MCO or PHP—

(A) Reaches a decision that is wholly

or partially adverse to the enrollee; or

(B) Fails to reach a decision within

the timeframes specified in paragraph

(i)(2) of this section.

(ii) For any appeal that was not

expedited, at the request of the State.

(2) Timeframes for decision—(i)

Standard resolution. For a standard

resolution, the basic timeframe is 30

days from receipt of the appeal, and

may be extended for an additional 14

calendar days if the enrollee requests

extension or the MCO or PHP justifies

(to the State agency upon request) a

need for additional information and

how the extension is in the enrollee’s

interest.

(ii) Expedited resolution. For an

expedited resolution, the basic

timeframe is 72 hours from receipt of

the appeal and may be extended for up

to 14 calendar days, but only if the

enrollee requests extension.

(3) Timeframes for submission. The

timeframes for submission to the State

Fair Hearing Office are as follows:

(i) For a standard resolution: 72 hours

after the MCO or PHP receives the

State’s request.

(ii) For an expedited resolution: 24

hours after the MCO or PHP reaches an

adverse decision, or the basic or

extended timeframe for decision

expires.

(j) Requirements for State fair

hearings—(1) Availability. The State

must permit the enrollee to request a

State fair hearing within a reasonable

time period specified by the State, but

not less than 20 or in excess of 90 days

if—

(i) The State requires exhaustion of

the MCO or PHP level appeal

procedures, from the date of the MCO’s

or PHP’s notice of resolution; and

(ii) The State does not require

exhaustion of the MCO or PHP level

appeal procedures and the enrollee

appeals directly to the State for a fair

hearing, from the date on the MCO’s or

PHP’s notice of action.

(2) Parties. The parties to the State fair

hearing include the MCO or PHP as well

as the enrollee and his or her

representative or the representative of a

deceased enrollee’s estate.

(3) Timeframes for decision. The State

agency must take final administrative

action as follows:

(i) Other than as specified in

paragraph (j)(3)(ii) of this section,

within a period of time not to exceed 90

days minus the number of days taken by

the MCO or PHP to resolve the internal

appeal. This timeframe begins on the

date the State receives the beneficiaries’

request for a State Fair Hearing.

(ii) For service authorization appeals

that meet the criteria for expedited

resolution as set forth in § 438.410, as

expeditiously as the enrollee’s health

condition requires, but no later than 72

hours after receipt of a fair hearing

request from the enrollee, or the file

from the MCO or PHP.

§ 438.410 Expedited resolution of

grievances and appeals.

(a) General rule. Each MCO and PHP

must establish and maintain an

expedited review process for grievances

and appeals.

(b) Requirements for grievances. (1)

The MCO or PHP must expedite

disposition of grievances that pertain to

denial of a request for expedited

resolution of an appeal.

(2) The MCO or PHP may expedite

disposition of other grievances,

consistent with State guidelines.

(c) Requirements for appeals. Each

MCO and PHP must meet the following

requirements with respect to appeals:

(1) Establish a convenient and

efficient means for an enrollee or a

provider to request expedited resolution

of an appeal;

(2) Provide expedited resolution of an

appeal in response to an oral or written

request if the MCO or PHP determines

(with respect to a request from the

enrollee) or the provider indicates (in

making the request on the enrollee’s

behalf or supporting the enrollee’s

request) that taking the time for a

standard resolution could seriously

jeopardize the enrollee’s life or health or

ability to attain, maintain, or regain

maximum function.

(3) Document all oral requests in

writing; and

(4) Maintain the documentation in the

case file.

(d) Action following denial of a

request for expedited resolution. If the

MCO or PHP denies a request for

expedited resolution of an appeal, it

must—

(1) Transfer the appeal to the

timeframe for standard resolution,

beginning the 30-day period as of the

day it received the request for expedited

resolution;

(2) Give the enrollee prompt oral

notice of the denial, and follow up

within two calendar days with a written

notice that includes the following:

(i) Informs the enrollee of the right

to—

(A) File a grievance if he or she is

dissatisfied with the MCO’s or PHP’s

decision not to expedite resolution of

the appeal; or

(B) Resubmit the request with a

provider’s letter of support.

(ii) Explains that—

(A) If the enrollee files a grievance,

the MCO or PHP will process the appeal

using the 30-day timeframe for standard

resolution; and

(B) If the enrollee resubmits the

request with a provider’s letter of

support, the MCO or PHP will expedite

resolution of the appeal.

(iii) Provides instructions about

grievance procedures, including

timeframes.

6422 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

§ 438.414 Information about the grievance

system.

(a) To whom information must be

furnished. (1) Each MCO and PHP must

provide the information specified in

paragraph (b) of this section to enrollees

and to all providers and subcontractors

at the time they enter into a contract.

(2) Each MCO or PHP or, at State

option, the State or its contracted

representative must provide the

information specified in paragraph (b) to

all potential enrollees.

(b) Required information. The

information that is provided under

paragraph (a) of this section must

explain the grievance system through a

State-developed or State-approved

description, in the format required

under § 438.10(c), and must include the

following:

(1) With respect to State fair hearing—

(i) The right to hearing;

(ii) The method for obtaining a

hearing; and

(iii) The rules that govern

representation at the hearing.

(2) The right to file grievances and

appeals.

(3) The requirements and timeframes

for filing a grievance or appeal.

(4) The availability of assistance in

the filing process.

(5) The right to represent himself or

herself or to be represented by legal

counsel or a relative or friend or other

spokesperson.

(6) The toll-free numbers that the

enrollee can use to file a grievance or an

appeal by phone.

(7) The fact that filing a grievance or

appeal or requesting a State fair hearing

will not adversely affect or impact the

way the MCO or the PHP and their

providers or the State agency treat the

enrollee.

(8) The fact that, when requested by

the enrollee

(i) Benefits will continue if the

enrollee files an appeal or a request for

State fair hearing within the timeframes

specified for filing; and

(ii) The enrollee may be required to

pay the cost of services furnished while

the appeal is pending, if the final

decision is adverse to the enrollee.

(c) Language, format, and timing

requirements. The information

furnished under this section must meet

the language and format requirements of

§ 438.10(b) and (c), and must be

furnished to enrollees and potential

enrollees at the times specified in

§ 438.10(e) through (h).

(d) Aggregate information. Upon

request, the MCO or PHP must provide

to enrollees, potential enrollees, and the

general public, aggregate information

based on the information required under

§ 438.416(d).

§ 438.416 Record keeping and reporting

requirements.

Each MCO and PHP must comply

with the following requirements, and in

so doing must also comply with the

confidentiality requirements of

§ 438.224.

(a) Log. Maintain a log of all

grievances and appeals, showing the

date of acknowledgment, the MCO’s or

PHP’s decision, and the date of

disposition or resolution.

(b) Tracking. Track each grievance

and appeal until its final disposition or

resolution, and classify them in terms of

whether the disposition or resolution

was standard or expedited.

(c) Retention of records. (1) Retain the

record of each grievance and appeal,

and its disposition or resolution in a

central location, and accessible to the

State, for at least 3 years.

(2) If any litigation, claim negotiation,

audit, or other activity involving these

records is initiated before the end of the

3-year period, retain the record until the

later of the following:

(i) The date the activity is completed

and any issues arising from it are

resolved.

(ii) The end of the 3-year period.

(d) Reporting. As often as the State

requests, but at least once a year, each

MCO and PHP must analyze the records

maintained under this paragraph and

submit to the State a summary that

includes the following information:

(1) The number and nature of all

grievances and appeals.

(2) The timeframes within which they

were acknowledged and disposed of or

resolved.

(3) The nature of the decisions.

§ 438.420 Continuation of benefits while

the MCO or PHP appeal and the State Fair

Hearing are pending.

(a) Terminology. As used in this

section, ‘‘timely’’ filing means filing on

or before the later of the following:

(1) The expiration of the timeframe

specified by the State (in accordance

with § 438.404(c)(3)) and communicated

in the notice of action.

(2) The intended effective date of the

MCO’s or PHP’s proposed action.

(b) Continuation of benefits. The MCO

or PHP must continue the enrollee’s

benefits if—

(1) The enrollee or the provider files

the appeal timely;

(2) The appeal involves the

termination, suspension, or reduction of

a previously authorized course of

treatment;

(3) The services were ordered by an

authorized provider;

(4) The period covered by the

authorization has not expired; and

(5) The enrollee requests extension of

benefits.

(c) Reinstatement of benefits. The

MCO or PHP must reinstate the

enrollee’s benefits under any of the

circumstances specified in § 431.231 of

this chapter.

(d) Duration of continued or

reinstated benefits. If the MCO or PHP

continues or reinstates the enrollee’s

benefits while the appeal is pending, the

following rules apply:

(1) The MCO or PHP must continue

the benefits until one of the following

occurs:

(i) The enrollee withdraws the appeal.

(ii) The MCO or PHP resolves the

appeal in the enrollee’s favor.

(iii) The State Fair Hearing Office

issues a hearing decision on a request

received directly from the enrollee or

referred by the MCO or PHP.

(2) If the MCO or PHP appeals the

decision or the State fair hearing

decision is favorable to the enrollee, the

MCO or PHP must restore regular

benefits.

(e) Enrollee responsibility for services

furnished while the appeal is pending.

If the final resolution of the appeal is

adverse to the enrollee, that is, upholds

the MCO’s or PHP’s action, the MCO or

PHP may recover the cost of the services

furnished to the enrollee while the

appeal is pending, to the extent that

they were furnished solely because of

the requirements of this section, and in

accordance with the policy set forth in

§ 431.230(b) of this chapter.

§ 438.424 Effectuation of reversed appeal

resolutions.

(a) Services not furnished while the

appeal is pending. If the MCO or PHP,

or the State fair hearing officer reverses

a decision to deny, limit, or delay

services that were not furnished while

the appeal was pending, the MCO or

PHP must authorize or provide the

disputed services promptly, and as

expeditiously as the enrollee’s health

condition requires.

(b) Services furnished while the

appeal is pending. If the MCO or PHP,

or the State fair hearing officer reverses

a decision to deny authorization of

services, and the enrollee received the

disputed services while the appeal was

pending, the MCO or the PHP or the

State must pay for those services, in

accordance with State policy and

regulations.

§ 438.426 Monitoring of the grievance

system.

(a) Basis for monitoring. The records

that the MCOs and PHPs are required to

maintain and summarize under

§ 438.416 provide the basis for

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6423

monitoring by the MCO or PHP, and by

the State.

(b) Responsibility for corrective

action. If the summaries required under

paragraph (d) of § 438.416 reveal a need

for changing the system, the MCO or the

PHP must conduct an in-depth review,

and take corrective action.

Subpart G—[Reserved]

Subpart H—Certifications and Program

Integrity Provisions

§ 438.600 Statutory basis.

This subpart is based on sections

1902(a)(4) and 1902(a)(19) of the Act.

(a) Section 1902(a)(4) requires that the

State plan provide for methods of

administration that the Secretary finds

necessary for the proper and efficient

operation of the plan.

(b) Section 1902(a)(19) requires that

the State plan provide the safeguards

necessary to ensure that eligibility is

determined and services are provided in

a manner consistent with simplicity of

administration and the best interests of

the recipients.

§ 438.602 Basic rule.

As a condition for contracting and for

receiving payment under the Medicaid

managed care program, an MCO or PHP

and its subcontractors must comply

with the certification and program

integrity requirements of this section.

§ 438.604 Data that must be certified.

(a) Data certifications. When State

payments to the MCO or PHP are based

on data submitted by the MCO or PHP,

the State must require certification of

the data as provided in § 438.606. The

data that must be certified includes, but

is not limited to, enrollment

information, encounter data, and other

information required by the State and

contained in contracts, proposals, and

related documents.

(b) Certification of substantial

compliance with contract. Regardless of

whether payment is based on data, each

MCO and PHP must certify that it is in

substantial compliance with its contract.

(c) Additional certifications.

Certification is required, as provided in

§ 438.606, for all documents specified

by the State.

§ 438.606 Source, content, and timing of

certification.

(a) Source of certification. With

respect to the data specified in

§ 438.604, the MCO or PHP must

require—

(1) That subcontractors certify the

data they submit to the MCO or PHP;

and

(2) That one of the following certify

the data the MCO or PHP submits to the

State:

(i) The MCO’s or PHP’s Chief

Executive Officer.

(ii) The MCO’s or PHP’s Chief

Financial Officer.

(iii) An individual who has delegated

authority to sign for, and who reports

directly to, the MCO’s or PHP’s Chief

Executive Officer or Chief Financial

Officer.

(b) Content of certification. The

certification must attest, based on best

knowledge, information, and belief, as

follows:

(1) To the accuracy, completeness and

truthfulness of data.

(2) That the MCO or PHP is in

substantial compliance with its contract.

(3) To the accuracy, completeness and

truthfulness of documents specified by

the State.

(c) Timing of certification. The MCO

or PHP must submit the certification

concurrently with the certified data or,

in the case of compliance with the terms

of the contract, when requesting

payment.

§ 438.608 Program integrity requirements.

(a) General requirement. The MCO or

PHP must have administrative and

management arrangements or

procedures, including a mandatory

compliance plan, that are designed to

guard against fraud and abuse.

(b) Specific requirements. The

arrangements or procedures must

include the following:

(1) Written policies, procedures, and

standards of conduct that articulate the

organization’s commitment to comply

with all applicable Federal and State

standards.

(2) The designation of a compliance

officer and a compliance committee that

are accountable to senior management.

(3) Effective training and education

for the compliance officer and the

organization’s employees.

(4) Effective lines of communication

between the compliance officer and the

organization’s employees.

(5) Enforcement of standards through

well-publicized disciplinary guidelines.

(6) Provision of internal monitoring

and auditing.

(7) Provision for prompt response to

detected offenses, and for development

of corrective action initiatives relating to

the MCO’s or PHP’s contract.

Subpart I—Sanctions

§ 438.700 Basis for imposition of

sanctions.

(a) Each State that contracts with an

MCO must, and each State that contracts

with a PCCM may, establish

intermediate sanctions, as specified in

§ 438.702, that it may impose if it makes

any of the determinations specified in

paragraphs (b) through (d) of this

section. The State’s determination may

be based on findings from onsite survey,

enrollee or other complaints, financial

status, or any other source.

(b) An MCO acts or fails to act as

follows:

(1) Fails substantially to provide

medically necessary services that the

MCO is required to provide, under law

or under its contract with the State, to

an enrollee covered under the contract.

(2) Imposes on enrollees premiums or

charges that are in excess of the

premiums or charges permitted under

the Medicaid program.

(3) Acts to discriminate among

enrollees on the basis of their health

status or need for health care services.

This includes termination of enrollment

or refusal to reenroll a recipient, except

as permitted under the Medicaid

program, or any practice that would

reasonably be expected to discourage

enrollment by recipients whose medical

condition or history indicates probable

need for substantial future medical

services.

(4) Misrepresents or falsifies

information that it furnishes to HCFA or

to the State.

(5) Misrepresents or falsifies

information that it furnishes to an

enrollee, potential enrollee, or health

care provider.

(6) Fails to comply with the

requirements for physician incentive

plans, as set forth (for Medicare) in

§§ 422.208 and 422.210 of this chapter.

(c) An MCO or a PCCM distributes

directly, or indirectly through any agent

or independent contractor, marketing

materials that have not been approved

by the State or that contain false or

materially misleading information.

(d) An MCO violates any of the

requirements in section 1903(m) of the

Act and implementing regulations, or an

MCO or a PCCM violates any of the

requirements of section 1932 of the Act

and implementing regulations. (For

these violations, only the sanctions

specified in § 438.702(a)(4) and (a)(5)

may be imposed.)

§ 438.702 Types of intermediate sanctions.

(a) The types of intermediate

sanctions that a State may impose under

this subpart include the following:

(1) Civil money penalties in the

amounts specified in § 438.704.

(2) Appointment of temporary

management as provided in § 438.706.

(The State may not impose this sanction

on a PCCM.)

6424 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

(3) Granting enrollees the right to

terminate enrollment without cause.

(The State must notify the affected

enrollees of their right to disenroll.)

(4) Suspension of all new enrollment,

including default enrollment, after the

effective date of the sanction.

(5) Suspension of payment for

recipients enrolled after the effective

date of the sanction and until HCFA or

the State is satisfied that the reason for

imposition of the sanction no longer

exists and is not likely to recur.

(b) State agencies retain authority to

impose additional sanctions under State

statutes or State regulations that address

areas of noncompliance specified in

§ 438.700, as well as additional areas of

noncompliance. Nothing in this subpart

prevents State agencies from exercising

that authority.

§ 438.704 Amounts of civil money

penalties

(a) General rule. The limit on, or

specific amount of, a civil money

penalty the State may impose varies

depending on the nature of the MCO’s

or PCCM’s action or failure to act, as

provided in this section.

(b) Specific limits. (1) The limit is

$25,000 for each determination under

the following paragraphs of § 438.700:

(i) Paragraph (b)(1) (Failure to provide

services).

(ii) Paragraph (b)(5)

(Misrepresentation or false statements to

enrollees, potential enrollees, or health

care providers).

(iii) Paragraph (b)(6) (failure to

comply with physician incentive plan

requirements).

(iv) Paragraph (c) (Marketing

violations).

(2) The limit is $100,000 for each

determination under paragraph (b)(3)

(discrimination) or (b)(4)

(Misrepresentation or false statements to

HCFA or the State) of § 438.700.

(3) The limit is $15,000 for each

recipient the State determines was not

enrolled because of a discriminatory

practice under paragraph (b)(3) of

§ 438.700. (This is subject to the overall

limit of $100,000 under paragraph (b)(2)

of this section).

(c) Specific amount. For premiums or

charges in excess of the amounts

permitted under the Medicaid program,

the amount of the penalty is $25,000 or

double the amount of the excess

charges, whichever is greater. The State

must deduct from the penalty the

amount of overcharge and return it to

the affected enrollees.

§ 438.706 Special rules for temporary

management.

(a) Optional imposition of sanction.

The State may impose temporary

management if it finds (through onsite

survey, enrollee complaints, financial

audits, or any other means) that —

(1) There is continued egregious

behavior by the MCO, including but not

limited to behavior that is described in

§ 438.700, or that is contrary to any

requirements of sections 1903(m) and

1932 of the Act;

(2) There is substantial risk to

enrollees’ health; or

(3) The sanction is necessary to

ensure the health of the MCO’s

enrollees—

(i) While improvements are made to

remedy violations under § 438.700; or

(ii) Until there is an orderly

termination or reorganization of the

MCO.

(b) Required imposition of sanction.

(1) The State must impose temporary

management ( regardless of any other

sanction that may be imposed) if it finds

that an MCO has repeatedly failed to

meet substantive requirements in

section 1903(m) or 1932 of the Act, or

this subpart. The State must also grant

enrollees the right to terminate

enrollment without cause, as described

in § 438.702(a)(3).

(c) Hearing. The State may not delay

imposition of temporary management to

provide a hearing before imposing this

sanction.

(d) Duration of sanction. The State

may not terminate temporary

management until it determines that the

MCO can ensure that the sanctioned

behavior will not recur.

§ 438.708 Termination of an MCO or PCCM

contract.

A State has the authority to terminate

an MCO or PCCM contract and enroll

that entity’s enrollees in other MCOs or

PCCMs, or provide their Medicaid

benefits through other options included

in the State plan, if the State determines

that the MCO or PCCM—

(a) Has failed to carry out the

substantive terms of its contract; or

(b) Has failed to meet applicable

requirements in sections 1932, 1903(m),

and 1905(t) of the Act.

§ 438.710 Due process: Notice of sanction

and pre-termination hearing.

(a) Notice of sanction. Before

imposing any of the alternative

sanctions specified in this subpart, the

State must give the affected entity

timely written notice that explains—

(1) The basis and nature of the

sanction; and

(2) Any other due process protections

that the State elects to provide.

(b) Pre-termination hearing.—(1)

General rule. Before terminating an

MCO or PCCM contract under § 438.708,

the State must provide the entity a

pretermination hearing.

(2) Procedures. The State must—

(i) Give the MCO or PCCM written

notice of its intent to terminate, the

reason for termination, and the time and

place of the hearing;

(ii) After the hearing, give the entity

written notice of the decision affirming

or reversing the proposed termination of

the contract and, for an affirming

decision, the effective date of

termination; and

(iii) For an affirming decision, give

enrollees of the MCO or PCCM notice of

the termination and information,

consistent with § 438.10, on their

options for receiving Medicaid services

following the effective date of

termination.

§ 438.722 Disenrollment during

termination hearing process.

After a State notifies an MCO or

PCCM that it intends to terminate the

contract, the State may—

(a) Give the entity’s enrollees written

notice of the State’s intent to terminate

the contract; and

(b) Allow enrollees to disenroll

immediately without cause.

§ 438.724 Public notice of sanction.

(a) Content of notice. The State must

publish a notice that describes the

intermediate sanction imposed, explains

the reasons for the sanction and

specifies the amount of any civil money

penalty.

(b) Publication of notice. The State

must publish the notice—

(1) No later than 30 days after it

imposes the sanction; and

(2) As a public announcement in—

(i) The newspaper of widest

circulation in each city within the

MCO’s service area that has a

population of 50,000 or more; or

(ii) The newspaper of widest

circulation in the MCO’s service area, if

there is no city with a population of

50,000 or more in that area.

§ 438.726 State plan requirement.

The State plan must provide for the

State to monitor for violations that

involve the actions and failures to act

specified in this section and to

implement the provisions of this

section.

§ 438.730 Sanction by HCFA: Special rules

for MCOs with risk contracts.

(a) Basis for sanction. (1) A State

agency may recommend that HCFA

impose the denial of payment sanction

on an MCO with a comprehensive risk

contract if the MCO acts or fails to act

as specified in § 438.700(b)(1) through

(b)(6).

Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations 6425

(2) The State agency’s

recommendation becomes HCFA’s

recommendation unless HCFA rejects it

within 15 days of receipt.

(b) Notice of sanction. If HCFA

accepts the recommendation, the State

agency and HCFA take the following

actions:

(1) The State agency—

(i) Gives the MCO written notice of

the proposed sanction;

(ii) Allows the MCO 15 days from

date of receipt of the notice to provide

evidence that it has not acted or failed

to act in the manner that is the basis for

the recommended sanction;

(iii) May extend the initial 15-day

period for an additional 15 days if,

before the end of the initial period, the

MCO submits a written request that

includes a credible explanation of why

it needs additional time; and

(iv) May not grant an extension if

HCFA determines that the MCO’s

conduct poses a threat to an enrollee’s

health or safety.

(2) HCFA conveys the determination

to the OIG for consideration of possible

imposition of civil money penalties

under section 1903(m)(5)(A) of the Act

and part 1003 of this title. In accordance

with the provisions of part 1003, the

OIG may impose civil money penalties

in addition to, or in place of, the

sanctions that may be imposed under

this section.

(c) Informal reconsideration. (1) If the

MCO submits a timely response to the

notice of sanction, the State agency—

(i) Conducts an informal

reconsideration that includes review of

the evidence by a State agency official

who did not participate in the original

recommendation; and

(ii) Gives the MCO a concise written

decision setting forth the factual and

legal basis for the decision.

(2) The State agency decision under

paragraph (c)(1) of this section,

forwarded to HCFA, becomes HCFA’s

decision unless HCFA reverses or

modifies the decision within 15 days

from date of receipt.

(3) If HCFA reverses or modifies the

State agency decision, the agency sends

the MCO a copy of HCFA’s decision.

(d) Effective date of sanction. (1) If the

MCO does not seek reconsideration, a

sanction is effective 15 days after the

date of the notice of sanction under

paragraph (b) of this section.

(2) If the MCO seeks reconsideration,

the following rules apply:

(i) Except as specified in paragraph

(d)(2)(ii) of this section, the sanction is

effective on the date specified in

HCFA’s reconsideration notice.

(ii) If HCFA, in consultation with the

State agency, determines that the MCO’s

conduct poses a serious threat to an

enrollee’s health or safety, HCFA may

make the sanction effective earlier than

the date of HCFA’s reconsideration

decision under paragraph (c) of this

section.

(e) HCFA’s role. HCFA retains the

right to independently perform the

functions assigned to the State agency

under this section.

Subpart J—Conditions for Federal

Financial Participation

§ 438.802 Basic requirements.

FFP is available in expenditures for

payments under an MCO contract only

for the periods during which the

following conditions are met:

(a) The contract—

(1) Meets the requirements of this

part; and

(2) Is in effect.

(b) The MCO and its subcontractors

are in substantial compliance with the

physician incentive plan requirements

set forth in §§ 422.208 and 422.210 of

this chapter.

(c) The MCO and the State are in

substantial compliance with the

requirements of the MCO contract and

of this part.

§ 438.806 Prior approval.

(a) Comprehensive risk contracts. FFP

is available under a comprehensive risk

contract only if—

(1) The Regional Office has confirmed

that the contractor meets the definition

of MCO or is one of the entities

described in paragraphs (a)(2) through

(a)(5) of § 438.6; and

(2) The contract meets all the

requirements of section 1903(m)(2)(A) of

the Act, the applicable requirements of

section 1932 of the Act, and the

implementing regulations in this part.

(b) MCO contracts. Prior approval by

HCFA is a condition for FFP under any

MCO contract that extends for less than

one full year or that has a value equal

to, or greater than, the following

threshold amounts:

(1) For 1998, the threshold is

$1,000,000.

(2) For subsequent years, the amount

is increased by the percentage increase

in the consumer price index for all

urban consumers.

(c) FFP is not available in an MCO

contract that does not have prior

approval from HCFA under paragraph

(b) of this section.

§ 438.808 Exclusion of entities.

(a) General rule. FFP is available in

payments under MCO contracts only if

the State excludes from such contracts

any entities described in paragraph (b)

of this section.

(b) Entities that must be excluded. (1)

An entity that could be excluded under

section 1128(b)(8) of the Act as being

controlled by a sanctioned individual.

(2) An entity that has a substantial

contractual relationship as defined in

§ 431.55(h)(3), either directly or

indirectly, with an individual convicted

of certain crimes as described in section

1128(b)(8)(B) of the Act.

(3) An entity that employs or

contracts, directly or indirectly, for the

furnishing of health care, utilization

review, medical social work, or

administrative services, with one of the

following:

(i) Any individual or entity excluded

from participation in Federal health care

programs under either section 1128 or

section 1128A of the Act.

(ii) Any entity that would provide

those services through an excluded

individual or entity.

§ 438.810 Expenditures for enrollment

broker services.

(a) Terminology. As used in this

section—

Choice counseling means activities

such as answering questions and

providing information (in an unbiased

manner) on available MCO, PHP, or

PCCM delivery system options, and

advising on what factors to consider

when choosing among them and in

selecting a primary care provider;

Enrollment activities means activities

such as distributing, collecting, and

processing enrollment materials and

taking enrollments by phone or in

person; and

Enrollment broker means an

individual or entity that performs

choice counseling or enrollment

activities, or both.

Enrollment services means choice

counseling, or enrollment activities, or

both.

(b) Conditions that enrollment brokers

must meet. State expenditures for the

use of enrollment brokers are

considered necessary for the proper and

efficient operation of the State plan and

thus eligible for FFP only if the broker

and its subcontractors meet the

following conditions:

(1) Independence. The broker and its

subcontractors are independent of any

MCO, PHP, PCCM, or other health care

provider in the State in which they

provide enrollment services. A broker or

subcontractor is not considered

‘‘independent’’ if it—

(i) Is an MCO, PHP, PCCM or other

health care provider in the State

(ii) Is owned or controlled by an

MCO, PHP, PCCM, or other health care

provider in the State; or

6426 Federal Register / Vol. 66, No. 13 / Friday, January 19, 2001 / Rules and Regulations

(iii) Owns or controls an MCO, PHP,

PCCM or other health care provider in

the State.

(2) Freedom from conflict of interest.

The broker and its subcontractor are free

from conflict of interest. A broker or

subcontractor is not considered free

from conflict of interest if any person

who is the owner, employee, or

consultant of the broker or

subcontractor or has any contract with

them—

(i) Has any direct or indirect financial

interest in any entity or health care

provider that furnishes services in the

State in which the broker or

subcontractor provides enrollment

services;

(ii) Has been excluded from

participation under title XVIII or XIX of

the Act;

(iii) Has been debarred by any Federal

agency; or

(iv) Has been, or is now, subject to

civil money penalties under the Act.

(c) Prior approval. The initial contract

or memorandum of agreement (MOA)

for services performed by the broker has

been reviewed and approved by HCFA

before the effective date of the contract

or MOA.

§ 438.812 Costs under risk and nonrisk

contracts.

(a) Under a risk contract, the total

amount the State agency pays for

carrying out the contract provisions is a

medical assistance cost.

(b) Under a nonrisk contract—

(1) The amount the State agency pays

for the furnishing of medical services to

eligible recipients is a medical

assistance cost; and

(2) The amount the State agency pays

for the contractor’s performance of other

functions is an administrative cost.

§ 438.814 Limit on payments in excess of

capitation rates.

FFP is not available for payments

pursuant to risk corridors or incentive

arrangements that exceed 105 percent of

that portion of the aggregate amount

approved capitation payments

attributable to the enrollees or services

covered by the risk corridor or incentive

management.

PART 440—SERVICES: GENERAL

PROVISIONS

1. The statutory citation for part 440

continues to read as follows:

Authority: Sec. 1102 of the Social Security

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

2. In subpart A, a new § 440.168 is

added, to read as follows:

§ 440.168 Primary care case management

services.

(a) Primary care case management

services means case management related

services that—

(1) Include location, coordination,

and monitoring of primary health care

services; and

(2) Are provided under a contract

between the State and either of the

following:

(i) A PCCM who is a physician or

may, at State option, be a physician

assistant, nurse practitioner, or certified

nurse-midwife.

(ii) A physician group practice, or an

entity that employs or arranges with

physicians to furnish the services.

(b) Primary care case management

services may be offered by the State—

(1) As a voluntary option under the

regular State plan program; or

(2) On a mandatory basis under

section 1932 (a)(1) of the Act or under

section 1915(b) or section 1115 waiver

authority.

PART 447—PAYMENTS FOR

SERVICES

1. The authority citation for part 447

continues to read as follows:

Authority: Sec. 1102 of the Social Security

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

2. A new § 447.46 is added, to read as

follows:

§ 447.46 Timely claims payment by MCOs.

(a) Basis and scope. This section

implements section 1932(f) of the Act by

specifying the rules and exceptions for

prompt payment of claims by MCOs.

(b) Definitions. ‘‘Claim’’ and ‘‘clean

claim’’ have the meaning given those

terms in § 447.45.

(c) Contract requirements.—(1) Basic

rule. A contract with an MCO must

provide that the organization will meet

the requirements of paragraphs (d)(2),

(d)(3) of § 447.45, and abide by the

specifications of paragraphs (d)(5) and

(d)(6) of that section..

(2) Exception. The MCO and its

providers may, by mutual agreement,

establish an alternative payment

schedule.

(3) Any alternative schedule must be

stipulated in the contract.

§ 447.53 [Amended]

3. In § 447.53(b), the following

changes are made:

A. In paragraph (b) introductory text,

the parenthetical phrase is removed.

B. Paragraph (b)(6) is removed.

4. A new paragraph (e) is added to

read as follows:

(e) No provider may deny services, to

an individual who is eligible for the

services, on account of the individual’s

inability to pay the cost sharing.

§ 447.58 [Amended]

5. In § 447.58, ‘‘Except for HMO

services subject to the copayment

exclusion in § 447.53(b)(6), if ‘‘ is

removed and ‘‘If’’ is inserted in its

place.

6. A new § 447.60 is added to subpart

A to read as follows:

§ 447.60 Cost-sharing requirements for

services furnished by MCOs.

Contracts with MCOs must provide

that any cost-sharing charges the MCO

imposes on Medicaid enrollees are in

accordance with the requirements set

forth in §§ 447.50 and 447.53 through

447.58 for cost-sharing charges imposed

by the State agency.

§ 447.361 [Removed]

Section 447.361 is removed.

(Catalog of Federal Domestic Assistance

Program No. 93778, Medical Assistance)

Dated: December 21, 2000.

Robert A. Berenson,

Acting Deputy Administrator, Health Care

Financing Administration.

Dated: December 20, 2000.

Donna E. Shalala,

Secretary.

[FR Doc. 01–1447 Filed 1–18–01; 8:45 am]

BILLING CODE 4120–01–P