[Federal Register Volume 66, Number 13 (Friday, January 19, 2001)]
[Rules and Regulations]
[Pages 6228-6426]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-1447]



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Part VIII





Department of Health and Human Services





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Health Care Financing Administration



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42 CFR Part 400, et al.



Medicaid Program; Medicaid Managed Care; Final Rule

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

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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.

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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 cost-sharing. 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 Sec. 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:

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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

[[Page 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 quality-related 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.

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    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 Sec. 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 Sec. 438.1 also briefly described these statutory 
provisions.

2. Definitions (Proposed Secs. 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 Sec. 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 Sec. 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 care-related definitions, from part 430 to 
Sec. 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.

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    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 Sec. 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.'' (Sec. 431.206.) If 
the applicant is incompetent or incapacitated, anyone acting 
responsibly for the applicant can make application on the applicant's 
behalf (Sec. 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 Sec. 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-for-
service (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-for-service'' 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 Sec. 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 Sec. 430.5 to Sec. 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 Sec. 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 (Ob-

[[Page 6232]]

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 Sec. 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

[[Page 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 
Sec. 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 Sec. 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 
Sec. 430.5 because the terms are used several times throughout the 
Medicaid regulations set forth in subchapter C before they are fully 
defined in Sec. 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 Sec. 438.2. Therefore, we are 
moving all of the relevant managed care definitions from Sec. 430.5 to 
Sec. 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 Sec. 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 
Sec. 438.50(a) (which has been moved to Sec. 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 Sec. 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 Sec. 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

[[Page 6234]]

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 Sec. 438.6)

    Proposed Sec. 438.6 set forth rules governing contracts with MCOs, 
PHPs, or PCCMs. Paragraph (a) of proposed Sec. 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 
Sec. 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 
Sec. 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 
Secs. 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 Secs. 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 Secs. 438.6(b) and 
438.64. Proposed Sec. 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 Sec. 447.361.'' Proposed Sec. 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 
Sec. 438.6(b)(2) that capitation payments and other payments to the 
provider cannot exceed the upper payment limit (UPL) set forth at 
Sec. 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 Sec. 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 Sec. 438.6(b)(2). We acknowledge 
that many States no longer have fee-for-service 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 
Sec. 447.361 and revising Sec. 438.6 by creating a new Sec. 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

[[Page 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 Sec. 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-for-service equivalent.
    This change does not affect the rules governing UPLs for other 
types of providers or services including the currently applicable 
provisions in Sec. 447.272, Sec. 447.304, Sec. 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 Sec. 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 
Sec. 438.6(c) and Sec. 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 ``cost-effectiveness'' 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 Secs. 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 Sec. 431.55, which require 
waiver programs to be cost-effective 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 Sec. 438.6(c)(3)(iii). Only a few States use 
diagnosis-based risk adjustors, which under Sec. 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 rate-setting 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-for-service 
costs.
    Current regulations provide authority for States to contract with 
MCOs on a

[[Page 6236]]

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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 438.6(c) applies these rate-
setting requirements to all risk contracts, and we have created a new 
Sec. 438.6(a) that provides that the HCFA Regional Office must review 
and approve all MCO and PHP contracts.
Prohibition of Enrollment Discrimination (Proposed Sec. 438.6(c))
    Proposed Sec. 438.6(c) (recodified as Sec. 438.6(d) in this final 
rule) established rules for enrollment and set forth prohibitions 
against discrimination in the enrollment process. Specifically, 
proposed Sec. 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

[[Page 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 Sec. 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 Sec. 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 Sec. 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 
Sec. 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 
Sec. 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 
Sec. 438.6(d)(1) refers to individuals who ``apply'' for enrollment, 
while Sec. 438.50(f)(2) applies in the context of ``default'' 
enrollments under a State plan mandatory enrollment program.
Additional Services Under MCO Contracts (Proposed Sec. 438.6(d))
    Proposed Sec. 438.6(d) (recodified in this final rule at 
Sec. 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 Sec. 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 Sec. 438.6(e) to apply to MCOs, PHPs, and PCCMs.
    Comment: While several commenters recognized that the language in 
proposed Sec. 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

[[Page 6238]]

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 Sec. 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 Sec. 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 Sec. 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 Sec. 438.6(e))
    Proposed Sec. 438.6(e) (recodified in this final rule at 
Sec. 438.6(f)) required contracts with MCOs and primary care case 
managers to comply with the requirements in Sec. 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 Sec. 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 Sec. 438.6(f))
    Proposed Sec. 438.6(f) (codified in this final rule at 
Sec. 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 Sec. 438.6(g))
    Proposed Sec. 438.6(g) (codified in this final rule at 
Sec. 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 Sec. 438.6(h))
    Proposed Sec. 438.6(h) (recodified in this final rule at 
Sec. 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 Sec. 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 Sec. 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 Secs. 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 Sec. 489.100 includes provisions to inform and distribute written 
information to adult individuals concerning policies on advance 
directives. However, Sec. 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 Sec. 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 
Sec. 434.28 before the September 29, 1998 proposed regulation.
    Comment: Although proposed Sec. 438.6(h)(2) provided that an MCO 
must include a description of applicable State law and proposed 
Sec. 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

[[Page 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 Sec. 438.6(i))
    Proposed Sec. 438.6(i) (recodified in this final rule at 
Sec. 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 Sec. 438.6(j))
    Proposed Sec. 438.6(j) (recodified in this final rule at 
Sec. 438.6(k)) implemented the requirements in section 1905(t)(3) of 
the Act that apply to ``primary care case management contracts.'' 
Specifically, proposed Sec. 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 Sec. 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 Sec. 436.8(j)(2) (``sufficiently 
near . . . to reach . . . within a reasonable time'') and 
``sufficient'' in proposed Sec. 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 Sec. 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 Sec. 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-
for-service 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 Sec. 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 Sec. 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,

[[Page 6240]]

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 Sec. 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 Sec. 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 Sec. 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 Sec. 438.10, the provider 
discrimination requirement in proposed Sec. 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 Sec. 438.424(b). And 
proposed paragraph (g) incorporated the enrollment and disenrollment 
requirements in paragraphs (e) through (h) of proposed Sec. 438.56 and 
the conflict of interest safeguards in proposed Sec. 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 on-going 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 Sec. 438.8(a) to read ``(b) 
The requirement of Sec. 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 Sec. 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 Sec. 438.8 does not include references to sections that 
the commenter believes should be applicable. For example, Sec. 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 
Sec. 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

[[Page 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 434.29, requirements in Sec. 434.30 related to 
emergency medical services, the requirement under Sec. 434.32 that the 
contract provide for a State-approved grievance procedure, the 
requirement in Sec. 434.34 that the contract provide for an internal 
quality assurance system meeting specified standards, and the marketing 
requirements in Sec. 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 
Sec. 438.116(c)(1) would apply.
Solvency Standards (Proposed Sec. 438.8(d))
    Among the beneficiary protections in proposed subpart C that are 
applied to PHPs under proposed Sec. 438.8(d) are solvency standards in 
proposed Sec. 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 Sec. 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 
Sec. 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, Sec. 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

[[Page 6242]]

section 1903(m)(2)(A) of the Act, the exception to the State solvency 
standards requirement in Sec. 438.116(c)(1) would apply. Therefore, the 
exception in Sec. 438.116(c) would normally apply to behavioral health 
type PHPs. Even though a PHP may be exempt from the solvency standards 
in Sec. 438.116(b), it still must meet the basic requirements in 
Sec. 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 Secs. 438.10 and 438.318)

    Proposed Sec. 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 Sec. 438.318 (recodified at 
Sec. 438.218 in this final rule) required that, as a part of the 
State's ``quality strategy,'' the requirements in proposed Sec. 438.10 
must be satisfied, and that contracts must specify that certain 
information specified in Sec. 438.318(b)(2) be provided.
    Comment: Many commenters remarked that proposed Sec. 438.318, 
``Enrollee information,'' is redundant with Sec. 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 Secs. 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 Sec. 438.10, in the quality requirements now codified 
in subpart D, Sec. 438.218 requires that Sec. 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 Sec. 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 Sec. 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 Sec. 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, Sec. 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 Secs. 438.10 or 438.218. 
However, many of the elements listed within Sec. 438.10 would be 
considered marketing material

[[Page 6243]]

and would therefore have to be reviewed in accordance with the 
marketing standards at Sec. 438.104, which require consultation with 
the Medical Care Advisory Committee (MCAC) established under 
Sec. 431.12 or a similar entity. The MCAC's or similar entity's 
membership is required by regulation to include consumer membership. 
Further, under Sec. 438.218, information standards are part of the 
overall quality strategy at Sec. 438.304, which includes requirements 
regarding consumer involvement.
Language Requirements (Proposed Sec. 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 Sec. 438.10(b) apply to MCEs and interpreted 
this to mean that it would not apply to PHPs. The commenter apparently 
interpreted Sec. 438.8 to incorporate only requirements for which MCOs 
are mentioned by name. Under this interpretation of Sec. 438.8, 
requirements that apply to MCEs (such as the language requirements in 
Sec. 438.10(b)) would not be incorporated for PHPs. The commenter 
believes that the language requirements in Sec. 438.10(b) should apply 
to PHPs.
    Response: As noted above, Sec. 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 
Sec. 438.10 are specified in Sec. 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 
Sec. 438.206(d) (codified in Sec. 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

[[Page 6244]]

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 Sec. 438.10(c)(2))
    Comment: A commenter noted that proposed Sec. 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 
Sec. 438.10(c) to provide in Sec. 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 
Sec. 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 Sec. 438.10(c)(1)(i) to present the information in 
easily understood language and format, and under Sec. 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 
Sec. 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-to-face 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 
Sec. 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 Sec. 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 Sec. 438.10 discussed in this section and 
requirements in Sec. 438.206 (codified at Sec. 438.306 in the September 
29, 1998

[[Page 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 Sec. 438.10 are considered 
marketing material and must therefore be reviewed in accordance with 
the marketing standards at Sec. 438.104. Paragraph (b)(2) of 
Sec. 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 Sec. 438.10, including 
understandability.
When Information Must Be Provided (Proposed Sec. 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 
Sec. 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 
Sec. 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 Sec. 438.10(f)(4) that all of the 
information that is ``provided'' pursuant to new paragraphs (d) and (e) 
(proposed Sec. 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 Sec. 438.10(e) (now in 
Secs. 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 
Sec. 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 Sec. 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 Sec. 438.10(e))
    Comment: Some commenters argued that proposed Secs. 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

[[Page 6246]]

``provided'' as specified in proposed Sec. 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 Sec. 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 Sec. 438.10(d)(1) that the 
``State, or its contracted representative'' may provide the information 
in Sec. 438.10(d)(2) to potential enrollees. Because this information 
is generally currently provided, we also do not believe that the 
requirements in Sec. 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 Sec. 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 
Sec. 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 
Sec. 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

[[Page 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 Sec. 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 
Sec. 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 
Sec. 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 Sec. 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 Sec. 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.

[[Page 6248]]

    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 Sec. 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, Sec. 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 Sec. 438.10(e)(11)
    Comment: Proposed 438.10(e)(10) (recodified at 
Sec. 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 Sec. 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 
Sec. 438.10(h) (recodified as Sec. 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 
Sec. 438.10(h).
    Response: Under Sec. 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 Sec. 438.10(g) are information 
requirements, analogous to the information requirements for MCOs under 
Sec. 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 
Sec. 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 Sec. 438.10(f) to 
require that MCOs provide the same information, upon request, that 
Medicare+Choice organizations are required to provide under 
Sec. 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

[[Page 6249]]

we have more experience concerning the reliability and usefulness of 
these data.
    Comment: Some commenters supported the requirement in proposed 
Sec. 438.10(i)(2)(iv) (recodified in this final rule at 
Sec. 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, 
Sec. 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 Sec. 438.10(i)(1)(ii) 
(recodified at Sec. 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 Sec. 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 
Sec. 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, Sec. 438.10(h)(3)(ii) requires 
that quality indicators be provided to the extent available.

6. Provider Discrimination (Proposed Sec. 438.12)

    Proposed Sec. 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, Sec. 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 Sec. 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 Secs. 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

[[Page 6250]]

the providers were not included in the MCO's network. We therefore have 
revised Sec. 448.12(a) to include the same written notice requirement 
that applies to Medicare+Choice organizations under Sec. 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 Sec. 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, Sec. 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, Sec. 438.12(a)(2) requires that providers be selected in 
accordance with the requirements in Sec. 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 Sec. 438.206(e)(4), 
which requires MCOs to provide services in a culturally competent 
manner, including at least complying with the language requirements of 
Sec. 438.10(b).
    Comment: One commenter believes that there was a contradiction 
between proposed Sec. 438.12 and proposed Sec. 438.306 (recodified at 
Sec. 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 Sec. 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, 
Sec. 438.206 requires States to establish standards to ensure the 
availability of services by MCOs. Although the preamble to proposed 
Sec. 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 Sec. 438.206 could reasonably be 
read as inconsistent with Sec. 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 Sec. 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 Sec. 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

[[Page 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 cost-effective 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 Sec. 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 Sec. 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 Secs. 438.50 and 
438.56(b), (c), and (d))

    Proposed Secs. 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 
Sec. 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 Sec. 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, Sec. 438.50 is 
consistent with the other SPA effective date provisions in Secs. 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 Sec. 438.50, and will take 
these comments into consideration when designing that form. However, 
some States have already implemented approved programs under 
Sec. 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 Sec. 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 
Sec. 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 Sec. 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

[[Page 6252]]

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 Sec. 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 Sec. 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:
    <bullet> Public hearings and comment periods;
    <bullet> Involving the State Medical Care Advisory Committee in 
reviewing amendments and contracts.
    <bullet> Using our website to notify the public of the submission 
and approval of State plan amendments.
    <bullet> Publishing a Federal Register notice when States first 
submit an amendment.
    <bullet> 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 Sec. 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 Sec. 438.306 (now codified 
at Sec. 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 
Sec. 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 
Sec. 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 
Sec. 438.10(d) and (e). Finally, with respect to the issue of 
``performance evaluations,'' as discussed in section II. D. below, 
Sec. 438.240(c)(i) requires that MCOs and PHPs measure performance, 
while Sec. 438.240(c) requires performance improvement projects.
Limitations on enrollment (Proposed Sec. 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

[[Page 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 self-identify.
    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 Secs. 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 Sec. 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 
Sec. 438.56(b)(3)(v) (redesignated as Sec. 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

[[Page 6254]]

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 Sec. 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 Sec. 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

[[Page 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 Sec. 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 Sec. 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

[[Page 6256]]

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 Sec. 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 Sec. 438.52)

    Proposed Sec. 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 Sec. 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

[[Page 6257]]

to the comment on competitive procurement, Sec. 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 Sec. 438.8 to specify that all subpart 
B provisions except Sec. 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 Sec. 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 Secs. 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 Sec. 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, Sec. 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-of-
network 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 Sec. 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 Sec. 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 Sec. 412.62(f)(1)(ii), the definition found at 
Sec. 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 Sec. 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

[[Page 6258]]

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 Sec. 438.52(c), outlined the rural exception to the 
requirement for choice. Under the proposed rule, in a ``rural area'' as 
defined in Sec. 438.52(a), a State may limit beneficiaries to one MCO 
provided the beneficiary--
    <bullet> Can choose from at least two physicians or two case 
managers; and
    <bullet> 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, Sec. 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 Sec. 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 
Sec. 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 Sec. 438.6 (Contracting

[[Page 6259]]

requirements), Sec. 438.10 (Information requirements), Sec. 438.110 
(Assurance of adequate capacity and services), and Sec. 438.206 
(Availability of services). Also, under Sec. 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 Sec. 438.52 in response to 
these comments.
    Comment: One commenter suggested that we delete Sec. 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, Sec. 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 
Sec. 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 mid-day), 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 Sec. 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

[[Page 6260]]

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 Sec. 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 Sec. 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 Sec. 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 
out-of-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-of-network 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-of-network 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-of-
network 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 Sec. 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

[[Page 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 
Sec. 438.56)

Applicability
    Section 1932(a)(4) sets forth a number of requirements relating to 
enrollment and disenrollment in Medicaid managed care programs. 
Proposed Sec. 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 Sec. 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 Sec. 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 
Sec. 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 
Sec. 438.10 and the notice requirements in Sec. 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 Sec. 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 Sec. 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

[[Page 6262]]

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 sub-specialty 
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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 (Sec. 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

[[Page 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 
Sec. 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 fee-for-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 Sec. 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 
Sec. 438.56(f) ``Procedures for disenrollment'' and ``Timeframe for 
Disenrollment Decisions.'') In Sec. 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

[[Page 6264]]

submit copies of disenrollment requests to the State agency. Proposed 
Sec. 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 Sec. 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 Sec. 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 
Sec. 438.56(e)(1), which is retained in the final rule with comment 
period in Sec. 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 Sec. 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 
Sec. 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 Sec. 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, Sec. 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 Sec. 438.56(f)(2)(ii) and 
Sec. 438.56(f)(4)(i). (These sections are redesignated as 
Sec. 438.56(d)(3)(ii) and Sec. 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 Sec. 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

[[Page 6265]]

Sec. 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 Sec. 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 Sec. 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 Sec. 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

[[Page 6266]]

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 Sec. 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 (Sec. 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 Sec. 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 Sec. 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 for-cause) 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 
Sec. 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, Sec. 438.56(f)(2) of the final rule with comment period requires 
that State fair hearings be made available.
Automatic Re-enrollment
    Proposed Sec. 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 re-enrollment 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

[[Page 6267]]

clarifying language to the final rule with comment period in 
Sec. 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 re-enrollment. 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 (Sec. 438.58)

    Proposed Sec. 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 
Sec. 438.58. However, while the conflict of interest standards in 
Sec. 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 Sec. 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 Sec. 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 (Sec. 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 Sec. 438.60 
is too restrictive: the only exempted service are emergency services 
and post-stabilization 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, school-
based 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 
(Sec. 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 (Sec. 438.62)

    Proposed Sec. 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, 
Sec. 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

[[Page 6268]]

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 Sec. 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 Sec. 438.62. Proposed Sec. 438.62 represented a 
recodification of a longstanding requirement in part 434, at 
Sec. 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 Sec. 438.62 (previously in Sec. 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 fee-for-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 Sec. 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 Sec. 438.62 to enrollees in PCCMs, as well 
as MCOs and PHPs. The language of the proposed version of Sec. 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 on-going 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, high-cost 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 (Sec. 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 Sec. 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.

[[Page 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 Sec. 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 Sec. 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 
Sec. 441.56 to meet certain EPSDT targets, whether or not they are 
contracted services. With regard to ``wraparound services,'' we note 
that Sec. 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 Sec. 438.218, the 
information requirements in Sec. 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 
Sec. 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 Sec. 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 Sec. 438.100); (2) rights concerning provider 
communications with enrollees (proposed Sec. 438.102); (3) limits on 
marketing activities (proposed Sec. 438.104); (4) limits on enrollee 
liability for payment (proposed Sec. 438.106) and cost-sharing 
(proposed Sec. 438.108); (4) an obligation for MCOs and PHPs to provide 
assurances of adequate capacity (proposed Sec. 438.110); (5) rights in 
connection with emergency and post-stabilization services (proposed 
Sec. 438.114); and (6) MCO solvency standards (proposed Sec. 438.116).

1. Benefits (Sec. 438.100)

    As proposed, Sec. 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 
Sec. 438.100 have been incorporated into other sections, notably 
Sec. 438.10, Information requirements; Sec. 438.206 Availability of 
services; and Sec. 438.210 Coverage and authorization of services. The 
requirement in proposed Sec. 438.100(a) that contracts specify the 
services the entity is required to provide to Medicaid enrollees is now 
set forth in Sec. 438.210(a)(1). The requirement in proposed 
Sec. 438.100(b) concerning the State's obligations to services not 
covered under the contract is now set forth in Sec. 438.206(c), while 
the requirement to provide information to enrollees and potential 
enrollees is in Sec. 438.10(d)(2)(ii)(E), Sec. 438.10(e)(2)(vii), and 
Sec. 438.10(g).
    We have moved the requirements relating to enrollee rights from 
proposed Sec. 438.320 to Sec. 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 Sec. 438.100 (Benefits). Comments and responses 
relating to the enrollee rights are now in Sec. 438.100 but were in the 
proposed Sec. 438.320 are discussed in section II. D.

[[Page 6270]]

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 Sec. 438.210 
Coverage and authorization of services and Sec. 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, 
Sec. 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 Sec. 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 Sec. 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 
Sec. 438.10(d)(2)(ii)(E), Sec. 438.10(e)(2)(vii), and Sec. 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 
Sec. 438.100(b) unclear.
    Response: Proposed Sec. 438.100(a) required that MCO contracts (and 
Sec. 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 Sec. 438.210(a). In proposed Sec. 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 Sec. 438.210(a)(1) (which contains the 
requirement that contracts specify covered services that was in 
proposed Sec. 438.100(a)) and Sec. 438.206(c) (which contains the State 
obligation formerly in proposed Sec. 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 Sec. 438.10(g) already 
extended this requirement to PCCMs. This is retained in Sec. 438.10(g) 
of this final rule with comment period.
    Proposed Sec. 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 Sec. 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 Sec. 438.10 provide for informing 
authorized representatives.

2. Enrollee-Provider Communications (Sec. 438.102)

    Medicaid beneficiaries are entitled to receive from their health 
care providers

[[Page 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 Sec. 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 Sec. 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 422.206 are more encompassing than those in proposed 
Sec. 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 Sec. 438.102(b) to 
parallel the requirements in Sec. 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 Sec. 438.102(c) 
apply and are satisfied.'' Specifically, the commenters requested that 
we remove reference to Sec. 438.102(c).
    Response: We agree with the commenters that the preamble language 
was misleading in implying that Sec. 438.102(c) would permit an MCO to 
actually prevent a provider from providing counseling. We have revised 
Sec. 438.102 in this final rule with comment period so that it is clear 
that Sec. 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 Sec. 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 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 Sec. 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

[[Page 6272]]

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 
Sec. 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 
Sec. 438.10. Therefore, we have revised Sec. 438.102(c) to require that 
the information furnished under this section be ``consistent with the 
provisions of Sec. 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 Sec. 438.10(e)(1)(ii), an MCO or PHP must inform potential 
enrollees of any ``significant'' change in the information in 
Sec. 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 Sec. 438.10(e)(1)(ii) should continue to apply, and are revising 
Sec. 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 Sec. 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 Sec. 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 Sec. 438.102 regarding 
enrollee-provider communications. The commenter suggested that 
subcontractors should expressly be covered as they were in proposed 
Sec. 438.310(b)(1), which explicitly sets forth requirements for ``the 
MCO and its subcontractors.''
    Response: In Sec. 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, Sec. 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 Sec. 438.102.
    Comment: One commenter indicated that Sec. 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 Sec. 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

[[Page 6273]]

impose sanctions under Sec. 438.102(e) and Sec. 438.700(d). We believe 
that this sanction authority provides a sufficient enforcement 
mechanism.

3. Marketing (Sec. 438.104)

    In accordance with section 1932(d)(2) of the Act, proposed 
Sec. 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 Sec. 438.8(d) made the 
requirements applicable to PHPs.). Proposed Sec. 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 
Sec. 438.810, Expenditures for Enrollment Broker Services. We also 
proposed requirements and prohibitions for MCO, PHP, or PCCM contracts. 
Specifically, Sec. 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 Sec. 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 Sec. 438.8(d) provided that the error of subpart 
C, including Sec. 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 Sec. 438.104 apply to 
MCOs, PCCMs and, as specified in Sec. 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 
Sec. 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, Sec. 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, Sec. 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 
Sec. 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 Sec. 438.104(a) defined cold-call 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 Sec. 438.104(b)(2)(v), we expressly 
prohibited MCO, PHP, or PCCMs from directly or indirectly engaging in 
door-to-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 community-
based organization offices.
    Response: The prohibition on cold-call 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,

[[Page 6274]]

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-to-door, 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 self-explanatory. 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 door-to-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 Sec. 438.104(b)(1)(v) is to 
prohibit unsolicited marketing activities. Medical advice given as part 
of a doctor-patient 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, non-
threatening 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 Sec. 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

[[Page 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 Sec. 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 Sec. 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 Sec. 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 ``cold-
call 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 community-based 
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 re-
enroll 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 re-enroll in that 
particular MCO, PHP, or

[[Page 6276]]

PCCM.'' Another commenter indicated that the combination of 
requirements at proposed Sec. 438.104(a) (definition of marketing 
materials) and proposed Sec. 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 Sec. 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 438.104 is necessary or 
appropriate.
    We note that Sec. 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 Sec. 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 Sec. 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

[[Page 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 Sec. 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 
Sec. 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-of-network providers. We 
refer the commenters to the comments and responses for proposed 
Sec. 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 
Sec. 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 Sec. 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 Sec. 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 
Sec. 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 
Sec. 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 Sec. 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

[[Page 6278]]

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 Sec. 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 
Sec. 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 Sec. 438.104.
    Comment: Several commenters believed that the service area 
requirement in proposed Sec. 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 Sec. 438.104(b)(2)(ii) (redesignated as Sec. 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 Sec. 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

[[Page 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 
English-speaking 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 Sec. 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 Sec. 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

[[Page 6280]]

membership. In Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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, bi-monthly, 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

[[Page 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 Sec. 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 (Sec. 438.106)

    Proposed Sec. 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 Sec. 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 Sec. 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-of-service'' options), as there 
may have been concern that this type of coverage could be interpreted 
by MCOs as a non-Medicaid 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 Sec. 438.106(c) would prohibit MCOs from 
offering a point-of-service 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:
    <bullet> Enrollees may always obtain family planning services out-
of-network, as provided in our current regulations at Sec. 431.51;
    <bullet> Enrollees who reside in rural areas and are mandatorily 
enrolled in a single MCO, PHP, or PCCM may obtain out-of-network 
services as provided in Sec. 438.52(b);
    <bullet> Enrollees may obtain emergency and post-stabilization 
services from out-of-network providers as specified in Sec. 438.114;
    <bullet> Enrollees may obtain services out-of-network if the 
network is unable to meet an enrollee's medical needs as specified in 
Sec. 438.206(d)(5).
    The protection in Sec. 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 Sec. 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

[[Page 6282]]

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 non-covered 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 Sec. 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 Sec. 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 Sec. 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, Sec. 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 Sec. 438.106.

5. Cost Sharing (Sec. 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 fee-for-
service. In Sec. 438.108 of the NPRM, we proposed that the contract 
must provide that any cost sharing imposed on Medicaid enrollees is in 
accordance with Sec. 447.50 through Sec. 447.58 of existing 
regulations.
    Comment: One commenter recommended that we specify in Sec. 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 Sec. 447.50 
through Sec. 447.58 of our rules. Because Sec. 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 Sec. 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 Sec. 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-for-service. Enrollees receiving home and community-based 
waiver services are not excluded under our current fee-for-service 
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 tribally-operated 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 Sec. 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 Sec. 447.57 to cost sharing for services furnished by 
MCOs. The commenter stated that Sec. 447.57 prohibits States from 
reimbursing providers for unpaid copayments. The

[[Page 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 Sec. 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 Sec. 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 Sec. 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 
Sec. 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 
Sec. 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 Sec. 447.53(b)(4). However, enrollees 
should be aware that if they seek services in an emergency room when 
the standard in Sec. 447.53(b)(4) is not met, they may be held liable 
for cost sharing.

6. Assurances of Adequate Capacity and Services (Sec. 438.110)

    Under the authority of section 1932(b)(5) of the Act, proposed 
Sec. 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 Sec. 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 Sec. 438.306 (redesignated as Sec. 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 
Sec. 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 Sec. 438.110 as Sec. 438.207 
so that these requirements may be read and applied together. We will 
respond to the comments that were received regarding proposed 
Sec. 438.110 below.
    Comment: Several commenters felt that proposed Sec. 438.110, 
combined with proposed Sec. 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

[[Page 6284]]

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 Sec. 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 Sec. 438.110 was to address 
the procedural requirements for submitting assurances of adequate 
capacity and services, while proposed Sec. 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 Sec. 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 Sec. 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

[[Page 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 
Sec. 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 Sec. 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 Sec. 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 micro-management 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 Sec. 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 
Sec. 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 Sec. 438.206.

[[Page 6286]]

    Comment: We received a number of comments on proposed 
Sec. 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 Sec. 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 
Sec. 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 Sec. 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 out-of-
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 
Sec. 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 Sec. 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 
(Sec. 438.206(e)(2)).
    Comment: We received a number of comments on proposed 
Sec. 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

[[Page 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 
Sec. 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 
Sec. 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

[[Page 6288]]

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 Sec. 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 Sec. 438.202(c) is the 
appropriate venue for public input with respect to State requirements 
governing MCO assurances of adequate capacity and services.
    In Sec. 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 
Sec. 438.10.
    Comment: A few commenters questioned whether we would consider 
granting waivers of the requirement under proposed Sec. 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 Sec. 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, Sec. 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 Sec. 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, Sec. 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 Sec. 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 Sec. 438.110 and Sec. 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 Sec. 434.50(b) and Sec. 434.52. Under 
Sec. 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 Sec. 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 
(Sec. 438.206(e)(1)).

7. Emergency and Post-Stabilization Services (Sec. 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 post-

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stabilization services) in the same manner as those guidelines apply to 
Medicare+Choice plans.
    In proposed Sec. 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 
Sec. 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 Sec. 438.114(a). The identical definitions appear in the 
Medicare+Choice rules at Sec. 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 
Sec. 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 Sec. 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-for-service 
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 
post-stabilization care. Some commenters objected to requiring pre-
approval from MCOs, PHPs, or PCCMs for post-stabilization services. 
Others opposed requiring an MCO, PHP, or PCCM with a risk contract that 
covers post-stabilization 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 post-stabilization 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 Sec. 422.113(c)(1), post-
stabilization 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 Sec. 422.113(b) related to 
emergency services.
    The rule further establishes that if the MCO fails to respond 
within the one-hour 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

[[Page 6290]]

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 post-stabilization 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 
Sec. 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 Sec. 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 Sec. 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 Sec. 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

[[Page 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 
Sec. 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 case-by-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 Sec. 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 
Sec. 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 
Sec. 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 ``post-
stabilization'' 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 Sec. 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 
Sec. 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 Sec. 438.6(c) 
all capitation rates paid under risk contracts must be actuarially 
sound and

[[Page 6292]]

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 
Sec. 438.114 would constitute a failure to comply with section 
1932(b)(2) of the Act, and would be sanctionable under Sec. 438.700(d) 
of this final rule with comment period.
    Comment: One commenter recommended stating in Sec. 438.114 that 
copayments not permitted under fee-for-service 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 Sec. 438.108, which incorporates the fee-for-service limits 
on cost-sharing in Sec. 447.50 through Sec. 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 
Sec. 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 438.114(b) to add to the list of required information the 
post stabilization rules set forth at Sec. 422.113(c) of the Medicare 
regulations. Proposed paragraph (c) (coverage and payment for post-
stabilization services) has been replaced by a paragraph (f) that 
provides for coverage and payment ``in accordance with Sec. 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 Sec. 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 Sec. 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 Sec. 438.114(f) to ``provider'' in 
Sec. 438.114(e)(3) of this final rule with comment period. However, we 
want to make clear that an

[[Page 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 Sec. 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 
Sec. 438.114(c)(4), specifying the circumstances under which the State 
must pay for post-stabilization 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 Sec. 438.114(c)(4) was confusing. We have replaced this 
section with a reference to the post-stabilization requirements in 
Sec. 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 (Sec. 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 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, Sec. 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

[[Page 6294]]

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, 
Sec. 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 Sec. 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 Sec. 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 Sec. 438.116(b)(2) in this final rule with 
comment period (Sec. 438.116(c)(2) in the proposed rule) does not 
exempt public entities from all solvency requirements under Federal 
regulation. Section Sec. 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 Sec. 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 Sec. 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 Sec. 438.6 (Contract 
requirements), our Regional Office will review and approve all MCO and 
PHP contracts, and under Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 438.304 set forth minimum elements 
required in each State's quality improvement strategy. Proposed 
Sec. 438.306 set forth standards for

[[Page 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 Sec. 438.310), provider selection 
(proposed Sec. 438.314), enrollee information (proposed Sec. 438.318), 
enrollee rights (proposed Sec. 438.320), confidentiality and accuracy 
of enrollee records (proposed Sec. 430.324), and enrollment and 
disenrollment requirements (proposed Sec. 438.326).
    Additionally, proposed Sec. 438.328 required an effective grievance 
system that meets the requirements of subpart F of this part; and 
proposed Sec. 438.330 provided for oversight and accountability by the 
MCO or PHP of functions and responsibilities delegated to 
subcontractors.
    Proposed Sec. 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 
Sec. 438.336 to ensure that each MCO and PHP uses practice guidelines 
meeting specified criteria and under proposed Sec. 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 Sec. 438.300)

    Proposed Sec. 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

[[Page 6296]]

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--
    <bullet> 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
    <bullet> 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 non-
applicability) 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

[[Page 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 Sec. 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 
Sec. 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 Sec. 438.240(b)(4) to require States to have procedures to 
identify enrollees with special health care needs and to assess the 
quality and

[[Page 6298]]

appropriateness of care provided to these individuals. Also in response 
to this comment, we have in Sec. 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 high-quality health 
care for them. We note that we also provide, in Sec. 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 Sec. 438.204(c) that 
requires that State quality strategies include our-prescribed 
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 Sec. 438.302)

    Proposed Sec. 438.302 set forth the State's responsibilities in 
implementing its quality strategy. Specifically, Sec. 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 Sec. 438.110 discussed in section II. 
C. above, in Sec. 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 Sec. 438.202(b). 
We believe that this new requirement, along with the requirement at 
Sec. 438.202(c) that States consider the input of stakeholders in the 
design of their strategies, the requirement at Sec. 438.202(e) that 
States conduct periodic reviews of the effectiveness of their strategy, 
and the requirement in Sec. 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 Sec. 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 Sec. 438.204(b)(2), which requires 
States to continuously monitor and evaluate MCO and PHP compliance with 
the standards specified in the

[[Page 6299]]

subpart. The evaluation of the State's quality strategy under 
Sec. 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 Sec. 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 Sec. 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 Sec. 438.202(a) refers to ``managed care services 
offered'' by MCOs and PHPs. This would include any services they offer. 
Under Sec. 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 Sec. 438.100 (previously designated as Sec. 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 Sec. 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 Sec. 438.304)

    Proposed Sec. 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 Secs. 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, Sec. 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

[[Page 6300]]

PHPs. We believe the requirement in Sec. 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 Sec. 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 Sec. 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, Sec. 438.306(e)(4) 
of the proposed rule has been modified as Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 438.204(d) 
(Sec. 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 Sec. 438.306)

    Section 1932(c)(1)(A)(i) of the Act, as added by section 4704 of 
the BBA,

[[Page 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 Sec. 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 
Sec. 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-of-area 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 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 State-approved 
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 Sec. 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 
Sec. 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 
Sec. 438.306(c), which requires a State--
    <bullet> To arrange for State plan services not covered under an 
MCO or PHP contract to be made available from other sources; and
    <bullet> 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

[[Page 6302]]

in proposing Sec. 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 
Sec. 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, Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 
Secs. 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 Sec. 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 
Sec. 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 
Sec. 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 
Sec. 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 
Sec. 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 Sec. 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 Sec. 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,

[[Page 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 
Sec. 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 Sec. 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 Sec. 438.206 is integrally linked to 
Sec. 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 
Sec. 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 Sec. 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, 
Sec. 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, 
Sec. 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 
Sec. 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

[[Page 6304]]

it with ``persons with special health care needs.''
    Comment: We received numerous comments that generally supported the 
requirement in proposed Sec. 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 enrollee-to-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-to-provider 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 Sec. 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-for-service 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 
Sec. 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.

[[Page 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:
    <bullet> 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.
    <bullet> 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.
    <bullet> 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.
    <bullet> 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.
    <bullet> 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 
Sec. 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 Sec. 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 
Sec. 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 follow-up 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 
Sec. 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 Sec. 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 
Sec. 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

[[Page 6306]]

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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 (Sec. 438.100) and in the Availability of services 
provisions (Sec. 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 Sec. 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 post-stabilization services, and to 
non-emergency 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

[[Page 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 Sec. 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 non-business 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 
(Sec. 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 
Sec. 438.114, Emergency and post-stabilization services, and 
Sec. 438.210, Coverage and authorization of services.
    Comment: Several commenters felt that proposed Sec. 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 
Sec. 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 Sec. 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 State-established methodology, and that 
they are at least comparable to Medicaid fee-for-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 Sec. 438.206(d)(7).
    Comment: One commenter suggested that we apply proposed 
Sec. 438.306(d)(6) to MCEs, and not just MCOs.
    Response: We proposed Sec. 438.306(d)(6) under the authority of 
section 1932(c)(1)(A)(i) of the Act. As discussed above in connection 
with proposed Sec. 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 
Sec. 438.306(e)(1)(i), which required MCOs and their providers to meet 
State-established 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 Sec. 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

[[Page 6308]]

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 
Sec. 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 
Sec. 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, Sec. 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 Sec. 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 in-office 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 Sec. 438.306(e)(2) (Initial Assessment) and (e)(3) 
(Pregnancy and Complex and Serious Medical Conditions)

    Paragraph (e)(2) of proposed Sec. 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 Sec. 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 Sec. 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 Sec. 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, State-
established, risk-adjusted, higher-cost payment categories; and (5) any 
other groups of enrollees identified by us (Sec. 438.208(b)(1)).
    Also in order to address the commenters' concerns about ensuring 
appropriate assessments, in Sec. 438.208(e) of the final rule with 
comment period,

[[Page 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 Secs. 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 Sec. 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 Sec. 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 Sec. 438.208(d), we 
require MCOs (and PHPs as determined by the State in accord with 
Sec. 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

[[Page 6310]]

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, Sec. 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 Sec. 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 
Sec. 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 Sec. 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 
Sec. 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 Sec. 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

[[Page 6311]]

on the need for enrollee participation and that treatment planning 
consider the needs and preferences of the enrollee, at 
Sec. 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 Sec. 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 Sec. 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 
Sec. 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 Sec. 438.306(e)(2) and (3), we should require continuing 
coverage of on-going treatment, even if it is out-of-network, 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 Sec. 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 Sec. 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 
Sec. 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 Sec. 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 
Sec. 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 
Sec. 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

[[Page 6312]]

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 
Sec. 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, Sec. 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 
Sec. 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 Sec. 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 Sec. 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 Sec. 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 cross-cultural 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 Sec. 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 
Sec. 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 
Sec. 438.10(b) that States and MCOs, PCCMs and PHPs make interperter 
services available to meet the needs of all enrollees. We believe that 
Sec. 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 Sec. 438.308)

    Proposed Sec. 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 Sec. 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 Sec. 438.308(b), MCOs and PHPs were required to ensure 
coordination of services, both internally and with services available 
from the community.
    Proposed Sec. 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

[[Page 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 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 Sec. 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., post-stabilization services), for which an MCO is 
required to pay for out-of-network 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 Sec. 438.62(b). We wish to make clear 
that the requirements in Sec. 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 
Secs. 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

[[Page 6314]]

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 
Secs. 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 ``point-of-entry'' care 
coordination model in proposed Sec. 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 Sec. 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-of-entry,'' 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 
Sec. 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 Sec. 438.208 
sufficiently address this issue.
    Comment: A commenter found proposed Sec. 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 Sec. 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 Sec. 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-for-service 
Medicaid. Under Sec. 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 Sec. 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

[[Page 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, Sec. 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 Sec. 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 Sec. 438.224 and the information requirements of 
Sec. 438.242. We are further requiring in Sec. 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 Sec. 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 
Sec. 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, Sec. 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 Sec. 438.224.
    Comment: We received several comments on proposed 
Sec. 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 
Sec. 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 
Sec. 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 438.224. Accordingly, Sec. 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 Sec. 438.224 and the 
information requirements of Sec. 438.242''. In addition, at 
Sec. 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 Sec. 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 
Sec. 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 self-care, 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.

[[Page 6316]]

    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 follow-up'' 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 
Sec. 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 Sec. 438.114.

6. Coverage and Authorization of Services (Proposed Sec. 438.310)

    Proposed Sec. 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 Sec. 422.112.
    In paragraph Sec. 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 Sec. 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 
Sec. 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 State-established 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 Sec. 438.6(g) and Sec. 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 
Sec. 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 Sec. 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 
Sec. 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.

[[Page 6317]]

    Comment: One commenter believed that proposed Sec. 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 Sec. 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 
Sec. 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 
Sec. 440.230 should also apply to a managed care arrangement, and we 
accordingly have included them in Sec. 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 Sec. 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-for-service basis or through a separate managed care contractor. 
For this reason, proposed Sec. 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 Sec. 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

[[Page 6318]]

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 
Sec. 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 Sec. 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 Sec. 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-for-service 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

[[Page 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 
Sec. 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 Sec. 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 
Sec. 438.202 (State Responsibilities) and Sec. 438.204 (Elements of 
State Quality Strategies). MCOs and PHPs are also required by 
Sec. 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 Sec. 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 
Sec. 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 
Sec. 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 Sec. 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 Secs. 438.310(c) and (d) pertaining to a notice of 
adverse action and the time frames for such action, and those in 
Sec. 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 Secs. 438.310(c) and (d) and proposed Sec. 438.404 was 
not clear. In the final rule with comment period, Sec. 438.210(c) 
requires only that the notice of adverse action meet the requirements 
of Sec. 438.404, and paragraphs (d) and (e) set forth only the

[[Page 6320]]

time frames for standard and for expedited authorization decisions, 
respectively. For further clarity, we note that the distinction between 
proposed Sec. 438.310 and Sec. 438.404 is drawn at the point the 
authorization decision is made. If the decision is authorized outright, 
there is no link to Sec. 438.404; however, if the decision is made to 
deny or limit a service, notice must be given in accordance with 
Sec. 438.404, as these decisions are subject to the grievance and 
appeal process.
    Comment: Some commenters were opposed to proposed Sec. 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 
Sec. 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 Sec. 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 Sec. 438.310(d) to apply to the furnishing, rather than the 
authorization of services, there were comments that understood 
Sec. 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 Sec. 438.310(d) and 
Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 438.10 and proposed Sec. 438.318.

7. Establishment of Provider Networks (Proposed Sec. 438.314)

    Proposed Sec. 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 Sec. 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 Sec. 438.214(b) now includes 
provisions on credentialing that were intended, but not explicit in the 
proposed rule. Specifically, in Sec. 438.214(b) we now clarify which 
providers are subject to credentialling and recredentialling

[[Page 6321]]

requirements, distinguishing in Sec. 438.214(b)(1) requirements that 
must be met by physicians and other licensed, independent providers 
from requirements in Sec. 438.214(b)(2) that must be met by other 
providers. Exceptions to these requirements are described in 
Sec. 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 Sec. 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 Sec. 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 Sec. 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 
Sec. 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 Sec. 438.214(c). We believe the commenters' 
concerns are also addressed in a number of other sections. For example, 
as discussed above, Sec. 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 
Sec. 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 Sec. 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 Sec. 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 provider-beneficiary 
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, Sec. 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 Sec. 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

[[Page 6322]]

they believed would lead to unresolvable disputes.
    Response: We disagree with the commenters who believe that we 
should delete the requirement in proposed Sec. 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 Sec. 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-for-service.
    Response: We have clarified the final rule with comment period at 
Sec. 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 Sec. 438.320) (Redesignated as 
Sec. 438.100)

    As part of these standards, in proposed Sec. 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 Sec. 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 Sec. 438.310(c) required that States ensure compliance with 
various civil rights laws.
    Comment: Several commenters felt that the rights in proposed 
Sec. 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 Sec. 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 Sec. 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 
Sec. 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) Sec. 438.66 mandates that States actively 
monitor MCOs' and PHPs' operations, (2) Sec. 438.202(d) requires that 
States ensure compliance by MCOs and PHPs with the quality standards 
established by the State, and (3) Sec. 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 Sec. 438.320 contained too much subjective 
language

[[Page 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 438.10 in subpart A, the continuity of care requirements in 
Sec. 438.62 in subpart B, the rights related to provider enrollee-
communication and emergency services in Secs. 438.102 and 438.114 in 
subpart C, the right to access to a woman's health care specialist in 
Sec. 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 Sec. 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 Secs. 438.306 through 438.310, 
proposed Sec. 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 Sec. 438.206(c), which is 
incorporated in Sec. 438.100(b)(2), so that this right is included in 
Sec. 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 Sec. 438.100(b)(3) to the right to a second opinion 
provided for under Sec. 438.206(d)(3).
    Comment: Several commenters offered their support for proposed 
Sec. 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 Sec. 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 Sec. 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 Sec. 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, Sec. 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, Sec. 438.10(e)(2)(vi) 
expressly requires that information be provided on how enrollees may 
obtain family planning services from out-of-network providers. In the 
case of services not covered through the MCO or PHP, under 
Sec. 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 
Sec. 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 Sec. 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 
Sec. 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 Sec. 438.224 (Confidentiality and accuracy 
of

[[Page 6324]]

enrollee records), discussed in section II. D. 8. below. In response to 
this comment, we have provided in Sec. 438.100(b)(7) for the right to 
receive a copy of records, and request that they be amended or 
corrected, and have referenced Sec. 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 
Sec. 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 Sec. 438.100(d) of the final rule with comment period.
    Comment: A commenter recommended that the text of proposed 
Sec. 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 Sec. 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 
Sec. 438.100(b)(4) to be treated with respect and dignity and the 
confidentiality rights in Sec. 438.224, discussed in section II.D.9. 
below. Further, we have revised proposed Sec. 438.306(e)(3)(iii)(now 
Sec. 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 
Sec. 438.100 in the final rule with comment period.
    Comment: Commenters proposed the inclusion in proposed Sec. 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, Sec. 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 Secs. 438.210(c) and 438.404.

9. Confidentiality (Proposed Sec. 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 Sec. 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

[[Page 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 
Sec. 438.224) that MCOs and PHPs must follow subpart F of part 431.
    Comment: We received several comments in response to proposed 
Sec. 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 Sec. 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 
(Sec. 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 Sec. 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 
Sec. 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

[[Page 6326]]

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 
Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 
Sec. 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 Sec. 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

[[Page 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 Sec. 438.326) and Grievance 
Systems (Proposed Sec. 438.328)

    These proposed sections required that a State agency include as 
part of its quality strategy ensuring compliance with the enrollment 
requirements in Sec. 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 Sec. 438.326, and one 
comment relating to proposed Sec. 438.328.
    Comment: One commenter requested that we mandate that States 
conduct random reviews of service denial notifications, and other forms 
of non-coverage to ensure that MCOs and PHPs are notifying members in a 
timely manner.
    Response: We agree with this comment. In Sec. 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 Sec. 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 Sec. 438.330)

    Proposed Sec. 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 
Sec. 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 
Sec. 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 Sec. 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 non-employee 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 Sec. 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 Sec. 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

[[Page 6328]]

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 Sec. 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 Sec. 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 Sec. 438.336)

    Proposed Sec. 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 Sec. 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 
Sec. 438.336(b) to disseminate the guidelines to providers and 
enrollees where appropriate, or when they request them. Proposed 
Sec. 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 Sec. 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 Sec. 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

[[Page 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 
Sec. 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 
Sec. 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 
Sec. 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 
(Sec. 438.336(a)(1)),'' and that they ``consider the needs of the MCO's 
enrollees (Sec. 438.336(a)(2))'' than the requirement that they be 
developed ``in consultation with contracting health care professionals 
(Sec. 438.336(a)(3)).'' The commenter believed that guidelines 
developed in accordance with Sec. 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

[[Page 6330]]

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 Sec. 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 Sec. 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 Sec. 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 Sec. 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

[[Page 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 Sec. 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 
Sec. 438.340)

    Proposed Sec. 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 Sec. 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 Sec. 438.340(c) provides for minimum MCO and PHP 
performance levels to be established by the State. Proposed 
Sec. 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 Sec. 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 
Sec. 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, high-volume 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 
Sec. 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 Sec. 438.240(b)(4) a 
requirement that MCOs and PHPs must have in effect mechanisms to assess 
the quality and

[[Page 6332]]

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 
(Sec. 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 Sec. 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 Sec. 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 Secs. 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

[[Page 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 Sec. 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 Sec. 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 State-

[[Page 6334]]

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 Sec. 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 
``high-volume'' 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 Sec. 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 Sec. 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 Sec. 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 Sec. 438.208. Primary language spoken 
is addressed in the language requirement of Sec. 438.10(b). As 
discussed previously, race and ethnicity are addressed in 
Sec. 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 
Sec. 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

[[Page 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 Sec. 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 Sec. 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 Sec. 438.400)

    Definitions of terms that would apply for purposes of proposed 
subpart F are found in Sec. 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

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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 re-classifying 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

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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 Sec. 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 Sec. 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.

[[Page 6338]]

    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 fee-for-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 (Sec. 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 Sec. 438.402)

    Proposed Sec. 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 Sec. 438.402 required the 
MCO and PHP to--
    <bullet> 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.
    <bullet> Obtain the State's written approval of the grievance (now 
appeal) policies and procedures before implementing them.
    <bullet> Provide for its governing body to approve and be 
responsible for the effective operation of the system;
    <bullet> 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.
    <bullet> Provide through its grievance (now appeal) process clearly 
explained steps that permit the enrollee to appeal to the MCO, PHP, and 
to the State.
    <bullet> 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 Sec. 438.410, not 
substitute for the State's fair hearing system.
    <bullet> 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 Sec. 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 
Sec. 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 Secs. 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

[[Page 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 Sec. 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 Sec. 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 431.221 of the current regulation, that is cited in 
proposed Sec. 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 
Sec. 438.402(c)(1)(ii) stating ``as provided under the fair hearing 
process at proposed Sec. 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 
Sec. 431.221. In addition, we have incorporated in the regulation the 
longstanding policy at Sec. 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

[[Page 6340]]

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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 
Sec. 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 
Sec. 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

[[Page 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 Sec. 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 Sec. 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

[[Page 6342]]

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 Sec. 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 Sec. 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 
Medicare-Medicaid dual eligible enrollees would access the Medicare and 
Medicaid external hearing processes.
    Response: As in the fee-for-service system, dually eligible 
Medicare-Medicaid 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 Sec. 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 
Sec. 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.

[[Page 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 provider-enrollee 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 
Sec. 431.250(d), FFP may be claimed for such expenditures.

3. Notice of Intended Action (Proposed Sec. 438.404)

    Under proposed Sec. 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 
Sec. 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 Sec. 438.404), appeals (called grievances in proposed 
Sec. 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 Sec. 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 Sec. 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

[[Page 6344]]

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 Sec. 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 
Sec. 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 Sec. 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 Medicaid-eligible 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 re-authorization 
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 
re-authorization 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 Sec. 438.10, 
including the language requirements in Sec. 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 Sec. 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 Sec. 431.213 and is consistent. Under 
Sec. 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 Sec. 431.213). These exceptions would cover situations that a 
provider believes an immediate change in care is appropriate for the 
health

[[Page 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 
Sec. 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 
Sec. 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 (Sec. 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

[[Page 6346]]

removed the requirement that the in-person 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 Sec. 438.406)

    Proposed Sec. 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 Sec. 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 Sec. 438.406 
altogether. Other commenters believed that requirements should be added 
to those in Sec. 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 Sec. 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 Sec. 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 
Sec. 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 Sec. 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 toll-free 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.

[[Page 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 Sec. 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 Sec. 438.10(b) and (c), in the section on Notice of 
Action (Sec. 438.404), and in the section on Information about the 
Grievance System (Sec. 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 
Sec. 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 Sec. 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 Sec. 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.

[[Page 6348]]

    Comment: One commenter pointed out that the word ``contracts'' in 
the first paragraph of the preamble to proposed Sec. 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 Sec. 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 
Sec. 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 
Sec. 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 
Sec. 438.408)

    Proposed Sec. 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 
Sec. 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 Sec. 438.10, 
proposed Sec. 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 Sec. 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

[[Page 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 
Secs. 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 Sec. 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 Sec. 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

[[Page 6350]]

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 
non-expedited 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 PHP-initiated 
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 Sec. 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 
Sec. 438.410)

    Proposed Sec. 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-then-
proposed 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

[[Page 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 Sec. 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 Sec. 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 Sec. 438.414)

    Proposed Sec. 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 Sec. 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

[[Page 6352]]

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, Sec. 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 Sec. 438.414, for 
enrollees, Sec. 438.10(e)(1) requires that this information (referenced 
in Sec. 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, Sec. 438.10(f)(7) requires that the 
information described in paragraphs (d) and (e) of Sec. 438.10 
(including the grievance information described in Sec. 438.10(e)(2)(x)) 
be provided only upon request. In Sec. 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 Sec. 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, Sec. 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 Sec. 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 Sec. 438.416)

    Proposed Sec. 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 Sec. 438.324. 
Specifically, MCOs and PHPs were required to--
    <bullet> Maintain a log of all grievances and appeals (called 
complaints and grievances in the proposed rule).
    <bullet> Track each appeal until its final resolution.
    <bullet> Record any disenrollment and the reason for it, even if it 
occurs before the appeal process is complete.
    <bullet> 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.
    <bullet> 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 
Sec. 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

[[Page 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 
Sec. 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 
Sec. 438.416(e)(1) (now Sec. 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 
Sec. 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 Sec. 438.416 because this was duplicative of the 
requirement at proposed Sec. 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 Sec. 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 Sec. 438.420)

    Proposed Sec. 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

[[Page 6354]]

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 
Sec. 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 
Sec. 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 Sec. 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 out-of-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 out-of-network family planning 
services; or an enrollee, while continuously eligible for Medicaid, 
either changes MCOs or PHPs or joins an MCO or PHP (from fee-for-
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

[[Page 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 post-stabilization 
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 non-network 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-for-service 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 Sec. 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-
for-service 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.

[[Page 6356]]

    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 (Sec. 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 Sec. 431.250(a) for payments for services continued pending 
a hearing decision.

10. Effectuation of Reversed Grievance Resolutions (Proposed 
Sec. 438.421)

    Proposed Sec. 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 Sec. 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 Sec. 438.421 (Sec. 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 Sec. 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 Sec. 438.422)

    In proposed Sec. 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 
Sec. 438.416 for contract compliance and quality monitoring. At a 
minimum, proposed Sec. 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 Sec. 438.426(b) that when the MCO or PHP identifies 
through trends in the data collected in Sec. 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

[[Page 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 Sec. 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 Sec. 438.8.
    Proposed Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 
Sec. 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 Sec. 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.

[[Page 6358]]

    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 Sec. 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 Sec. 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 Secs. 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 Sec. 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 Sec. 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 Sec. 438.602 that an MCO ``and its subcontractors'' must comply with 
the certification requirements in subpart H; and (2) in 
Sec. 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 Sec. 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 (Sec. 438.604), who must certify the data 
(Sec. 438.606(a)), and to which data the certifying individual is 
attesting (Sec. 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 Sec. 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 Sec. 438.606 requiring only that MCOs have a process for 
reporting violations of law and language in Sec. 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

[[Page 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 Sec. 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 inSec. 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 Sec. 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 Sec. 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 Sec. 438.702(a). Given the 
extraordinary nature of the sanction of taking over management of an 
MCO, we proposed in Sec. 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 Sec. 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 Sec. 438.702(b)(1) with respect to MCOs. In light of the foregoing 
interpretation, paragraphs (b)(4) and (b)(5) of Sec. 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 
Sec. 438.700(a)(6) (marketing violations) or the general violations of 
section 1932 of the Act that are addressed in Sec. 438.702(b)(2). Under 
the codification in the proposed rule, these latter determinations 
technically are not ``determinations under Sec. 438.700,'' and are not 
included under paragraphs (b)(4) and (b)(5) of Sec. 438.702. As 
recodified in this final rule, these determinations are addressed in 
Sec. 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 
Sec. 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 Sec. 438.708. Under section 
1932(e)(4)(B) of the Act, before terminating a contract, the State is 
required to provide a hearing. Proposed Sec. 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 Sec. 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 Sec. 438.710(b) reflects 
this statutory language.
    In proposed Sec. 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

[[Page 6360]]

offenses that are essentially the same as those identified in section 
1932(e)(1) of the Act. In proposed Sec. 438.730, we retain the existing 
regulations implementing section 1903(m)(5) of the Act, which is 
currently codified at Sec. 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 
Sec. 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 Sec. 438.100(a) 
or impose the obligation on States under proposed Sec. 438.100(b). If 
services that are included in the contract are not provided, sanctions 
are authorized under Sec. 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, Sec. 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, Sec. 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 Sec. 438.700(b)(2) (codified at 
Sec. 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

[[Page 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 Sec. 438.700(a)(3) (recodified at Sec. 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 Sec. 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 
Sec. 438.6(d)(4) that contracts expressly reflect these obligations. 
Also, Sec. 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:
    <bullet> Add a paragraph (a)(7) to Sec. 438.700 stating that 
sanctions can be used for violations of 1903(m) and 1932 of the Act;
    <bullet> Add a new paragraph (c) to Sec. 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;''
    <bullet> Add a new paragraph (a)(7) Sec. 438.700 that allows States 
to impose sanctions for any breach of contract not mentioned in 
paragraphs (a)(1) through (a)(6);
    <bullet> Amend Sec. 438.700(a) to specify that the sanctionable 
violations include, but are not limited to, the specified violations;
    <bullet> Add to Sec. 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 Sec. 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 Sec. 438.700(a).
    We disagree with the commenters' suggestions that the list of 
sanctions in proposed Sec. 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 
Sec. 438.700(d)) and the above discussion of proposed Sec. 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 Sec. 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

[[Page 6362]]

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--
    <bullet> Require noncompliant MCOs or PCCMs to submit a corrective 
action plan;
    <bullet> 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;
    <bullet> Make adjustments in MCO or PCCM payments;
    <bullet> Mandate payment for medically necessary treatment;
    <bullet> Recoup the cost of State payment for out-of-plan care from 
a noncompliant MCO or PCCM; and
    <bullet> 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 fee-for-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 Sec. 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 Sec. 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 Sec. 438.700(b).
    Comment: One commenter believes that we should amend 
Sec. 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'' (Sec. 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 Sec. 438.730 of the final rule, previously codified 
at Sec. 434.67, we may impose sanctions on an MCO based on the 
recommendation of the State. Under paragraph (e) of Sec. 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 Sec. 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

[[Page 6363]]

regulation. With respect to the suggestion concerning information 
provided to enrollees, Sec. 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 
Sec. 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 Sec. 438.704 would be maximum amounts. A 
State is not precluded from developing additional intermediate 
sanctions against PCCMs or MCOs, as explicitly noted in 
Sec. 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 Sec. 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 Sec. 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 Sec. 438.704 and 42 U.S.C. 
1396u2(e)(2)(A). The commenters suggested that the term ``either'' in 
proposed Sec. 438.704(a) should be eliminated and replaced with the 
term ``any'' and that the words ``a failure to act'' in proposed 
Sec. 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 Sec. 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

[[Page 6364]]

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 Sec. 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 Sec. 438.706 that says the

[[Page 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 
Sec. 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 
Sec. 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 Sec. 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 
Sec. 438.710(b) requires that a hearing be provided before a contract 
is terminated, Sec. 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 Sec. 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 Sec. 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

[[Page 6366]]

services are provided in a manner ``consistent with * * * the best 
interests of recipients,'' we are adding Sec. 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 
Sec. 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 Sec. 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 Sec. 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 Secs. 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 Sec. 438.708(a) and 
Sec. 438.706(b) as codified at Sec. 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 pre-termination 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 Sec. 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,

[[Page 6367]]

the statutory requirement for pre-termination 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 Sec. 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 Sec. 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-for-service. 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 Sec. 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 
Sec. 434.67, which has been redesignated as Sec. 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

[[Page 6368]]

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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 (Sec. 438.802)

    Proposed Sec. 438.802 was based on the existing Sec. 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 Sec. 438.802(c) 
represents a more stringent standard than the long-standing standard in 
Sec. 434.70(b), arguing that the proposed standard is ``much too 
onerous.'' The commenter noted that under Sec. 434.70(b), FFP could be 
withheld if an MCO ``substantially fails to carry out the terms of the 
contract,'' while under proposed Sec. 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 Sec. 438.802, Sec. 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 Sec. 438.802, however, Sec. 434.70(a) is also based on 
FFP on meeting ``appropriate requirements of 45 CFR part 74.'' Proposed 
Sec. 438.802 dropped this latter condition. Proposed Sec. 438.802 was 
less stringent than Sec. 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 Sec. 438.802(c) 
imposes a stricter standard than Sec. 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,

[[Page 6369]]

we have substituted ``substantial compliance'' for ``compliance'' in 
the Basic Requirements section, both in Sec. 438.802(c) and 
Sec. 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 Sec. 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 
Sec. 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-for-service 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 
Sec. 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, 
Sec. 438.6(c)(1)(i)(B) requires that payment rates be ``appropriate for 
the populations to be covered,'' and Sec. 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 (Sec. 438.806)

    Proposed Sec. 438.806 was based on Sec. 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 
Sec. 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 Sec. 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 (Sec. 438.808)

    Proposed Sec. 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 (Sec. 438.810)

    Proposed Sec. 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:
    <bullet> 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.
    <bullet> 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.

    <bullet> 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 
Sec. 438.810. Although section 1903(b)(4) of the Act and Sec. 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 Sec. 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

[[Page 6370]]

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 Sec. 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 Sec. 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

[[Page 6371]]

the expenditure of substantial amounts of funds under the State plan. 
The conflict of interest language in Sec. 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, Sec. 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 (Sec. 438.812)

    Proposed Sec. 438.812 was transferred in its entirety from previous 
Secs. 434.74 and 434.75 and was unchanged in the proposed rule. 
Proposed Sec. 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 Sec. 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 (fee-for-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-for-service Medicaid.
    Comment: One commenter noted that the proposed rule discussion of 
Sec. 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 
Sec. 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 (Sec. 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 
Sec. 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 
Secs. 435.212 and 435.326 to reflect the new terminology adopted by the 
BBA (for example, ``MCO'' and ``MCE''). We also proposed a new 
Sec. 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 Sec. 447.46(f) implementing the timely claims payment 
requirements in section 1932(f), and a new Sec. 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 Sec. 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 Federally-qualified 
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 Sec. 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 Sec. 438.6(j) set forth the minimum 
contract requirements States must have with their primary care case 
managers.
    Proposed Sec. 440.168(a) set forth the definition of primary care 
case management services, for case

[[Page 6372]]

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 
Sec. 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 Sec. 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 Sec. 447.46.
    Comment: One commenter objected generally to the requirements in 
proposed Sec. 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-for-
service 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 Sec. 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

[[Page 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 self-implementing 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 micro-managing 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

[[Page 6374]]

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

[[Page 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

[[Page 6376]]

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

[[Page 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 non-Medicaid 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 non-emergency 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 Sec. 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,

[[Page 6378]]

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 
Sec. 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, 
Sec. 438.206 requires that the delivery network meet the needs of the 
population served and that access to services be guaranteed, while 
under Sec. 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 Sec. 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 non-medical 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 
non-hospital 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 Sec. 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., Sec. 438.210(a) 
requires that contracts specify the services the entity is required to 
provide, and Sec. 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 Sec. 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.

[[Page 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, Sec. 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., Sec. 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

[[Page 6380]]

outside the scope of this rulemaking. We note, however, that levels of 
participation in managed care settings have been higher than under fee-
for-service 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, Sec. 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 Sec. 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 
Sec. 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, Sec. 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:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> 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, Sec. 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 
Sec. 438.6 on PHPs, including advance

[[Page 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, Sec. 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:
    <bullet> Kinds of benefits, and amount, duration, and scope of 
benefits available under the contract; enrollee rights as specified in 
Sec. 438.100.
    <bullet> Procedures for obtaining benefits, including authorization 
requirements.
    <bullet> 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.
    <bullet> Any restrictions on the enrollee's freedom of choice among 
network providers.
    <bullet> The extent to which, and how, enrollees may obtain 
benefits, including family planning services, from out-of-network 
providers.
    <bullet> The extent to which, and how, after-hours and emergency 
coverage are provided.
    <bullet> Policy on referrals for specialty care and for other 
benefits not furnished by the enrollee's primary care provider.
    <bullet> Cost sharing, if any.
    <bullet> Grievance, appeal, and fair hearing procedures for 
enrollees, including time-frames, required under Sec. 438.414(b).
    <bullet> Any appeal rights that the State chooses to make available 
to providers to challenge the failure of the organization to cover a 
service.
    <bullet> 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.
    <bullet> Information on how to obtain continued services during a 
transition, as provided in Sec. 438.62.
    <bullet> The rules for emergency and post-stabilization services, 
as set forth in Sec. 438.114.
    <bullet> 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, Sec. 438.10(f) requires that information related to 
the licensure, certification, and accreditation status of MCOs, PHPs, 
and their providers be

[[Page 6382]]

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, Sec. 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.

[[Page 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 Sec. 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 post-stabilization 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 Sec. 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 
Sec. 438.204(b)(1)(iii) that a State identify the race, ethnicity, and 
primary language spoken by each MCO

[[Page 6384]]

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 Sec. 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 Sec. 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 
Sec. 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 Sec. 438.240(d)(3) States 
are to ensure that each MCO and PHP initiates each year one or more 
performance improvement projects. In Sec. 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 Sec. 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.

[[Page 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, Sec. 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, Sec. 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, Sec. 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, Sec. 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 
Sec. 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 Sec. 438.414 (b)(1) through (6).
    In addition, Sec. 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 Sec. 438.416(e), 
regarding the nature of enrollee grievances and their resolution.

[[Page 6386]]

    (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 Sec. 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, Sec. 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 Sec. 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 
Sec. 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.

[[Page 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 Sec. 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 
Sec. 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 Sec. 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 Sec. 430.5 and moving the definitions of capitation 
payment, federally qualified HMO, health insuring organization, nonrisk 
contract, prepaid health plan, and risk contract from Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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

[[Page 6388]]

responsibility provisions of Subpart B (except for the State plan 
provisions in Sec. 438.50).

Section 438.10

    We have revised this section to include the substantive 
requirements from Sec. 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 Sec. 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 Sec. 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 Sec. 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:
    <bullet> 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.
    <bullet> At lease once every 12 months thereafter.
    <bullet> Upon automatic reenrollment, if the temporary loss of 
Medicaid eligibility has caused the recipient to miss the annual 
disenrollment opportunity.
    <bullet> When the State imposes an intermediate sanction, as 
specified in Sec. 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:
    <bullet> 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.
    <bullet> The plan does not, because of moral or religious objects, 
cover the service the enrollee seeks.
    <bullet> 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

[[Page 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:
    <bullet> Children and adults receiving SSI benefits.
    <bullet> Children in Title IV-E foster care.
    <bullet> Recipients aged 65 or older.
    <bullet> Any other recipients whose care is paid for under State-
established, risk-adjusted, high-cost payment categories.
    <bullet> 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--
    <bullet> The enrollee has access to services consistent with the 
State plan and is referred to appropriate health care providers.
    <bullet> Consistent with Federal and State law, new providers are 
able to obtain copies of appropriate medical records.
    <bullet> 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 Sec. 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 Sec. 438.320 to this 
section. We revised the enrollee rights in paragraph (b) to include the 
following two rights:
    <bullet> To obtain a second opinion from an appropriately qualified 
health care professional in accordance with Sec. 438.3206(d)(3).
    <bullet> 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--
    <bullet> 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.
    <bullet> To participate in decisions regarding his or her health 
care, including the right to refuse treatment.
    <bullet> To request and receive a copy of his or her medical 
records and to request that they be amended or corrected, in accordance 
with Sec. 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 
Sec. 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 Sec. 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.

[[Page 6390]]

Section 438.110

    We have moved the provisions related to assurances of adequate 
capacity and services to Sec. 438.207.

Section 438.114

    We have removed the definitions of emergency medical condition, 
emergency services, and post-stabilization 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:
    <bullet> The MCO
    <bullet> The primary care case manager that has a risk contract
    <bullet> The State, in the case of a primary care case manager that 
has a fee-for-service 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 (Sec. 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 Secs. 438.300 to 438.342. In this final 
rule, this subpart has been relocated as Subpart D and the sections 
are numbered as Secs. 438.200 to 438.242. Sections referenced herein 
use the Secs. 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 out-of-
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-for-service. 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 Sec. 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 Sec. 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

[[Page 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 
Sec. 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:
    <bullet> 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, State-established, risk-adjusted, higher-cost 
payment categories; and
++Any other category of recipients identified by HCFA

    <bullet> Other enrollees known to be pregnant or to have special 
health care needs
    <bullet> 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 --
    <bullet> Be appropriate to the conditions and needs identified and 
assessed;
    <bullet> Be for a specific period of time and periodically updated;
    <bullet> Specify a standing referral or an adequate number of 
direct access visits to specialists;
    <bullet> Ensure adequate coordination of care among providers;
    <bullet> Be developed with enrollee participation; and
    <bullet> 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 Sec. 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 Sec. 438.224 and 
the information system requirements of Sec. 438.242.

[[Page 6392]]

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 Sec. 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 Sec. 438.10 and 
clarified that the information requirements that States must meet under 
Sec. 438.10 constitute part of the State's quality strategy.

Section 438.320  Enrollee Rights

    We have moved the requirements regarding enrollee rights to 
Sec. 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

[[Page 6393]]

subparagraph (b)(5) that, consistent with the requirements in 
Secs. 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--
    <bullet> Are based, in part, on valid and reliable clinical 
evidence as opposed to ``reasonable medical evidence''; and
    <bullet> 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 HIV-Infected 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 Sec. 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 Sec. 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 Sec. 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

[[Page 6394]]

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 State-established 
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 
Sec. 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 
Sec. 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

[[Page 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 Sec. 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 Sec. 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 Sec. 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:
    <bullet> The MCO's Chief Executive Officer (CEO)
    <bullet> The MCO's Chief Financial Officer (CFO)
    <bullet> 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:
    <bullet> Written policies, procedures, and standards of conduct 
that articulate the organization's commitment to comply with all 
applicable Federal and State standards.
    <bullet> The designation of a compliance officer and a compliance 
committee that are accountable to senior management.
    <bullet> Effective training and education for the compliance 
officer and the organization's employees.
    <bullet> Effective lines of communication between the compliance 
officer and the organization's employees.
    <bullet> Enforcement of standards through well-publicized 
disciplinary guidelines.
    <bullet> Provision of internal monitoring and auditing.
    <bullet> 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 
Sec. 438.702(b) to this section for clarity. In the new paragraph (d) 
we provide that the intermediate sanctions described in 
Sec. 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 Sec. 434.67. We have moved the requirements 
that were previously in Sec. 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

[[Page 6396]]

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 Sec. 438.718. We have moved the requirements 
relating to mandatory imposition of the sanction of temporary 
management from this section to Sec. 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 
Sec. 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 Sec. 438.708.

Section 438.720

    We have removed this section and moved the requirements relating to 
pre-termination hearing to Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 438.6(c).

[[Page 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:
    <bullet> Permitting States to require in their State plan that 
Medicaid beneficiaries be enrolled in managed care.
    <bullet> Eliminating the requirement that no more than 75 percent 
of enrollees in an MCO or PHP be Medicaid or Medicare enrollees.
    <bullet> Specifying a grievance and appeal procedure for MCO and 
PHP enrollees.
    <bullet> Providing for the types of information that must be given 
to enrollees and potential enrollees, including language and format 
requirements.
    <bullet> 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.
    <bullet> Specifying quality standards for States and MCOs and PHPs.
    <bullet> Increasing program integrity protections and requiring 
certification of data by MCOs and PHPs.
    <bullet> Increasing the threshold for prior approval of MCO and PHP 
contracts from $100,000 to $1 million.
    <bullet> Permitting cost sharing for managed care enrollees under 
the same circumstances as permitted in fee-for-service.
    <bullet> Expanding the managed care population for which States can 
provide 6 months of guaranteed eligibility.
    <bullet> 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

[[Page 6398]]

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.

[[Page 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 State-
specific 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

[[Page 6400]]

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:
    <bullet> 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.
    <bullet> 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

[[Page 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 two-thirds 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 Sec. 447.361 with new rate-setting rules incorporating 
an expanded requirement for actuarial soundness of capitation rates as 
described in detail in Sec. 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

[[Page 6402]]

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).


Sec. 400.203  [Amended]

    2. In Sec. 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 Sec. 430.5 is added, to read as follows:


Sec. 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 Sec. 431.51, the following changes are made:
    a. In paragraph (a) introductory text, ``and 1915(a) and (b) of the 
Act.'' is

[[Page 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:


Sec. 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 Sec. 431.55, a sentence is added at the end of paragraph 
(c)(1)(i) to read as follows:


Sec. 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:


Sec. 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 pre-admission screening or the 
annual resident review that are required by section 1919(e)(7) of the 
Act.


Sec. 431.201  [Amended]

    5. In Sec. 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 Sec. 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:


Sec. 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.
* * * * *


Sec. 431.244  [Amended]

    7. In Sec. 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 
Sec. 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 Sec. 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 Sec. 434.1, paragraph (a) is revised to read as follows:


Sec. 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.
* * * * *


Sec. 434.2  [Amended]

    3. In Sec. 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.


Secs. 434.6  [Amended]

    4. In paragraph (a)(1), ``Appendix G'' is removed.


Sec. 434.20 through 434.38  [Removed]

    5. Subpart C, consisting of Secs. 434.20 through 434.38, is removed 
and reserved.


Secs. 434.42 and 434.44  [Removed]

    6. In subpart D, Secs. 434.42 and 434.44 are removed.


Secs. 434.50 and 434.67  [Removed]

    7. Subpart E, consisting of Secs. 434.50 through 434.67, is removed 
and reserved.

    8. Section 434.70 is revised to read as follows:


Sec. 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--

[[Page 6404]]

    (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.


Secs. 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 Sec. 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:


Sec. 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:


Sec. 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 
Sec. 435.212, it may provide it under the same rules to medically needy 
recipients who are enrolled in MCOs or PCCMs.


Sec. 435.1002  [Amended]

    4. In Sec. 435.1002, in paragraph (a), ``Secs. 435.1007 and 
435.1008'' is revised to read Secs. 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


Sec. 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

[[Page 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.


Sec. 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 Sec. 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 Sec. 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.


Sec. 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 Sec. 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 cost-
neutral methods, across rate cells, to

[[Page 6406]]

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 Sec. 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 
Sec. 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 
Sec. 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 Secs. 422.208 
and 422.210 of this chapter.
    (2) In applying the provisions of Secs. 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 Sec. 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 Sec. 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 re-
enrollment, based on the recipient's health status or need for health 
care services.

[[Page 6407]]

    (5) Provide that enrollees have the right to disenroll from their 
PCCM in accordance with Sec. 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.


Sec. 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 Sec. 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 Sec. 438.10.
    (c) The provision against provider discrimination in Sec. 438.12.
    (d) The State responsibility provisions of subpart B except 
Sec. 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.


Sec. 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

[[Page 6408]]

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 Sec. 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-of-network 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 Sec. 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 Sec. 438.62.
    (xiv) The rules for emergency and post-stabilization services, as 
set forth in Sec. 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 cost-sharing, 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.

[[Page 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.


Sec. 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 Sec. 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


Sec. 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 Sec. 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 Sec. 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.


Sec. 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

[[Page 6410]]

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 Sec. 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 Sec. 438.56(c).


Sec. 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 
Sec. 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 Sec. 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.


Sec. 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

[[Page 6411]]

enrollment process specified in Sec. 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).


Sec. 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.


Sec. 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, risk-adjusted, 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.


Sec. 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.


Sec. 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


Sec. 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 Sec. 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 Sec. 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 
Secs. 438.206 through 438.210.
    (ii) To obtain a second opinion from an appropriately qualified 
health care professional in accordance with Sec. 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 
Sec. 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).


Sec. 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.

[[Page 6412]]

    (iii) The risks, benefits, and consequences of treatment or non-
treatment.
    (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 Sec. 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 
Sec. 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 Sec. 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 Secs. 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.


Sec. 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 Sec. 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 Sec. 431.12 of this chapter or an 
advisory committee with similar membership.


Sec. 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.


Sec. 438.108  Cost sharing.

    The contract must provide that any cost sharing imposed on Medicaid 
enrollees is in accordance with Secs. 447.50 through 447.60 of this 
chapter.


Sec. 438.114  Emergency and post-stabilization services.

    (a) Definitions. As used in this section--
    Emergency medical condition has the meaning given the term in 
Sec. 422.113(b) of this chapter.
    Emergency services has the meaning given the term in 
Sec. 422.113(b) of this chapter.
    Post-stabilization care services has the meaning given the term in 
Sec. 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

[[Page 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 
Sec. 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 post-
stabilization 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 Sec. 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: Post-stabilization services. Post-
stabilization care services are covered and paid for in accordance with 
provisions set forth at Sec. 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.


Sec. 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


Sec. 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.


Sec. 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.


Sec. 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

[[Page 6414]]

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


Sec. 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 Sec. 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 
Sec. 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 State-established 
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.


Sec. 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 
Sec. 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--

[[Page 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 Sec. 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.


Sec. 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, State-established, 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 Sec. 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 
Sec. 438.224 and the information system requirements of Sec. 438.242.

[[Page 6416]]

Sec. 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 age-appropriate 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 Sec. 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 Sec. 438.6(g), and 
Sec. 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


Sec. 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

[[Page 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 Sec. 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.


Sec. 438.218  Enrollee information.

    The requirements that States must meet under Sec. 438.10 constitute 
part of the State's quality strategy at Sec. 438.204.


Sec. 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.


Sec. 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 
Sec. 438.56.


Sec. 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.


Sec. 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 Secs. 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


Sec. 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.


Sec. 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

[[Page 6418]]

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 
Sec. 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.


Sec. 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


Sec. 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;

[[Page 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 Sec. 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.


Sec. 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 
Sec. 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 Sec. 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.


Sec. 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 Sec. 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 Secs. 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 Sec. 438.210(d)
    (4) If the MCO or PHP extends the timeframe in accordance with 
Sec. 438.210(d), it must--
    (i) Give the enrollee written notice of the reason for the decision 
to extend the

[[Page 6420]]

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 Sec. 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 Sec. 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.


Sec. 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 
Sec. 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 
decision-making; 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 Sec. 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.


Sec. 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 State-established 
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 Sec. 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

[[Page 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 Sec. 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.


Sec. 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.

[[Page 6422]]

Sec. 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 Sec. 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 Sec. 438.10(b) and (c), and must be furnished to 
enrollees and potential enrollees at the times specified in 
Sec. 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 
Sec. 438.416(d).


Sec. 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 
Sec. 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.


Sec. 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 Sec. 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 
Sec. 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 Sec. 431.230(b) of this chapter.


Sec. 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.


Sec. 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 Sec. 438.416 provide the basis 
for

[[Page 6423]]

monitoring by the MCO or PHP, and by the State.
    (b) Responsibility for corrective action. If the summaries required 
under paragraph (d) of Sec. 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


Sec. 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.


Sec. 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.


Sec. 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 Sec. 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 Sec. 438.606, for all documents specified by the State.


Sec. 438.606  Source, content, and timing of certification.

    (a) Source of certification. With respect to the data specified in 
Sec. 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.


Sec. 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


Sec. 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 Sec. 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 Secs. 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 
Sec. 438.702(a)(4) and (a)(5) may be imposed.)


Sec. 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 Sec. 438.704.
    (2) Appointment of temporary management as provided in 
Sec. 438.706. (The State may not impose this sanction on a PCCM.)

[[Page 6424]]

    (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 Sec. 438.700, as well as additional areas of 
noncompliance. Nothing in this subpart prevents State agencies from 
exercising that authority.


Sec. 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 Sec. 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 Sec. 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 Sec. 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.


Sec. 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 Sec. 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 
Sec. 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 Sec. 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.


Sec. 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.


Sec. 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 Sec. 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 Sec. 438.10, 
on their options for receiving Medicaid services following the 
effective date of termination.


Sec. 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.


Sec. 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.


Sec. 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.


Sec. 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 
Sec. 438.700(b)(1) through (b)(6).

[[Page 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


Sec. 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 
Secs. 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.


Sec. 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 Sec. 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.


Sec. 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 Sec. 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.


Sec. 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

[[Page 6426]]

    (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.


Sec. 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.


Sec. 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 Sec. 440.168 is added, to read as follows:


Sec. 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 Sec. 447.46 is added, to read as follows:


Sec. 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 Sec. 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 Sec. 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.


Sec. 447.53  [Amended]

    3. In Sec. 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.


Sec. 447.58  [Amended]

    5. In Sec. 447.58, ``Except for HMO services subject to the 
copayment exclusion in Sec. 447.53(b)(6), if `` is removed and ``If'' 
is inserted in its place.

    6. A new Sec. 447.60 is added to subpart A to read as follows:


Sec. 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 Secs. 447.50 and 447.53 through 447.58 for 
cost-sharing charges imposed by the State agency.


Sec. 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