Transforming Medicaid Oct 2016

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TRANSFORMING MEDICAID TO NEW LEVELS OF QUALITY, SERVICES, AND FINANCIAL PERFORMANCEA DST White Paper: October 2016

By Richard Popper, Director of Medicaid Business Strategy, DST Health Solutions

2Learn More www.dsthealth.com

IntroductionThis year, the Centers for Medicare & Medicaid Services (CMS) finalized the first overhaul of Medicaid and the Children’s Health Insurance Program (CHIP) regulations in more than a decade. The new Medicaid managed care rule revises the program’s regulatory framework with extensive impacts for managed Medicaid plans across the United States. The provisions of this new rule, titled Medicaid and Children’s Health Insurance Program (CHIP) Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, and Revisions Related to Third Party Liability (CMS-2390-F), will be implemented in phases over three years, starting July 1, 2017.¹

Almost two-thirds of the 72 million Medicaid beneficiaries are enrolled in managed care plans.² The extent and impact will differ state by state. Some states are already achieving certain standards the new rule now requires – such as quality of care measurement and reporting standards and the 85% medical loss ratio (MLR) – while others are not. The goal of the regulation is to modernize and standardize key Medicaid regulations by aligning them with national Medicare and Health Insurance Marketplace standards. This increased uniformity makes sense, considering many consumers transition between Medicaid and Marketplace plans as their incomes rise and fall or family circumstances change. Also, some families have members enrolled in different programs – adults covered by Marketplace plans and children covered by CHIP or Medicaid.

The new Medicaid rule advances CMS efforts to transform the healthcare system to support better care, improve health, and lower costs. The rule additionally applies most of these new Medicaid requirements to the CHIP program and aligns other existing CHIP requirements with Medicaid standards. Both states and managed Medicaid plans are now assessing if they have the people, processes, and technology necessary to meet the new requirements. For some provisions, plans will need to wait for additional CMS guidance and state implementation decisions. Plans will then need to adjust business processes to come up to par to meet standards they are not yet achieving.

This white paper explores some of the key provisions in this extensive regulation that will create new administrative challenges for managed Medicaid plans and help plans begin identifying the steps they need to take to meet the complexity in the new requirements as they are phased in.

Highlighted provisions include:

• Quality-of-care measurement and monitoring

• Plan payment and expenditures

• Outpatient drug standards

• Medical necessity and standardized appeal

While this paper touches on these major changes, there are numerous other provisions that are not included in this paper. We discuss new regulations that we believe will have substantial administrative impact on most states and managed Medicaid and CHIP plans as they operationalize these new requirements.

Both states and managed Medicaid plans are now assessing if they have the people, processes, and technology necessary to meet the new requirements.

• Encounter submissions

• Value and alternative payment arrangements

• Managed long-term services and supports (MLTSS)


Payments and Spending

Drugs

Coverage

Data

Increases MLR to minimum of 85%

Expands standards for capitation rates paid by states to plans

Sets outpatient drug standards

Codifies definition of “medical necessity”

Sets a single review for all appeals

Reduces decision period for appeals from 45 to 30 days

Requires states to validate encounter data through audits

Contracts starting or after July 2017





The New Rule: Timing: When does CMS Require Compliance?

ValueAllows states to pursue value-based purchasing gradually or promptly Contracts starting or after July 2017

Long-Term Care for Elderly and Disabled

Requires plans to comprehensively and routinely assess member care needs

Allows states to require that MLTSS plans automate provider payments for dual-eligible Medicare deductibles and copays


QualityStandardizes quality-of-care measurement and monitoring

May 2019: Adopt CMS quality measurement system or receive approval of alternative system

Over the next 3 to 5 years: Quality measures will be refined by CMS

THE 2016 MEDICAID MANAGED CARE RULE HIGHLIGHTED PROVISIONS


Quality-of-Care Measurement and MonitoringOver the past 10 years, CMS has launched an expanding range of health plan quality rating requirements designed to support higher quality care and educate consumers about the performance and effectiveness of their health plan options. Examples include the Medicare Advantage 5-Star Rating System and a newly established quality-rating system for the federal and state-based Marketplaces. Both rating systems provide national standards for consumers to evaluate satisfaction when choosing plan sponsors.

CMS has previously required states that contract with Medicaid managed care organizations (MCOs) to establish a quality measurement program that includes an annual external quality review. CMS encouraged voluntary use and reporting of core quality measures by states, using standard measures from measure developers such as the National Committee for Quality Assurance (NCQA) for the Healthcare Effectiveness Data and Information Set (HEDIS®) and Consumer Assessment of Healthcare Providers and Systems (CAHPS) measures; the Joint Commission; the Pharmacy Quality Alliance; and others.³ However, as with many facets of Medicaid, prior to the new regulation CMS provided significant flexibility for states to develop the quality metrics and surveys and then utilize and disseminate the MCO quality results. The Medicaid managed care regulation reflects a significant deviation from CMS’s past flexibility. Medicaid MCO quality ratings will become more standardized with requirements all states must meet in developing, implementing, and publishing their ratings.

The Medicaid quality measurement in the new managed care regulation will have major impacts over the next three to five years.

Plans will be required to establish a more comprehensive rating system. The standardized Medicaid quality rating system will have the same criteria as Marketplace Qualified Health Plans in the following categories:

• Clinical quality management, calculated by select HEDIS measures

• Member experience with their health plans and providers, reflected in CAHPS member survey scores

• Plan efficiency, affordability, and management, reflected in appropriate treatment measures

The Medicaid quality measures for all states will be determined and refined by CMS over the next three to five years through a robust public engagement process. State Medicaid programs must either adopt this quality measurement program or propose an alternative system that must be approved by CMS by May 2019.

States will be required to display the results of their Medicaid quality rating system(s) prominently online.Displaying quality results publically will help ensure that consumers and other stakeholders have access to the quality ratings to assist them in choosing a health plan.

Managed Medicaid plan quality ratings will become more standardized with requirements all states must meet in developing, implementing, and publishing their ratings.


States will be required to establish a separate managed care monitoring system for all Medicaid plans.This new MCO oversight requirement compels states to have formal, ongoing, data-driven monitoring activities that track results on a plan-specific basis for each of the following:

• Administration and management

• Appeal and grievance systems

• Claims management

• Enrollee materials and customer services

• Finance, including MLR reporting

• Information systems, including encounter data reporting

• Long-term services and supports

• Marketing

• Medical management, including utilization management

• Program integrity

• Provider network management

• Availability and access of services

• Quality improvement

• Provider network adequacy

• Beneficiary support, including plan selection guidance and managed care education

States must provide an annual assessment covering all of these aspects of managed care operational activities. While state Medicaid managed care programs already monitor a variety of activities, few formally monitor all 15 of these required categories and publish an annual assessment report. CMS’s goal in establishing these requirements for state Medicaid monitoring is to enhance the level and consistency of health plan evaluation and ultimately to improve plan performance.

While all states with managed Medicaid monitor plan quality and performance, the level of effort, measurement, data collection, and transparency are not equivalent. The new monitoring standards will require some states to dramatically augment their activities, which in turn will increase reporting and monitoring efforts for Medicaid plans in those states. Alternatively, other states that already have significant measurement and monitoring programs will need to modify their activities to align with the new and evolving federal standards.


Plan Payment and ExpendituresThe federal rule specifies expanded requirements regarding how states calculate capitation rates paid to MCOs for the risk of covering Medicaid beneficiaries. It also sets a minimum level that plans must spend on member clinical and quality improvement.

State Payment to PlansAs required under federal law, the regulation asserts the existing legal requirement that payments to MCOs be actuarially sound for services included in their contract with the state. Beginning with contracts effective July 1, 2018, the CMS rule for states expands prior requirements by mandating adequate capitation rates. The rates must be sufficient to ensure plans can meet their requirements regarding the availability of services, adequate networks and capacity, and coordination and continuity of care provided to enrollees. Payment rates under one Medicaid group rate cell must not subsidize the payment rate under any other. To enforce these requirements, states would be required to obtain both actuarial certification that the rates are sound, followed by CMS approval of the rate certification. Thus, the rule intends to move Medicaid managed care towards a sounder rate-setting foundation. The goal is to assure adequate payment for covered care and quality. Medicaid plan payment rates are frequently subject to the pressures of state budget constraints. The way in which CMS implements and enforces these additional financial standards in the next few years will be of interest to Medicaid plans, providers, and other program stakeholders.

Plan Expenditure Requirements – the 85% MLRSince the Medicaid rule adds additional requirements for states to provide payment rates that accurately reflect the cost of efficient covered health services to beneficiaries, CMS additionally mandates that plans allocate an appropriate amount of their revenue to healthcare and related costs. The regulation provides for this by establishing that at least 85% of payments received by the plan must be spent on healthcare claims or on quality improvement expenses.

Starting in 2012, the Affordable Care Act (ACA) mandated that Medicare, individual, small group, and large group market insurers spend a minimum percentage (80% for individual and small group, 85% for large group and Medicare) of their premium revenue on health claims or quality improvement expenses. This is referred to as a medical loss ratio. The MLR has the practical effect of limiting the amount that insurers can allocate to administrative costs and profits. The Medicaid rule expands the application of MLR to Medicaid beginning in plan year July 1, 2017. It sets the MLR at 85% which is equivalent to the requirement for Medicare and large group plans. The rule also allows states to set higher medical loss ratios. If Medicaid plans do not meet the 85% MLR standard, states can take that into account in setting plan payment rates in the subsequent years and can also require plans to remit back payments to the state and federal governments.

The new rule sets the MLR at 85%, which is equivalent to the requirement for Medicare and large group plans. The rule also allows states to set higher medical loss ratios.


A Medical Loss Ratio of 85% requires plans to spend at least 85% of their premium revenue on clinical services and quality improvement. This graphic displays in the denominator the major types of health plan income that are included in total revenue for the calculation of the Medicaid plan loss ratio. The items in the numerator reflect major plan expense types that can be included as losses to meet the 85% ratio. All other types of expenses are categorized as administrative costs. These costs plus earnings cannot exceed 15% of plan revenue.

• Claims• State solvency fund payments• Provider withholds & bonus• Health quality activities• Rx rebates received and accrued• Fraud prevention• Incurred but not reported• Change in reserves• Fraud recoveries

• Total premiums/capitation, less tax/license fees & community benefit contributions

• State withhold payments• State "kick" payments• Unbilled member cost share• Change in premium reserve• Net of risk sharing receipts/

payment

Expense categories included as losses when calculating MLR

Income categories included in total revenue when calculating MLR

85% MEDICAID MLR REQUIREMENT

.85

1.00


Outpatient Drug StandardsThe regulation includes a few measures affecting Medicaid MCO’s coverage of prescription drugs, which are effective July 1, 2017:

• MCOs are now required to report drug utilization data necessary for the state to bill for manufacturer rebates within 45 calendar days after the end of each quarterly rebate period. This data must include information on the total number of units of each dosage, strength, and package size for each covered outpatient drug dispensed or covered by the plan. MCOs are required to have procedures to exclude utilization data for drugs subject to discounts under the 340B Drug Pricing Program, if the state requires plans to omit such drugs from plan reports, in order to avoid duplicate discounts.

• Federal requirements regarding outpatient drugs that apply to state-run Medicaid drug coverage will also apply to MCO plan contracts. The rule allows MCOs to continue to maintain their own drug formularies. However, when there is a medical need for an outpatient drug that is not on a plan formulary – but is within the scope of the contract – the plan must cover the drug under a prior authorization process. Alternatively, the state could cover such outpatient drugs directly on a fee-for-service basis.

• MCOs covering outpatient drugs must operate a drug utilization review program to assure that prescription are:

1. Appropriate

2. Medically necessary

3. Not likely to result in adverse medical results

Plans must provide an annual, detailed description of its utilization program to the state. Plans must also conduct prior authorization processes for covered drugs by telephone or other communication device within 24 hours of the request and dispense a 72-hour supply of a covered outpatient drug in an emergency situation.

Medical Necessity and Standardized AppealsTo support the goal of aligning requirements for Medicaid with Medicare and commercial plan requirements, the new rule includes higher national Medicaid standards for medical necessity, emergency care, and appeals and grievances.

Medical NecessityEach state’s current MCO contract lists or refers to specific covered services and can include a state-specific definition of “medical necessity.” The Medicaid rule increases uniformity by codifying a federal medical necessity standard, specifying services that plans must cover. These required services include prevention, diagnosis, and treatment of any medical condition that:

• Results in impairment or disability

• Prevents someone from achieving age-appropriate growth and development or functional capacity

Also, if members are eligible for coverage of long-term services and supports, plans must cover those services that will allow them to experience the benefits of community living.

Plan coverage determinations pertaining to specific benefits and the above necessity standard must be made in 14 calendar days, with expedited decisions to be made in 72 hours if the member’s life, health, or function necessitates a quicker decision.

The Medicaid rule increases uniformity by codifying a federal medical necessity standard, specifying services that plans must cover.


Standardized AppealsTo increase Medicaid’s uniformity with Medicare and private insurance, the approved rule modifies several requirements regarding the process and timeliness of plan grievances and appeals. Starting July 1, 2017, plans are only allowed one level of internal appeal for adverse benefit determinations.

About timing:• The rule sets a standard period of 60 calendar days

by which a plan member can file an appeal (grievances for plan service-related complaints can be filed at any time).

• Once members complete the appeal, they can seek an external State Fair Hearing if requested within 120 days.

• The rule narrows the period by which a plan must render a decision from 45 to 30 calendar days, with 72 hours for expedited appeals, where a delay could seriously jeopardize the enrollee’s life, health, or ability for maximum function.

Encounter SubmissionsThe 2010 ACA included a requirement that states collect plan encounter data as a condition for receiving federal Medicaid matching payments. In the Medicaid managed care rule, CMS adds specificity to this statutory provision with requirements for how plan systems must generate the data. It also specifies how states use the data for monitoring plan rates and finances, independently validate it, and provide collected encounter data to CMS.

All three major CMS health coverage programs (Medicaid, Medicare, and Health Insurance Marketplace) require contracted health plans to provide encounter data, using different approaches. In the preamble of the recent Medicaid rule, CMS states that “encounter data are the basis for any number of required activities, including rate setting, risk adjustment, quality measurement, value-based purchasing, program integrity, and policy development.” The rule requires that plan encounter data be submitted to states for rate setting and enforcement of the new 85% MLR standard. Thus, encounter submissions are much more than a contract-required report. They are a financial monitoring tool. CMS expects states to analyze encounter submission data and then pass it on to federal program managers. Under the regulation, plans must have health information systems capable of collecting and reporting encounter data. The requirements apply to both traditional Medicaid plan coverage of children and adults, as well as to Medicaid long-term services and supports plans.

The Medicaid rule further requires states to validate received encounter data by conducting independent audits of the accuracy, truthfulness, and completeness of plans’ encounter and financial data submitted no less than once every three years. While some of these encounter data requirements from the Medicaid managed care rule are already applied in certain states, all states must enforce them on plan contracts starting on or after July 1, 2017.

Value and Alternative Payment ArrangementsA wide variety of stakeholders, including employers, commercial carriers, the US Congress, and many state Medicaid programs are encouraging the development of alternative payment or value-based reimbursement of providers to modify or even supplant the traditional fee-for-service system.

Some state Medicaid programs have embraced dramatic, system-wide healthcare delivery reform in this area, which typically requires a Section 1115 waiver of federal law. Other states are not pursuing broad system reforms. The Medicaid managed care regulation allows states to implement more gradual innovations in provider payment and incentives without seeking complex federal waivers. This can be accomplished through plan pass-through payments and targeted delivery system payments. The rule also permits states to require plans to participate in actuarially sound multi-payer reform efforts, as well as alternative payment structures, in order to implement value-based purchasing models. States and plans are allowed to target these innovative approaches to a class of providers. CMS does set some parameters, such as a requirement that payments under incentive arrangements may not exceed 105% of the approved capitation rate “since such total payments will not be considered to be actuarially sound.” These rule changes further open the door to state payment innovations, either gradual or more ambitious.

Plans must have health information systems capable of collecting and reporting encounter data. This data is essential since it is used for a variety of purposes, such as rate setting, risk adjustment, and quality measurement.


Managed Long-Term Services and SupportsA major trend in Medicaid during the past 15 years is the increasing number of states utilizing MLTSS care plans. A growing number of states are moving low income or disabled elderly individuals who are eligible for add-on community-based services for their daily living activities into MLTSS plans. This managed care strategy is one of the few approaches available to states to try to constrain the growth in Medicaid spending for long-term care. The Medicaid managed care rule, for the first time, provides regulations specific to MLTSS. The new requirements reflect best-practice strategies that CMS has already implemented in its financial alignment demonstration for those dually eligible for Medicare and Medicaid. This CMS demonstration was rolled out in 12 states through integrated Medicare-Medicaid Plans. The MLTSS provisions in the new regulation require plans to comprehensively assess beneficiaries upon enrollment and routinely thereafter through reassessments. Care plans, through which plans authorize member service levels, must be person-centered and must be created in consultation with the member, their family, and providers. In addition, the regulation’s quality of care measurement and monitoring provisions, described earlier, also apply specific measures to MLTSS coverage. Most of these provisions took effect in July 2016, 60 days after the final regulation was published.

Additionally, the regulation gives states the authority to require Medicaid MLTSS plans that cover dual eligibles to automatically process payments to providers for Medicaid’s coverage of Medicare copays and deductibles. In most states, providers currently must separately bill both Medicare for the base claim and the Medicaid agency or MLTSS plan to cover the Medicare deductibles and copays that duals are not responsible for. If states exercise new authority under the CMS regulation, MLTSS plans would receive weekly data feeds of Medicare coverage transactions from the CMS Benefit and Coordination Recovery Center. Then the Medicaid plan would adjudicate against these data feeds to cover Medicare deductibles and copays.

ConclusionKey provisions in this large-scale Medicaid regulation create new complexities, which will continue to evolve as CMS and states release implementation guidance for managed Medicaid plans in the coming months and years. While this paper touches on many of the major changes contained in the rule, there are other provisions, such as those effecting provider networks and directories and enrollment and marketing, which are not included in this paper. The need for additional support with people, processes, and technology will vary across states since they differ significantly in their approach to the delivery of healthcare and are at different points in coming up to par with these new standards. While adjusting various processes to comply with new Medicaid rules, plans have an opportunity to find new ways to create a strategic advantage with higher levels of quality care, consumer experience, program integrity, and efficiency.

Contributors:Rayvelle A. Stallings, MDVice President of Government ProgramsArgus Health Systems

David Baker, PharmDDirector, Pharmacy Government ContractingArgus Health Systems

Eric MuellerDirector of Medicaid and HIM ProgramsArgus Health Systems

The Medicaid managed care rule, for the first time, provides regulations specific to managed long-term services and supports.


MEDICAID MANAGED CARE REGULATION REQUIREMENT MEDICAID MANAGED CARE REGULATION REQUIREMENT

Quality of Care Measurement and Monitoring

CareAnalyzer® measures and reports quality standards with NCQA-approved HEDIS methodology and identifies patient risk gaps while providing recommendations for better care.

Medical Loss RatioBusiness Process Outsourcing services provide cost-effective administrative solutions to help meet the 85% MLR.

Outpatient Prescription DrugsPrescription drug solutions include drug formulary and prior authorization services, supplemental Medicaid rebates, and medical-benefit drug management including HCPCS to NDC-11 translation.

Medical Necessity StandardizationsCareConnectTM contains a full suite of care and medical management administrative tools.

Appeals and Grievance Standardization and Timeliness

AWD Grievance & AppealsTM solution can track all member appeals and can be configured for state-specific requirements and processes.

Encounter ReportingClaims platforms and Business Process Outsourcing services generate encounters for multiple states and programs, including Medicaid, CHIP, Marketplace, Medicare, and dual eligibles.

Value and Alternative Payment Arrangements

Our Quality Performance Suite Modules can link quality performance data with claims platforms to produce • Pay-for-performance and alternative payment metrics

• Actionable feedback and peer performance reports for providers.

Medicaid Managed Long-Term Services and Supports

Our claims platforms can administer non-traditional benefits, including home attendant services, adult day care, non-ER transport, and home modifications.

How We Can HelpDST has enterprise-wide solutions and resources to assist health plans with the implementation of many of these new Medicaid managed care requirements. We are actively assessing these and other evolving requirements to update and expand our services to help health plans meet these requirements. Our solutions are designed to help plans achieve new levels of quality, service, and financial performance.

Learn More www.dsthealth.com

HS-WP-TransformingMedicaid-102016-02

© 2016 DST Systems, Inc.

References¹ Federal Register. Medicaid and Children's Health Insurance Program (CHIP) Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, and Revisions Related to Third Party Liability. https://www.federalregister.gov/articles/2016/05/06/2016-09581/medicaid-and-childrens-health-insurance-program-chip-programs-medicaid-managed-care-chip-delivered. Published May 6, 2016. Accessed September 27, 2016.

² HHS.gov. HHS issues major rule modernizing Medicaid managed care. http://www.hhs.gov/about/news/2016/04/25/hhs-issues-major-rule-modernizing-medicaid-managed-care.html. Published April 25, 2016. Accessed September 27, 2016.

³ Medicaid.gov. Core Set of Adult Health Care Quality Measures for Medicaid (Adult core Set). https://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Quality-of-Care/Downloads/Medicaid-Adult-Core-Set-Manual.pdf; https://www.medicaid.gov/medicaid-chip-program-information/by-topics/quality-of-care/chipra-initial-core-set-of-childrens-health-care-quality-measures.html. Published June 2016. Accessed September 27, 2016.

About DST DST Systems, Inc. (NYSE: DST) is a leading provider of specialized technology, strategic advisory, and business operations outsourcing to the financial and healthcare industries. We enable clients to transform complexity into strategic advantage by helping them continually stay ahead of and capitalize on ever-changing customer, business and regulatory requirements in the world’s most demanding industries. For more information, visit the DST website at www.dstsystems.com.

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Transforming Medicaid Oct 2016

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