§438.3. Standard contract requirements. — Inbound Citations

(1) All contract provisions in § 438.3 except requirements for:

(i) Physician incentive plans at § 438.3(i).

(ii) Advance directives at § 438.3(j).

(iii) LTSS requirements at § 438.3(o).

(iv) MHPAEA at § 438.3(n).

(2) A State with a projected ILOS cost percentage that exceeds 1.5 percent is also required to provide the following documentation concurrent with the contract submission for review and approval by CMS under § 438.3(a).

(i) A description of the process and supporting evidence the State used to determine that each ILOS is a medically appropriate service or setting for the clinically defined target population(s), consistent with paragraph (d)(1)(iii) of this section.

(ii) A description of the process and supporting data the State used to determine that each ILOS is a cost effective substitute for the clinically defined target population(s), consistent with paragraph (d)(1)(iii) of this section.

(i) Sufficiently in advance to enable CMS to make a determination that the contract entered into as specified at § 438.207(c)(1) is approved under § 438.3(a).

(iii) Submitted to CMS for CMS to make a determination that the contract or contract amendment associated with an event described in paragraph (d)(1) of this section is approved under § 438.3(a).

(a) States must submit to CMS for review and approval, all MCO, PIHP, and PAHP rate certifications concurrent with the review and approval process for contracts as specified in § 438.3(a).

(i) State capitation payments, developed in accordance with § 438.4, to the MCO, PIHP, or PAHP for all enrollees under a risk contract approved under § 438.3(a), excluding payments made under § 438.6(d).

(b) The State may enter into a comprehensive risk contract only with the entities specified in § 438.3(b)(1) through (3) of this chapter.

(1) CMS has confirmed that the contractor meets the definition of an MCO or is one of the entities described in paragraphs (b)(2) through (5) of § 438.3.

(b) The State may enter into a comprehensive risk contract only with the entities specified in § 438.3(b)(1) through (3) of this chapter.

(1) CMS has confirmed that the contractor meets the definition of an MCO or is one of the entities described in paragraphs (b)(2) through (5) of § 438.3.

(b) The State may enter into a comprehensive risk contract only with the entities specified in § 438.3(b)(1) through (3) of this chapter.

(1) CMS has confirmed that the contractor meets the definition of an MCO or is one of the entities described in paragraphs (b)(2) through (5) of § 438.3.

(1) CMS has confirmed that the contractor meets the definition of an MCO or is one of the entities described in paragraphs (b)(2) through (5) of § 438.3.

(iii) Not modify the capitation rates within the rate range, unless the State is increasing or decreasing the capitation rate per rate cell within the rate range up to 1 percent during the rating period. However, any changes of the capitation rate within the permissible 1 percent range must be consistent with a modification of the contract as required in § 438.3(c) and are subject to the requirements at paragraph (b)(1) of this section. Any modification to the capitation rates within the rate range greater than the permissible 1 percent range will require the State to provide a revised rate certification for CMS approval, which demonstrates that—

(A) The criteria in paragraph (c)(1)(iv) of this section, as described in the initial rate certification, were not applied accurately;

(B) There was a material error in the data, assumptions, or methodologies used to develop the initial rate certification and that the modifications are necessary to correct the error; or

(6) The final capitation rate for each MCO, PIHP, or PAHP as described in § 438.3(c) must account for all State directed payments. Each State directed payment must be accounted for in the base data, as an adjustment to trend, or as an adjustment as specified in § 438.5 and § 438.7(b). The State cannot withhold a portion of the capitation rate to pay the MCO, PIHP, or PAHP separately for a State directed payment nor require an MCO, PIHP, or PAHP to retain a portion of the capitation rate separately to comply with a State directed payment.

(iii) Application of an approved risk adjustment methodology to capitation rates does not require a revised rate certification because payment of capitation rates as modified by the approved risk adjustment methodology must be within the scope of the original rate certification. The State must provide to CMS the payment terms updated by the application of the risk adjustment methodology consistent with § 438.3(c).

(c) The final capitation rates for all MCO, PIHP or PAHP contracts must be identified and developed, and payment must be made in accordance with §§ 438.3(c) and 438.16(c)(1) through (3) of this chapter, except that the requirement for preapproval of contracts, certifications by an actuary, annual cost reports, contract arrangements described in § 438.6(c), and references to pass through payments do not apply, and contract rates must be submitted to CMS upon request of the Secretary.

(6) Be certified by an actuary as meeting the applicable requirements of this part, including that the rates have been developed in accordance with the requirements specified in § 438.3(c)(1)(ii) and (e).

(6) Be certified by an actuary as meeting the applicable requirements of this part, including that the rates have been developed in accordance with the requirements specified in § 438.3(c)(1)(ii) and (e).

(e) The development of the non-benefit component of the rate must include reasonable, appropriate, and attainable expenses related to MCO, PIHP, or PAHP administration, taxes, licensing and regulatory fees, contribution to reserves, risk margin, cost of capital, and other operational costs associated with the provision of services identified in § 438.3(c)(1)(ii) to the populations covered under the contract.

(d) An IMCE may restrict its enrollment to Indians in the same manner as Indian Health Programs, as defined in 25 U.S.C. 1603(12), may restrict the delivery of services to Indians, without being in violation of the requirements in § 438.3(d).

(d) Contracts with MCOs, PAHPs, PIHPs, PCCMs and PCCM entities must comply with prohibitions on enrollment discrimination in accordance with § 438.3(d) of this chapter, except that § 438.3(d)(2) of this chapter (related to voluntary enrollment) does not apply.

(d) Contracts with MCOs, PAHPs, PIHPs, PCCMs and PCCM entities must comply with prohibitions on enrollment discrimination in accordance with § 438.3(d) of this chapter, except that § 438.3(d)(2) of this chapter (related to voluntary enrollment) does not apply.

(3) The State may increase or decrease the capitation rate per rate cell, as required in paragraph (c) of this section and § 438.4(b)(4), up to 1.5 percent during the rating period without submitting a revised rate certification, as required under paragraph (a) of this section. However, any changes of the capitation rate within the permissible range must be consistent with a modification of the contract as required in § 438.3(c) and are subject to the requirements at § 438.4(b)(1). Notwithstanding the provisions in paragraph (c) of this section, CMS may require a State to provide documentation that modifications to the capitation rate comply with the requirements in §§ 438.3(c) and (e) and 438.4(b)(1).

(A) Direct claims that the MCO, PIHP, or PAHP paid to providers (including under capitated contracts with network providers) for services or supplies covered under the contract and services meeting the requirements of § 438.3(e) provided to enrollees.

(e) An MCO, PIHP, or PAHP may cover, for enrollees, services that are not covered under the State plan in accordance with §§ 438.3(e) and 438.16(b), (d), and (e) of this chapter, except that references to § 438.7, IMDs, and rate certifications do not apply and that references to enrollee rights and protections under part 438 should be read to refer to the rights and protections under subparts K and L of this part.

(ii) Is described in section 9517(c)(3) of the Omnibus Budget Reconciliation Act of 1985 (as amended by section 4734 of the Omnibus Budget Reconciliation Act of 1990 and section 205 of the Medicare Improvements for Patients and Providers Act of 2008).

In lieu of service or setting (ILOS) is a service or setting that is provided to an enrollee as a substitute for a covered service or setting under the State plan in accordance with § 438.3(e)(2). An ILOS can be used as an immediate or longer-term substitute for a covered service or setting under the State plan, or when the ILOS can be expected to reduce or prevent the future need to utilize the covered service or setting under the State plan.

Long-term services and supports (LTSS) means services and supports provided to beneficiaries of all ages who have functional limitations and/or chronic illnesses that have the primary purpose of supporting the ability of the beneficiary to live or work in the setting of their choice, which may include the individual's home, a worksite, a provider-owned or controlled residential setting, a nursing facility, or other institutional setting.

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—

(6) A description of any of the special contract provisions related to payment in § 438.6 and ILOS in § 438.3(e)(2) that are applied in the contract.

(e) The State may make a monthly capitation payment to an MCO or PIHP for an enrollee aged 21-64 receiving inpatient treatment in an Institution for Mental Diseases, as defined in § 435.1010 of this chapter, so long as the facility is a hospital providing mental health or substance use disorder inpatient care or a sub-acute facility providing mental health or substance use disorder crisis residential services, and length of stay in the IMD is for a short term stay of no more than 15 days during the period of the monthly capitation payment. The provision of inpatient mental health or substance use disorder treatment in an IMD must meet the requirements for in lieu of services at § 438.3(e)(2)(i) through (iii). For purposes of rate setting, the State may use the utilization of services provided to an enrollee under this section when developing the inpatient mental health or substance use disorder component of the capitation rate, but must price utilization at the cost of the same services through providers included under the State plan.

(ix) Enrollee rights and responsibilities, including the elements specified in § 438.100 and, if applicable, § 438.3(e)(2)(ii).

(v) The enrollee rights and protections, as defined in § 438.3(e)(2)(ii); and

(e) The State may make a monthly capitation payment to an MCO or PIHP for an enrollee aged 21-64 receiving inpatient treatment in an Institution for Mental Diseases, as defined in § 435.1010 of this chapter, so long as the facility is a hospital providing mental health or substance use disorder inpatient care or a sub-acute facility providing mental health or substance use disorder crisis residential services, and length of stay in the IMD is for a short term stay of no more than 15 days during the period of the monthly capitation payment. The provision of inpatient mental health or substance use disorder treatment in an IMD must meet the requirements for in lieu of services at § 438.3(e)(2)(i) through (iii). For purposes of rate setting, the State may use the utilization of services provided to an enrollee under this section when developing the inpatient mental health or substance use disorder component of the capitation rate, but must price utilization at the cost of the same services through providers included under the State plan.

(1) A State is required to submit at least one retrospective evaluation of all ILOSs to CMS when the final ILOS cost percentage exceeds 1.5 percent in any of the first 5 rating periods that each ILOS is authorized and identified in the MCO, PIHP, or PAHP contract as required under § 438.3(e)(2)(iii) following the applicability date in paragraph (f) of this section, or as required in paragraph (v) of this section. The retrospective evaluation must:

(i) Be completed separately for each managed care program that includes an ILOS and include all ILOSs in that managed care program.

(ii) Be completed using 5 years of accurate and validated data for the ILOS with the basis of the data being the first 5 rating periods that the ILOS is authorized and identified in the MCO, PIHP, or PAHP contract as required under § 438.3(e)(2)(iii). The State must utilize these data to at least evaluate cost, utilization, access, grievances and appeals, and quality of care for each ILOS.

(A) The impact each ILOS had on utilization of State plan approved services or settings, including any associated cost savings;

(B) Trends in MCO, PIHP, or PAHP and enrollee use of each ILOS;

(C) Whether encounter data supports the State's determination that each ILOS is a medically appropriate and cost effective substitute for the identified covered service and setting under the State plan or a cost effective measure to reduce or prevent the future need to utilize the covered service and setting under the State plan;

(D) The impact of each ILOS on quality of care;

(E) The final ILOS cost percentage for each year consistent with the report in paragraph (c)(5)(ii) of this section with a declaration of compliance with the allowable threshold in paragraph (c)(1)(i) of this section;

(F) Appeals, grievances, and State fair hearings data, reported separately, related to each ILOS, including volume, reason, resolution status, and trends; and

(G) The impact each ILOS had on health equity efforts undertaken by the State to mitigate health disparities.

(iv) The State must submit the retrospective evaluation to CMS no later than 2 years after the later of either the completion of the first 5 rating periods that the ILOS is authorized and identified in the MCO, PIHP, or PAHP contract as required under § 438.3(e)(2)(iii) or the rating period that has a final ILOS cost percentage that exceeds 1.5 percent.

(e) The State may make a monthly capitation payment to an MCO or PIHP for an enrollee aged 21-64 receiving inpatient treatment in an Institution for Mental Diseases, as defined in § 435.1010 of this chapter, so long as the facility is a hospital providing mental health or substance use disorder inpatient care or a sub-acute facility providing mental health or substance use disorder crisis residential services, and length of stay in the IMD is for a short term stay of no more than 15 days during the period of the monthly capitation payment. The provision of inpatient mental health or substance use disorder treatment in an IMD must meet the requirements for in lieu of services at § 438.3(e)(2)(i) through (iii). For purposes of rate setting, the State may use the utilization of services provided to an enrollee under this section when developing the inpatient mental health or substance use disorder component of the capitation rate, but must price utilization at the cost of the same services through providers included under the State plan.

(f) Contracts with MCOs, PAHPs, PIHPs, PCCMs or PCCM entities must comply with Federal laws and regulations in accordance with § 438.3(f) of this chapter.

(g) Contracts with MCOs, PIHPs, PAHPs, PCCMs or PCCM entities must allow for the inspection and audit of records and access to facilities in accordance with § 438.3(h) of this chapter.

(3) The MCO, PIHP, PAHP and, when appropriate, the PCCM entity must make available, upon request, any physician incentive plans in place as set forth in § 438.3(i).

(e) Each contract between a State and MCO, PIHP, or PAHP must provide that, consistent with §§ 438.3(i), and 422.208 of this chapter, compensation to individuals or entities that conduct utilization management activities is not structured so as to provide incentives for the individual or entity to deny, limit, or discontinue medically necessary services to any enrollee.

(i) Physician incentive plans at § 438.3(i).

(h) If a contract with an MCO, PAHP, or PIHP provides for a physician incentive plan, it must comply with § 438.3(i) of this chapter (which cross references §§ 422.208 and 422.210 of this chapter).

(e) The State, through its contract with the MCO, PIHP or PAHP, must require that incentive payment contracts between managed care plans and network providers meet the requirements as specified in §§ 438.3(i)(3) and (4).

(e) The State, through its contract with the MCO, PIHP or PAHP, must require that incentive payment contracts between managed care plans and network providers meet the requirements as specified in §§ 438.3(i)(3) and (4).

(xii) How to exercise an advance directive, as set forth in § 438.3(j). For PAHPs, information must be provided only to the extent that the PAHP includes any of the providers described in § 489.102(a) of this chapter.

(ii) Advance directives at § 438.3(j).

(j) The contract must allow each enrollee to choose his or her network provider in accordance with § 438.3(l) of this chapter.

(1) States must provide all the validated encounter data, FFS data (as appropriate), and audited financial reports (as defined in § 438.3(m)) that demonstrate experience for the populations to be served by the MCO, PIHP, or PAHP to the actuary developing the capitation rates for at least the three most recent and complete years prior to the rating period.

(xi) A comparison of the information reported in this paragraph with the audited financial report required under § 438.3(m).

(k) Contracts with MCOs, PAHPs, and PIHPs must comply with the requirements for submission of audited financial reports in § 438.3(m) of this chapter.

(iv) MHPAEA at § 438.3(n).

(iii) LTSS requirements at § 438.3(o).

(m) Contracts with PCCMs must comply with the requirements of § 438.3(q) of this chapter, except that the right to disenroll is in accordance with § 457.1212.

(c) All fee-for-service (FFS) and managed care DUR reports received by CMS under paragraph (b) of this section and, as applicable, pursuant to § 438.3(s) of this chapter, will be publicly posted on a website maintained by CMS for the sharing of reports and other information concerning Medicaid DUR programs.

(q) Contracts with MCOs, PIHPs, and PAHPs, must comply with the recordkeeping requirements of § 438.3(u) of this chapter.

(d) States will not be held out of compliance with the following requirements of this subpart prior to the dates established at §§ 438.3(v), 438.10(j), 438.16(f), 438.68(h), 438.206(d), 438.207(g), 438.310(d), 438.505(a)(2), 438.602(j), and 438.608(f) of this chapter, so long as they comply with the corresponding standard(s) of this subpart, edition revised as of July 9, 2024. States will not be held out of compliance with the requirement at § 457.1207 to post comparative summary results of enrollee experience surveys by managed care plan annually on State websites, nor the requirement for States to evaluate annual enrollee experience survey results as part of the State's annual analysis of network adequacy as described at § 457.1230(b), so long as they comply with the corresponding standard(s) of this subpart, 2 years after July 9, 2024.