On April 25th CMS released the long-awaited final Medicaid Managed Care Regulations, which will be published in the Federal Register on May 5th and codified at 42 C.F.R. Part 438.   While the number of Medicaid managed care beneficiaries has grown exponentially in recent years, this is the first significant update to the Medicaid managed care regulations in about 15 years.  At the same time, the expansion of Medicare managed care and the Affordable Care Act marketplace plans has made it necessary for CMS to consider alignment among different types of managed care plans (herein MCOs ) that it regulates.  This builds upon other CMS alignment efforts.  For example, CMS has been testing a number of Medicaid and Medicare changes and alignment of Medicaid and Medicare rules through the Financial Alignment Demonstrations.  While balancing state and federal responsibilities, this new rule establishes a more involved federal role in the oversight of Medicaid managed care plans, reflecting CMS’s view that a strong federal floor is necessary to assure quality, access to care, and program integrity.   

While some of this rule will take effect immediately and some will take effect in 2017 or later, states, MCOs and providers must begin to plan now.  States will need to update laws, regulations, and managed care contracts.  Health plans will need to consider the impact of these new regulations on operations and contracting.  Providers will need to consider how program integrity, quality, and reporting provisions will require providers to make changes to their operations and ultimately will require changes to participating provider contracts with MCOs.  Since most provisions applicable to MCOs are now required to flow down to their providers, it is important for providers to familiarize themselves with these new regulations.  


  • Medical Loss Ratio – The rule imposes an 85% Medical Loss Ratio (MLR) on health plans, meaning MCOs must spend at least 85% of their revenue on health care services.  An MCO that fails to meet the MLR standard will be required to pay a remittance to the state Medicaid program.  
  • Pass-Through Payments – The rule phases out upper payment limit payments and other supplemental payments that are made to providers via MCOs.  CMS encourages (but does not require) MCOs and providers to enter into value-based payment arrangements instead. 
  • Network Adequacy- The rule strikes a balance by requiring time and distance standards for certain provider types, but not specifying what those standards are.  Specific standards are left to state discretion. The rule also applies Medicare Advantage network adequacy rules to Medicare-Medicaid Plans. 
  • Enrollment- CMS struck a provision that would have created a 14 day fee-for-service (FFS) period prior to enrollment into managed care. 
  • LTSS/ Special Health Care Needs-   This rule requires states to identify enrollees who need long term supports and services (LTSS) or have special health care needs (which CMS declines to define), for the purposes of assuring that plans provide appropriate services to these populations. 
  • MLTSS- The regulations define managed long term services and supports (MLTSS) as “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.” 
  • Program Integrity- This rule requires the state to screen and enroll all MCO providers.  In response to comments, the regulations allow MCOs to enter into network provider agreements pending the state screening process, for up to 120 days. 
  • Appeals- In an effort to align the processes for Medicare and Medicaid appeals, the rule adopts a number of Medicare timelines and processes for Medicaid appeals. 
  • Oversight- CMS finalizes its new requirement for state monitoring standards (and identifies 14 areas that states are required to monitor), and will offer technical assistance and additional sub-regulatory guidance to states.  CMS will also require states to engage in a plan readiness review that must be completed at least 3 months prior to implementation of a new program. 
  • Quality-
    • CMS articulates the importance of transparency, stakeholder engagement and alignment with other federal payment programs.  CMS also reiterates its intent to create national quality measures, following a process that will include public notice and opportunity for comment by stakeholders.
    • CMS is establishing a Medicaid Managed Care Quality Rating System (MMC QRS) that aligns with the current rating system for marketplace plans.  CMS expects to publish the MMC QRS in 2018 and notes that states must implement such rating system three years after such a publication (2021).
    • CMS proposed that states be required to develop a comprehensive quality strategy that includes both managed care and FFS.   After considering comments, CMS has limited the requirement to managed care plans, but not to Medicaid fee-for-service.

Please contact a member of the firm’s health law practice with any questions about this topic.


1 Until the rule is published, it is available here: https://s3.amazonaws.com/public-inspection.federalregister.gov/2016-09581.pdf    

2 For the purpose of this alert, the term “MCOs” includes all types of Medicaid health plans. 


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Mallory M. Regenbogen




Mallory Regenbogen’s practice is concentrated in the area of health care law.  She works primarily with hospitals and other health care institutions on business, regulatory, and compliance matters.

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