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CMS finalizes 85 percent medical loss ratio for Medicaid private managed care plans

Insurers must spend at least 85 percent of their Medicaid revenue on medical care to improve quality.

Susan Morse, Senior Editor

The Centers for Medicare and Medicaid Services on Monday released a new rule that updates how Medicaid works for the nearly two-thirds of beneficiaries who get their coverage through private managed care plans.

The final rule represents the first major overhaul of Medicaid managed care requirements in more than a decade.

It aligns key rules and practices with those of marketplace and Medicare Advantage, including the addition of reporting medical loss ratio to Medicaid to ensure managed care plans focus on delivering care, not profits, CMS said.

The rule finalizes a medical loss ratio at 85 percent. Insurers must spend at least 85 percent of their Medicaid revenue on medical care to improve quality. The remaining 15 percent may be spent for administrative reasons such as salaries and marketing, CMS said.

Health plans that don't meet the goal will face future penalties in having their state rates lowered.

The rule changes current policy for pass-through payments, which were established by Congress to foster innovative medical devices, drugs and biologicals without increasing costs.

America's Essential Hospitals said it was disappointed that the new rule prohibits states from making pass-through payments to providers through health plans, but was pleased CMS was allowing 10 years for the transition.

The policy has the potential to adversely affect vulnerable patients, which was acknowledge by CMS, America's Essential Hospitals said.

"CMS is correct to note that in today's funding environment, 'pass-through payments have served as a critical source of support for safety net providers who provide care to Medicaid beneficiaries,'" said President and CEO Bruce Siegel, MD.

The rule also addresses network adequacy and quality of care standards.

An estimated 72 million Americans currently rely on Medicaid as their source of health insurance coverage, 14 million more than in 2013, CMS said. This is largely due to the Affordable Care Act's coverage expansion.

The improvements modernize the way managed care health plans operate so that Medicaid and CHIP continue to provide cost-effective, high quality care to consumers, according to Monday's announcement by Andy Slavitt, CMS acting administrator and Vikki Wachino, CMS deputy administrator and director for the Center for Medicaid and CHIP Services.

The rule strengthens states' efforts to support delivery system reform and authorizes the first-ever Medicaid and CHIP quality rating system so that states can publicly report plan quality information, and people can use that information to select plans, CMS said.

It also improves communications, such as electronic notices to beneficiaries and creating online provider directories.