On April 22, 2024, the Centers for Medicare & Medicaid Services (CMS) issued the Medicaid and Children’s Health Insurance Program Managed Care Access, Finance and Quality Final Rule, a final rule that updates several regulatory requirements for states in their implementation of their Medicaid managed care program  (the “Managed Care Final Rule”).

This Insight covers some of the Managed Care Final Rule’s important changes to the federal regulations governing the use of managed care delivery systems for Medicaid benefits.


The Managed Care Final Rule:

  1. covers standards for timely access to care, including requirements for states' monitoring and enforcement efforts;
  2. enhances program integrity standards for implementing some state directed payments (SDPs), as well as requiring certain quality reporting requirements;
  3. establishes new standards that will apply when states use in lieu of services and settings (ILOSs) to promote effective utilization and that indicate the scope and nature of ILOSs;
  4. specifies certain medical loss ratio (MLR) requirements; and
  5. establishes a quality rating system for Medicaid and Children’s Health Insurance Program (CHIP) managed care plans.


CMS’s interest in ensuring network adequacy is not new. The federal regulations have long included requirements for states to meet (by flowing the requirements down to their managed care plans[1]) as proxies for measuring whether there were enough providers to meet the needs of the Medicaid managed care beneficiaries in that state. However, the Managed Care Final Rule materially expands the existing quantitative network adequacy requirements to include specific appointment wait time standards for the first time to be codified at 42 CFR §438.6(e). This requirement will apply as outlined in the following table:

Service Type[2]

Appointment Wait Time

Routine Outpatient Mental Health and Substance Use Disorder Treatment—adults and children

10 days

Routine Primary Care—adults and children

15 days

Routine Obstetrics and Gynecology

10 days

The wait times provided herein reflect the primary care appointment wait times provided for in the Affordable Care Act. Interestingly, the Managed Care Final Rule requires shorter (i.e., more stringent) appointment wait times for outpatient mental health and substance use disorder treatment and obstetrics and gynecology, likely under the rationale that these services are to be considered more “primary care-like” than “specialty-like” and to align with the Biden administration’s broader strategies on mental health parity and the mental health and opioid epidemics. In addition to the above, each state is required to select an additional service type and impose appointment wait times for those providers. States will have the discretion to create appointment wait times based on the specific market characteristics in that state.

The Managed Care Final Rule also clarifies that the existing exception process available to managed care organizations (MCOs) will be available with regard to the new appointment wait times. Currently, states have the discretion to permit an exception to a provider network standard, provided that the MCO “monitor enrollee access to that provider type on an ongoing basis and include the findings to CMS in the managed care program assessment report required under 438.66.”[3] However, states must now consider the payment rates offered by the managed care plan to the provider in determining whether to grant the exception.

At this point, CMS has opted only to require appointment wait times for routine appointments as “providers utilize more complex condition and patient-specific protocols and clinical standards of care to determine scheduling for urgent and emergent care.”[4] However, CMS has not indicated that the above list is exhaustive, and it may address standards for other provider appointment types in future rules.

States will have three years from the effective date of the Managed Care Final Rule to comply with the appointment wait time standards.

To validate managed care plans’ compliance with appointment wait time standards, states will also be required to use an independent entity to conduct annual secret shopper surveys. The secret shopper programs will also test the accuracy of provider directories to identify errors and determine whether they include providers that do not offer appointments. CMS acknowledged that many states and managed care plans already use some sort of survey—whether by “secret” shoppers, which do not disclose the entity for which the survey is being performed or by “revealed” shoppers, which identify the entity for which the survey is being performed—but that the purpose of promulgating regulations requiring secret shoppers is to provide enough consistency to Medicaid managed care programs so that they can be adequately compared.

States will be required to conduct an annual enrollee experience survey for each managed care plan as well as implement a remedy plan for any managed care plan that needs improvement in meeting required access standards. Should a secret shopper survey identify provider directory errors, the states must be notified of the error by the independent entity within three business days of the identification of the error. The MCO, prepaid inpatient health plan (PIHP), prepaid ambulatory health plan (PAHP), or primary care case management (PCCM) must then update the electronic provider directory no later than 30 days after receiving notification of the error. CMS notes that provider directory errors identified in secret shopper surveys will not change a managed care plan’s compliance rate.

While states will be required to use secret shopper surveys to validate provider directory data accuracy and appointment wait time standards, CMS is providing states with flexibility in structuring their surveys so that states may collect additional information to assist in program monitoring and to help achieve other programmatic goals. To ensure transparency of the data produced from secret shopper surveys, the results from the secret shopper surveys are to be reported to CMS and posted on the state’s website.

Because a critical aspect of secret shopper surveys is to measure compliance with the new appointment wait time standards, secret shopper surveys will begin to be required one year after the applicability date for the appointment wait time standards. States are allowed, however, to implement their secret shopper surveys prior to the required start date.

State Directed Payments

States often use SDPs[5] as a means of stepping around the direction that managed care plans have to negotiate rates with their participating providers. Through the use of an SDP, states may choose to make specified payments to providers as a part of fulfilling certain policy objectives (e.g., to bolster funding to combat related access issues or to reward providers for meeting certain program goals). The Managed Care Final Rule implements several changes to the authorized use of SDPs, two of which have a particular impact on providers.

First, by removing the word “network” from the provisions covering SDPs,[6] states now have the authority to direct SDP dollars through managed care plans to providers that are outside of the plan’s network. States support this flexibility as, for example, a mechanism to ensure access from otherwise non-participating providers (e.g., specialists, out-of-state but border-town providers) by requiring that managed plans reimburse such providers at minimum rates. Conversely, other commenters expressed concern that such SDPs would disincentivize providers from going in-network, given the potential for enhanced rates as a non-participating provider.

Second, and despite broadening the number of providers potentially eligible for SDPs, the Managed Care Final Rule also creates a statewide cap on the total payment rate for SDPs paid to inpatient hospital services, outpatient hospital services, qualified practitioner services at an academic medical center, and nursing facility services. CMS will reject proposed SDP proposals when the total payment rate for directed payments for these four services exceeds the Average Commercial Rate (ACR) for the same under the rationale that the Medicaid rates are no longer “reasonable, appropriate, and attainable.”[7] The Managed Care Final Rule underscores that the cap is limited only to these such where the state is easily able to calculate an ACR and purposefully carves out heavily Medicaid-funded services, such as home and community-based services, mental health services, substance use disorder services, and obstetrics and gynecology. However, this provision is of significant concern to several providers, especially those hospital systems that may be largely responsible for the provision of health care services to a rural or urban safety net population. (These commenters even acknowledge that their concern persists despite CMS finalizing the ACR cap, which is higher than the alternative cap tying SDP payments to the Medicare rate.) Further, commenters express concern about the potential for audits, overpayments, and recoupments should the SDPs exceed the ACR; however, the risk of dealing with overpayments and recoupments is unclear as, in the preamble language, CMS focuses its enforcement forward-looking. Rather than responding directly to the comments about audits, overpayments, and recoupments, CMS instead notes that it will use the “data collected from States on the actual final payment rates … [and] if the actual final payment rates differ from what was projected, at minimum, we will use this information to inform future reviews of SDPs.”[8]

Medical Loss Ratio

A Medical Loss Ratio (MLR) is used by CMS and states to determine how much a managed care plan is actually spending on quality and care-related services for beneficiaries rather than administrative expenses. Generally, managed care plans calculate and submit their MLR to the state, which then submits those reports to CMS. The Managed Care Final Rule changes how managed care plans calculate and submit their MLR.

As part of their MLR reports to states, managed care plans will now need to submit actual expenditures and revenues for SDPs. In summary, final capitation rates must account for SDPs, and each SDP must be accounted for in the base data. Simultaneously, states are prohibited from either withholding a portion of the capitation rate to pay the managed care plan separately for an SDP or requiring a managed care plan to retain a portion of the capitation rate separately to fulfill the contractual requirement of an SDP.

Also, the Managed Care Final Rule incorporated technical revisions for quality improvement expenditures, provider incentive payments, and expense allocation reporting to align with recent regulatory changes for Marketplace plans. CMS hopes these changes will provide states with more detailed quality information to improve MLR reporting consistency and allow for better MLR data comparisons between the private market and Medicaid and CHIP markets while also reducing the administrative burden for managed care plans.

In a shift from the proposed rules, the Managed Care Final Rule now requires managed care plans to report any identified or recovered overpayments to states within 30 calendar days, as opposed to 10 business days.

In Lieu of Service and Setting

ILOSs are services provided by a managed care plan that aren’t normally covered under the state’s contract with CMS. Nonetheless, ILOSs are an innovative option for managed care plans to provide covered services and settings, or even reduce or prevent the need for covered services and settings. Accordingly, the Managed Care Final Rule requires that an ILOS be considered approvable as a service or setting through the Medicaid state plan or a Medicaid section 1915(c) waiver.

Similarly, CMS is expanding its use of ILOSs as it acknowledges that they can improve population health, reduce health inequities, and lower overall health care costs in Medicaid and CHIP. Furthermore, CMS now believes that ILOSs can be used as immediate or longer-term substitutes for state plan-covered services and settings, or when the ILOSs can be expected to reduce or prevent the future need to utilize the state plan-covered services and settings.

However, managed care plans and states must now take certain steps when providing an ILOS:

  1. Specific information must be documented in managed care plan contracts for each ILOS.
  2. States must further document their processes to determine whether an ILOS is medically appropriate and cost-effective if ILOS costs (as a percentage of total capitation payments) exceed 1.5 percent.
  3. States must perform ongoing monitoring of each ILOS and an evaluation after five years if ILOS costs (as a percentage of total capitation payments) exceed 1.5 percent.
  4. States are required to develop a transition plan to arrange for state plan services and settings to be provided timely if an ILOS will be terminated.

While there are other, new requirements for providing ILOSs, it is clear CMS is hoping to expand the use of ILOSs through the Managed Care Final Rule.


The Managed Care Final Rule made two major changes to quality: First, CMS made major changes to existing External Quality Review (EQR) requirements. Annually, states and other entities must compile data on quality, timeliness, and access to the health care services furnished to Medicaid and CHIP beneficiaries enrolled in managed care, which is then produced in a technical report to CMS.

In the Managed Care Final Rule, CMS proposed several changes to the EQR regulations that seek to accomplish two overarching goals: (i) eliminate unnecessary, burdensome requirements and (ii) make EQR more meaningful for driving quality improvement.

To meet these goals, the Managed Care Final Rule (i) requires more meaningful and targeted data and information to be included in the annual EQR reports, (ii) makes it easier for states to use accreditation reviews for EQR, (iii) increases public engagement around states’ managed care quality strategies, and (iv) eliminates EQR requirements from PCCM entities.

Previously, states had a lack of uniformity when determining the review period for compiling the above data. To fix this, the Managed Care Final Rule establishes consistent 12-month review periods for the annual EQR activities to ensure the reports contain the most recent data and information.

Second, the Medicaid and CHIP Managed Care Quality Rating System (“MAC QRS”) requirements currently include public posting of quality ratings on a state’s website, which is intended to provide beneficiaries and their caregivers with a web-based interface to compare Medicaid and CHIP managed care plans based on assigned performance indicators and ratings.

As described in previous rulemaking, the policy objectives of the MAC QRS are threefold: (i) to hold states and plans accountable for the care provided to Medicaid and CHIP beneficiaries, (ii) to empower beneficiaries with useful information about the plans available to them, and (iii) to provide a tool for states to drive improvements in plan performance and the quality of care provided by their programs.

To better meet these goals, the Managed Care Final Rule essentially holds states to a minimum federal standard for their rating systems: CMS has created a framework and state requirements for the MAC QRS (including an initial set of mandatory measures for the quality ratings), and the process by which the mandatory measures would be updated in the future.

Furthermore, it establishes the state’s MAC QRS website as a state’s “one-stop-shop,” where beneficiaries can access information about Medicaid and CHIP eligibility and managed care; compare managed care plans based on quality and other factors key to beneficiary decision making, such as the plan’s drug formulary and provider network; and ultimately select a plan that meets their needs.

The Managed Care Final Rule also broadens flexibility for states to request to implement an alternative MAC QRS in addition to the CMS-identified mandatory measures.

* * * *

This Insight was authored by Jeremy A. Avila, Melissa A. Borrelli, Kevin J. Malone, John M. Puente, James M. Reilly, Marjorie T. Scher, and William Walters. For additional information about the issues discussed in this Insight, please contact one of the authors or the Epstein Becker Green Health Care and Life Sciences attorney who regularly handles your legal matters.


[1] The requirements discussed in this section will apply to managed care organizations (MCOs), prepaid inpatient health plans (PIHP), and prepaid ambulatory health plans (PAHP). The requirements will not apply to managed care plans that are also D-SNPs in Medicare Advantage.

[2] CMS notes that the decision to include mental health/ SUD, primary care, and OBGYN because “they are indicators of core population health …. [R]equiring States to set appointment wait time standards for them will have the most impact on access to care for Medicaid and CHIP managed care enrollees.” FR 2024-08085 at 31.

[3] 42 CFR 438.68(d).

[4] FR 2024-08085 at 32.

[5] The Managed Care Final Rule proposes codifying the following definition for SDPs, which is already used by states and CMS in standard interactions. An SDP is “a contract arrangement that directs an MCO’s PIHP’s, or PAHP’s expenditures under paragraphs (c)(1)(i) through (iii) of this Section.” FR 2024-08085 at 129.

[6] By way of example, regulatory language would go from “The State may require the MCO, PIHP or PAHP to: Adopt a minimum fee schedule for network providers to provide a particular service under the contract …” to “The State may require the MCO, PIHP or PAHP to: Adopt a minimum fee schedule for [] providers to provide a particular service under the contract ….” 42 CFR 438.6(c)(1)(iii) (emphasis added).

[7] See 42 CFR 438.6(c)(2)(ii)(I)

[8] FR 2024-08085 at 215.

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