CMS’s 2020 Final Medicaid Managed Care Rule: A Summary of Major Changes


On November 13, 2020, the Centers for Medicare and Medicaid Services (CMS) finalized changes to the Medicaid managed care regulations.1 CMS last revised these regulations in 2016 (“the 2016 final rule”) under the Obama Administration.2 The 2016 final rule represented a major revision and modernization of federal regulations in this area, which had not been updated since 2002.3 CMS’s major goals in issuing the 2016 final rule were to align Medicaid managed care requirements with other major health coverage programs where appropriate; enhance the beneficiary experience of care and strengthen beneficiary protections; strengthen actuarial soundness payment provisions and program integrity; and promote quality of care.4

In March 2017, the HHS Secretary and CMS Administrator under the Trump Administration released a letter to state governors noting the new Administration’s plan to conduct a “full review of [Medicaid] managed care regulations to prioritize beneficiary outcomes and state priorities.”5 CMS then released an Informational Bulletin in June 2017, indicating it would use “enforcement discretion” to work with states on achieving compliance with the 2016 final rule, except for specific areas that “have significant federal fiscal implications.”6 CMS’s stated goals in releasing the November 2018 Notice of Proposed Rulemaking (NPRM) to revise the 2016 final rule were to streamline the managed care regulatory framework; reduce state and federal administrative burden; support state flexibility; and promote transparency, flexibility, and innovation in care delivery. The new regulations are not a wholesale revision of the 2016 final rule, but they include changes in the following key areas, which are summarized in this issue brief and Table 1: network adequacy, beneficiary protections, quality oversight, and rate setting and payment.7 Most of the new provisions take effect on December 14, 2020. Exceptions are noted in the discussion below and Table 1. Most changes were finalized as originally proposed.


According to the most current national data, as of July 1, 2019, 54.0 million Medicaid beneficiaries, or 69%, were enrolled in comprehensive risk-based managed care organizations (MCOs).8 As of July 1, 2019, 39 states and DC contract with MCOs; in many of these states, at least 75% of all beneficiaries are enrolled in these health plans.9 While MCOs are the predominant form of Medicaid managed care, millions of other beneficiaries receive at least some Medicaid services, such as behavioral health or dental care, through limited-benefit risk-based plans, known as prepaid inpatient health plans (PIHPs) and prepaid ambulatory health plans (PAHPs). Several million beneficiaries are also enrolled in primary care case management (PCCM) programs that range from basic managed fee-for-service (FFS) models to more enhanced models.10

Key Changes in the 2020 Final Rule

Network adequacy

The 2020 final rule removes the requirement that states use time and distance standards to ensure health plans’ provider network adequacy and instead allows states to choose another quantitative standard. Health plan efforts to recruit and maintain their provider networks can play a crucial role in determining enrollees’ ability to access covered services. The 2016 final rule required states to develop and enforce enrollee travel time and distance standards for certain specified provider types as well as additional providers to be determined by CMS, for health plan contracts beginning on or after July 2018. The new rule instead allows states to use an alternative standard such as minimum provider-to-enrollee ratios, maximum travel time or distance to providers, minimum percentage of contracting providers accepting new patients, maximum wait times for an appointment, or hours of operation requirements. The new rule also allows states to use any quantitative network adequacy standard for long-term services and supports providers to whom enrollees must travel to receive services, eliminating the requirement in the 2016 final rule for states to develop time and distance standards for these providers. Additionally, the new rule allows states to define the specialists to which network adequacy standards apply. Finally, the new rule eliminates the “other provider type” language, curtailing CMS’s ability to add to the list of providers subject to network adequacy standards without further rule-making.

Beneficiary protections


The 2020 final rule relaxes the requirements for accessibility of written materials for people with disabilities and those with limited English proficiency. The 2016 final rule required taglines in large print and in locally prevalent non-English languages on all written materials (e.g., enrollee handbooks, provider directories, enrollee notices) to explain the availability of interpretation and translation services and to provide the toll-free choice counseling number and the plan’s toll-free customer service number, for plan contracts beginning on or after July 2017. The new rule only requires taglines on written materials for potential enrollees that “are critical to obtaining services.” The final rule also changes the definition of “large print” from at least 18-point font to font that is “conspicuously visible.”

The 2020 final rule eliminates the requirement to identify in health plan provider directories whether a provider has completed cultural competence training and decreases the frequency of updating paper provider directories.
 The 2016 final rule required plan directories to indicate whether a provider has completed cultural competence training and specified that paper directories must be updated at least monthly, for plan contracts beginning on or after July 2017. The new rule only requires monthly updates to paper directories if a mobile-enabled, electronic directory is not available; otherwise, updates are required quarterly.

The 2020 final rule changes the timeframe within which plans must tell enrollees that their provider is leaving the plan network. The 2016 final rule required plans to make a good faith effort to give written notice of termination of a contracted provider to enrollees within 15 calendar days after receipt or issuance of the termination notice, for plan contracts beginning on or after July 2017. The new rule changes this requirement to the later of 30 calendar days prior to the effective termination date, or 15 calendar days after receipt or issuance of the termination notice.


The 2020 final rule allows states to shorten the timeframe within which an enrollee can request a state fair hearing to appeal a health plan decision to deny or terminate covered services. The 2016 final rule provided enrollees with 120 days from the plan’s notice of resolution of the internal plan appeal to request a state fair hearing, for contracts beginning on or after July 2017. The new rule lets states set the timeframe for enrollees to request a fair hearing between 90 to 120 days, to allow states to align this period with the timeframe for enrollees to appeal decisions covered under Medicaid fee-for-service.

The 2020 final rule also eliminates the requirement for beneficiaries to submit a written, signed appeal after an oral appeal is submitted. The 2016 final rule required enrollees to submit a written, signed appeal following an oral appeal, for contracts beginning on or after July 2017.

Quality oversight


The 2020 final rule revises the requirement that states’ alternative managed care quality rating systems (QRS) yield information substantially comparable to the CMS-developed QRS, instead requiring this only “to the extent feasible.” CMS is to develop performance measures and a methodology for a managed care QRS framework to rate health plans and enable comparisons across states.11 States also can implement an alternative QRS with CMS approval. Under the new rule, a state’s alternative QRS must include the mandatory performance measures to be established by CMS, although the alternative QRS has to yield information substantially comparable to the CMS-developed QRS only to the extent feasible. CMS will issue sub-regulatory guidance specifying the criteria and process for determining “substantial comparability.” CMS did not finalized its proposal that would have eliminated the requirement that states obtain prior approval from CMS before implementing an alternative QRS.


The 2020 final rule clarifies that health plan submission of encounter data must include allowed and paid amounts. CMS underscored the importance of these data for monitoring and administration of the Medicaid program, particularly for capitation rate setting and review, financial management, program integrity, and utilization analysis. The 2016 final rule conditioned federal matching funds for Medicaid managed care payments to states on state reporting of validated, complete, and timely enrollee encounter data, for contracts beginning on or after July 2018.


The 2020 final rule allows states to expand the definition of “disability status” when addressing health disparities in the state’s managed care quality strategy.  Under the 2016 final rule, states must have a written quality strategy for assessing and improving the quality of care and services furnished by health plans and PCCM entities, for health plan contracts effective on or after July 2018. Among other elements, state quality strategies must describe their plans to reduce health disparities based on certain demographic factors including disability. The 2016 regulations identified enrollees with a disability based on whether they qualify for Medicaid in a disability-related eligibility pathway, and the new rule requires states to adopt this standard at minimum in their definition of disability status. Under the 2020 final rule, states must include in their quality strategy the state’s definition of disability status and how the state will determine whether an enrollee meets that standard, including the data sources used. This change is effective for all quality strategies submitted after July 1, 2021. CMS proposed but did not finalize a broader definition of “disability,” which would not have been limited to individuals who qualify for Medicaid based on a disability and would have recognized that enrollees with disabilities may qualify for Medicaid on another basis (such as low income).


The 2020 final rule requires that states annually post online which health plans are exempt from external quality review (EQR) and specify when the exemption began. Under the 2016 final rule, states must ensure that a qualified organization performs an annual EQR for each health plan or PCCM entity to assess quality, timeliness, and access to health care services, for contracts beginning on or after July 2018. CMS also adopted a requirement for states to identify exempted plans in their annual EQR technical report, effective for all reports submitted on or after July 1, 2021.

Rate setting and payment


The 2020 final rule allows states to set capitation rate cell ranges12 instead of a single rate per cell, effective for rating periods beginning on or after July 1, 2021. The allowable range is 5 percent, or +/- 2.5 percent from the midpoint. The 2016 final rule required a single rate per cell for contracts beginning on or after July 2016. In support of the change, CMS noted that the single rate requirement could diminish a state’s ability to obtain the best rates. To address concerns about transparency, state websites must post certain information about the development of rate ranges.13 States also must document the rates payable to health plans at points within the range prior to the start of the rating period. CMS will provide additional guidance on how to implement this requirement. The final rule also allows states to change capitation rates within the range up to 1 percent during the rating year without submitting a new rate certification, if the change is consistent with a modification of the health plan contract and other rate development criteria are met.

The 2020 final rule expressly prohibits states from varying capitation rates based on the amount of federal financial participation for a covered population in a manner that increases federal costs. CMS did not finalize its proposed list of certain rate development practices that increase federal costs and therefore are prohibited. While CMS continues to believe that those practices generally increase federal costs, it acknowledged that it cannot predict every future scenario where such practices nevertheless could be actuarially appropriate.14 The final rule clarifies that rate development standards must be based on actual cost differences in providing covered services to covered populations and that compliance with this requirement is evaluated program-wide, across all managed care contracts and covered populations. During rate review, CMS may require states to provide written documentation and justification that any differences in the assumptions, methodologies, and factors used to develop capitation rates represent actual cost differences based on the characteristics or mix of covered services or populations.

The 2020 final rule clarifies that states may adjust certified capitation rates within a rating period by +/-1.5%, without submitting a revised rate certification or justification to CMS. CMS has determined that rates will remain actuarially sound if adjusted within this range. Under the final rule, CMS can specifically request supporting documentation from states. Notably, states that choose to use rate ranges as described above, instead of a single rate per cell, cannot also apply the +/-1.5% rate adjustment provision. In addition, the 2020 final rule provides that CMS will issue guidance at least annually that describes the federal standards for capitation rate development and related documentation requirements.

The 2020 final rule prohibits states from retroactively adding or modifying risk-sharing mechanisms after the start of the rating period.15 CMS also requires states to document risk-sharing mechanisms in health plan contracts and rate certification documents prior to the start of the rating period. In the preamble to the final rule, CMS noted that states can adopt retroactive rate adjustments (as opposed to changes to risk-sharing mechanisms) when necessary to address disease outbreaks, launches of high-cost prescription drugs, or other unforeseen circumstances that increase benefit costs mid-year.16


The 2020 final rule recognizes two distinct minimum fee schedules for states’ directed payment arrangements from health plans to providers. The 2016 final rule allowed states to adopt a minimum or maximum fee schedule for health plan payments to network providers that provide a particular service, for contracts beginning on or after July 2017. The first minimum fee schedule adopted by the new final rule applies to directed payment arrangements that use state plan approved rates. These rates are defined as amounts calculated for specific services provided to an individual under the approved state plan methodology and excluding supplemental payments. The other minimum fee schedule adopted by the new final rule applies to directed payment arrangements that use rates other than state plan approved rates for network providers that provide a particular service. CMS did not finalize its proposal that would have allowed states to direct plans to adopt a cost-based rate, a Medicare equivalent rate, a commercial rate, or another market-based rate. The 2020 final rule also eliminates the requirement for CMS prior approval of states’ directed payment arrangements based on state plan approved rates, as CMS believes this is duplicative of the state plan amendment process. Minimum fee schedules are approved for one rating period at a time.

CMS proposed but did not finalize changes that would have allowed states to direct the amount or frequency of plan expenditures to providers as part of delivery system or payment reform initiatives; these activities remain prohibited as established under the 2016 rule.  While CMS initially believed that prohibiting states from directing the amount or frequency of health plan expenditures may have created unintended barriers to the implementation of innovative payment models, like global payment initiatives, it ultimately decided that health plans should retain discretion in managing risk and their provider contracts, even when states require plans to adopt specific parameters for provider payment through delivery system or payment reform initiatives.

The 2020 final rule codifies sub-regulatory policy guidance governing multi-year approvals of value-based purchasing models or those tied to larger delivery system reform efforts. Specifically, the final regulation adopts the criteria in the November 2017 CMCS Informational Bulletin. Approvals are for one rating period unless the state explicitly describes the arrangement as multi-year, describes its implementation and evaluation plan, and affirms that it will not make changes to payment methodology or magnitude without prior CMS approval. The 2016 final rule described states’ authority to require managed care plans to implement value-based purchasing models for provider payment (such as pay-for-performance arrangements, bundled payments, or other models intended to reward value over volume) or participate in multi-payer or Medicaid-specific delivery system reform or performance improvement initiatives. In the preamble to the 2020 final rule, CMS said that it is reviewing state-directed payments because it has seen state proposals for significant changes to provider reimbursement that could affect program spending and may issue further guidance or regulations based on its review.

The 2020 final rule allows states to make new supplemental provider pass-through payments up to three years when states are transitioning populations or services from fee-for-service to managed care.17 This change takes effect for pass-through payments to hospitals, physicians, and nursing facilities in managed care rating periods starting on or after July 1, 2021. The provisions of the 2016 final rule that phase out existing pass-throughs of state supplemental provider payments in the capitation rates paid to managed care plans continue to apply. CMS believes that because supplemental payments are not tied to the provision of services covered under plan contracts, they therefore conflict with the actuarial soundness requirement.18 Specifically, the 2016 rule phases out pass-through payments that existed in contracts and rate certifications for the rating period including July 1, 2016 to hospitals from 2017-2027, and to physicians and nursing facilities from 2017-2022.

The 2020 final rule allows states to specify how health plans covering enrollees dually eligible for Medicare and Medicaid receive crossover claims, instead of requiring plans to have a coordination of benefits agreement and participate in the automated Medicare process. Crossover claims arise for dual eligible beneficiaries because Medicaid may cover the portion of the service charge that is not covered by Medicare. The 2016 final rule required health plans that cover dually eligible enrollees to participate in the Medicare automated crossover claim process in an effort to simplify billing for providers. The new rule allows states to retain that process or adopt an alternative process, such as the state forwarding crossover claims to the appropriate health plan. CMS said that some states indicated that an alternative process enables them to ensure that health plans receive only the claims for which they are responsible in situations where an enrollee is in more than one plan and/or FFS for different benefits or where the enrollee has changed plans.

CMS did not change the “institution for mental disease” (IMD) “in lieu of” authority codified in the 2016 final rule.19 CMS requested but did not receive any public comment on additional currently available data sources that it could review in support of any changes. Under the 2016 final rule, states can receive federal matching funds for capitation payments made to health plans on behalf of enrollees ages 21-64 who receive psychiatric or substance use disorder (SUD) inpatient or crisis residential services in an IMD for up to 15 days in a month, as services covered “in lieu of” those under the Medicaid state plan benefit package.20 This is an exception to the general federal prohibition against Medicaid payments for services for non-elderly adults in IMDs. Instead of a regulatory change, CMS notes that states may continue to apply for Section 1115 demonstration waivers to receive federal Medicaid matching funds for longer IMD SUD stays.21 Additionally, the federal Substance Use Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities (SUPPORT) Act created a new option from October 2019 through September 2023, for states to receive federal Medicaid payments for non-elderly adults with SUD in an IMD up to 30 days per year. In November 2018, CMS also issued new guidance inviting states to apply for Section 1115 waivers of the federal IMD payment exclusion for services for individuals with serious mental health conditions.22

Looking Ahead

Most provisions of the new rule take effect on December 14, 2020, which means that the incoming Biden Administration would have to issue a new notice of proposed rule-making, with a reasonable justification for any changes, in order to modify the 2020 final rule. While the new final rule is not a wholescale revision of the comprehensive 2016 final rule, it does make changes in key areas, including network adequacy standards, beneficiary information and appeals, quality oversight, and capitation rate development and provider payment. Federal rules governing Medicaid managed care are important as managed care remains the predominant care delivery system in most states. The changes, including modifications to network adequacy standards and relaxed requirements for accessibility of written health plan materials for people with disabilities and those with Limited English Proficiency, take effect in the midst of the COVID-19 public health emergency, at a time when states are using Medicaid emergency authorities to facilitate access to coverage and care during the pandemic.

Executive Summary

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