Guidance for Medicaid managed care MLR calculations

In May 2019, the Centers for Medicare and Medicaid Services (CMS) released an Informational Bulletin clarifying how payments to subcontracted vendors should be accounted for in the medical loss ratio (MLR) calculation required by 42 CFR §438.8 as established by the Medicaid and Children’s Health Insurance Program (CHIP) managed care final rule published in May 2016. In the May 2019 bulletin, CMS focuses on the responsibilities of a subcontractor in providing data and the proper accounting of subcontractor payments for purposes of MLR reporting. The provisions outlined in the May 2019 bulletin apply to all subcontractor relationships, but CMS specifically highlights pharmacy benefit manager (PBM) arrangements that may include “spread pricing” and rebate retention.

The final rule requires states to complete MLR reporting for the first contract period beginning on or after July 1, 2017. It is anticipated that many state Medicaid programs will be providing MLR data for CMS for the first reporting period during calendar year 2019, so states should clearly articulate this guidance to contracted managed care plans and modify data collection processes and vehicles to collect the necessary detail to meet CMS requirements.

The final rule also stipulates that a managed care plan must ensure that its subcontractors fully comply with all terms and conditions of its contract with a state and must comply with all applicable Medicaid law and regulations. One area in which managed care plans commonly use subcontractors is in the delivery of pharmacy benefits. PBMs maintain and develop pharmacy networks, negotiate rebates with drug manufacturers, and perform other activities that support managed care plans’ obligations under contracts with states. In this paper, Milliman’s Paul Houchens, Ian McCulla, and Amber Kerstiens discuss reporting requirements for PBMs and other third-party vendors under this new CMS guidance.

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