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Health Care Financing Administration Delays Medicaid Managed Care Rules

For Immediate Release, March 6, 2001
Contact: Chris Marshall

Medicaid managed care final regulations published in the final days of the Clinton Administration have been delayed for 60 days. The regulations, which were supposed to go into effect on April 19, will now be delayed until at least June 19 - or perhaps later depending on whether the Bush Administration decides to rewrite the regulations. The regulations are intended to implement the 1997 Balanced Budget Act (BBA) and its provisions granting states greater flexibility in developing managed care programs, while also ensuring quality of care.

Since the regulations were published on January 19, states have voiced opposition to the regulations and have been lobbying the Bush Administration and HHS Secretary Thompson to make substantial revisions. Chief among the concerns expressed by states is that the new rules would apply to Medicaid managed care plans that have already gone through scrutiny in the sometimes lengthy waiver process. Under the BBA, states are allowed substantial flexibility to enroll most Medicaid beneficiaries without first seeking a waiver from the federal government.

Since the law's passage, states have been allowed to require Medicaid beneficiaries (including those with severe mental illnesses) to enroll in prepaid health plans (PHPs). These proposed regulations would require states moving toward mandatory managed care to offer a choice of at least two plans. Further, the regulations apply this same choice requirement to managed care organizations (MCOs) and primary care case management plans that serve Medicaid beneficiaries.

The regulations also subject PHPs to many of the requirements for MCOs such as enrollee protections, quality assurance measures, and information disclosure requirements. These include proposed requirements for state rate setting to ensure that capitation rates are adequate and actuarially sound. In addition, the rules impose new requirements on both MCOs and PHPs for a range of protections similar to those that already apply to the Medicare program. These include a requirement for plans to identify enrollees with special health care needs such as a diagnosis of severe mental illness. The regulations would also ensure the right of enrollees to obtain a second opinion, and bar financial incentives from plans to doctors to deny care. In addition, the regulations would establish federal requirements for grievance and appeal procedures for denial of care and protocols for quality assessment and performance improvement.

Of special importance to NAMI is a new requirement in Medicaid managed care establishing the right of enrollees to be free from any form of restraint or seclusion that is used by a provider as means of coercion, discipline, convenience or retaliation. These requirements were originally specified in regulations promulgated in 1999 that apply to all hospitals treating Medicare and Medicaid enrollees.

Among the concerns that states have expressed about the new rules are the prospect of having to renegotiate existing Medicaid managed care contracts that are already in place. In addition, states have expressed concern that applying the regulations to PHPs could have the unintended consequence of creating competition among plans to seek out the lowest risk beneficiaries. Further, states have also argued that specialty managed care carve out plans serving beneficiaries with severe mental illnesses would be discouraged from forming. Finally, states are warning that imposition of these regulations will push states toward pursuing more Medicaid waivers in order to get out from under these new requirements. This is causing considerable concern since Secretary Thompson has vowed to curtail strict federal scrutiny of state Medicaid waiver applications.

The regulations also appear to apply to federal procurement rules to county-based delivery systems, opening up competitive bidding processes to private entities. Recently, a number of states have dropped plans to impose competitive bidding for mental illness treatment carve-out contracts out of concern as to whether federal procurement rules apply.

Next Steps

As noted above, the BBA Medicaid managed care regulations were not supposed to go into effect until April 19, 2001. The Bush Administration's decision to impose a 60-day moratorium will delay this effective date until at least June 19 - and perhaps beyond. In order to change the regulations, Secretary Thompson would have to start a new rulemaking and comment process. NAMI will monitor this process closely to ensure that protections for Medicaid enrollees with severe mental illnesses are protected.

NAMI's principles and policy objectives for public Medicaid managed care can be found at:

The entire 200 page Medicaid managed care regulation can be viewed at: Scroll down to Health Care Financing Administration to four links to the text of the regulations.

A Department of Health and Human Services press release summarizing the regulations is available at

Medicaid Managed Care Regulation: Summary of Major Sections