California’s Medicaid Managed Care Waiver: New Potential for Access and Transparency

One of the most significant Medicaid managed care developments in 2021 happened on December 29, when CMS approved federal funding and waivers for California’s reform initiative, Advancing Innovation in Medi-Cal (CalAIM).  The approval involved two sets of waivers, one operating under section 1115 of the Social Security Act, the other under section 1915(b)(4). For good reasons, most attention will likely focus on the section 1115 demonstration, which refreshingly does not include work requirements, increased premiums, or termination of retroactive coverage, much less a block grant.   It is, instead, an ambitious five-year effort to “improve health outcomes and advance health equity for Medi-Cal beneficiaries and other low-income people in the state,” as the approval letter notes. The companion (b)(4) waiver is less visible but no less important.

As loyal readers of the Say Ahhh! Blog well know, section 1115 was the weapon of choice for the prior administration in its efforts to undermine Medicaid once its block grant crusade failed in Congress.  The authority is relatively broad in scope: to be approved, a demonstration has to be “likely to assist in promoting the objectives of” Medicaid.  In comparison, the 1915(b)(4) authority is narrow in scope. It allows the Secretary to waive certain Medicaid requirements for just one purpose: to enable a state to restrict the provider from whom a beneficiary may obtain covered services.  The statutory requirement being waived is the “freedom of choice” protection, which allows beneficiaries to obtain covered services from any physician, clinic, hospital, or other provider willing to participate in Medicaid.

CMS has commonly approved (b)(4) waivers to enable states to require Medicaid beneficiaries to receive their services from providers in the networks of Medicaid managed care organizations (MCOs).  This use of the (b)(4) authority is so common that CMS has developed a template for states to use in applying for these waivers. Of the 40 states (plus DC) that require Medicaid-eligible children and parents to enroll in MCOs, 6—ColoradoIowaMissouriNebraskaVirginia, and West Virginia—rely on (b)(4) waivers to do so. California makes 7.

That said, the California (b)(4) waiver is a new and different animal.  Until it took effect on January 1, California had been operating mandatory managed care under its section 1115 demonstration, Medi-Cal 2020.  Like other states, California had done so to take advantage of managed care “savings” to meet CMS budget neutrality requirements for section 1115 demonstrations. On a separate track, California was also operating a section 1915(b) waiver that allowed it to require enrollment of certain beneficiaries—adults with a serious mental illness and children with a serious emotional disturbance—into County Mental Health Plans through which they could receive Specialty Mental Health Services, including targeted case management, partial hospitalization, and outpatient and inpatient mental health services.  In June 2021, when it came time to renew Medi-Cal 2020 as well as its 1915(b) waiver, the state requested a 5-year extension and rebranding of Medi-Cal 2020 as well as a 5-year renewal and expansion of its 1915(b) waiver. Together, the two requests were designed to enable the state to implement CalAIM.

In its renewal requests, the state proposed to transfer its other mandatory managed care programs from its 1115 demonstration into a single, consolidated 1915(b) waiver.  This, the state wrote, would “better align” its managed care programs “in order to meet the physical, behavioral, developmental, long-term services and supports (LTSS), oral health, and health-related social needs of all Medi-Cal beneficiaries in an integrated, patient-centered, whole person fashion.”  (Whew!). CMS approved this transfer and consolidation of the authority to require enrollment in MCOs (technically the approval includes a (b)(1) as well as a (b)(4) waiver).  In doing so, it imposed 28 Special Terms and Conditions (STCs).

STCs are universal features of section 1115 demonstrations; they are unusual in (b)(4) waivers (none of the (b)(4) waivers in the list of 12 states above include STCs.). These particular STCs are worth examining because California runs the nation’s largest Medicaid program and is far and away the largest Medicaid managed care market in the country. In 2019, California enrolled 10.4 million beneficiaries in MCOs (comprehensive risk-based plans), more than the next two largest states, New York (4.5 million) and Texas (3.6 million), combined. (Only Texas had more children enrolled in MCOs that year).  What these STCs allow California to do—and what they require of the state in the way of compliance—may raise the bar for other managed care states going forward.

The STCs likely to receive the most attention are those relating to the provision of “In Lieu of Services and Settings” (ILOS).  Intended to address drivers of health, ILOS may substitute for coverage of emergency department visits, inpatient hospital care, or nursing facility services when a provider has determined that “provision of the ILOS is likely to reduce or prevent the need for acute care or other Medicaid services.”  The STCs approve 12 types of ILOS including Housing Tenancy and Sustaining Services, Asthma Remediation, and Community Transition Services/Nursing Facility Transition to a Home.  (CMS approved two other types of ILOS under the section 1115 demonstration). The STCs impose extensive documentation and reporting requirements on both the MCOs and the state Medicaid agency so that CMS can evaluate the cost effectiveness of ILOS and their impact on beneficiaries.  Notably, MCOs are required to “submit timely and accurate encounter data to the state for each ILOS provided to beneficiaries” that, “when possible, must include data necessary for the State to stratify services by age, sex, race, ethnicity, and language spoken….”

As innovative as these STCs are, others may prove to be equally if not more important for Medicaid managed care nationally.  In its approval letter, CMS made clear that “Through the STCs, California commits to take significant actions to improve network adequacy, strengthen access, and enhance monitoring and oversight of managed care plans to ensure medically necessary services are provided to Medicaid beneficiaries (including primary care services, specialty care, maternal health care, substance use disorder services, specialty mental health services, and oral health care). Specifically, the state will report sufficient information to create a comprehensive view of network adequacy and access, including network providers, medical loss ratios, where applicable, and other measures of access and utilization.”

To this end, nine of the STCs have to do with measuring and reporting on access to care by MCO enrollees.  Among these is a requirement that the state submit the information specified in the CMS Access Reporting Template for each contracting MCO to CMS. In addition, the STCs require that the state produce and publish an independent report that not only assesses MCO compliance with Medi-Cal network adequacy standards but also compares the compliance of plans with network adequacy requirements across multiple lines of business (Medi-Cal, Medicare, private market).  This has the potential to identify differences in network composition that may explain differences in access to care by payer.  It would not be entirely surprising if these and other measuring and reporting policies in the STCs eventually show up in the access rule that CMS is developing.

From a transparency standpoint, STC 15c is of particular interest. It requires the state to “make readily available to beneficiaries, providers, and other interested stakeholders” a county mental health plan dashboard.  Each dashboard must “present an easily understandable summary of quality, access, timeliness, and translation/interpretation capabilities regarding the performance of each participating mental health plan.” The performance data must be updated annually.  A few observations:

  • First, this STC applies only to County Mental Health Plans providing to beneficiaries in need of behavioral health services. The case for MCO-specific performance dashboards is equally compelling for child health and maternal health, among other populations.
  • Second, this STC is a diluted version of the STC that CMS imposed in approving the state’s 1915(b) waiver in 2015. In that approval, CMS used verbatim language but also stipulated that the county mental health plan dashboard “must be posted on the state’s and the county mental health plan’s website.”  That requirement has been dropped, as has the requirement that the dashboards include information on the performance of subcontracted providers.
  • Finally, in response to the original STC, the state initially stood up a dashboard on its website with performance data for adults for each of the 58 counties. The reports are dated 2018 and include only information through FY 2016/2017.  This dashboard does not appear to have been updated, suggesting that state implementation and CMS oversight may have waned over time.

Of course, nothing prevents California’s Medicaid agency—or any other state’s Medicaid agency, for that matter—from standing up and maintaining such dashboards without being required to do so.  But CMS could also do more to set an expectation of transparency about the performance of individual MCOs.   As it reviews new or renewal 1915(b)(4) or 1115 demonstration waivers going forward, CMS should extend and expand its California STC precedent to other managed care states and other enrollee populations, including children and pregnant women. There is no less expensive—or potentially more effective—tool for performance improvement.