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Delaware General AssemblyDelaware RegulationsMonthly Register of RegulationsMarch 2015

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Delaware Health and Social Services (“Department”) / Division of Medicaid and Medical Assistance (DMMA) initiated proceedings to amend the Division of Social Services Manual (DSSM) regarding fiscal solvency standards for managed care organizations (MCOs) serving State Medicaid clients, specifically, Certification and Regulation of Medicaid Managed Care Organizations. The Department’s proceedings to amend its regulations were initiated pursuant to 29 Delaware Code Section 10114 and its authority as prescribed by 31 Delaware Code Section 512.
The Department published its notice of proposed regulation changes pursuant to 29 Delaware Code Section 10115 in the January 2015 Delaware Register of Regulations, requiring written materials and suggestions from the public concerning the proposed regulations to be produced by January 31, 2015 at which time the Department would receive information, factual evidence and public comment to the said proposed changes to the regulations.
Section 1902(a)(4) of the Social Security Act, State Plan for Medical Assistance, Methods of Administration
Section 1903(m), Medicaid Managed Care Organization
29 Del. C. §7931, Division of Medicaid and Medical Assistance
42 CFR § [483.1] [438.1], Managed Care, Basis and scope
42 CFR § [483.116] [438.116], Solvency standards
State Medicaid Director Letter, December 30, 1997, An array of provisions including beneficiary protections, solvency standards and contract administration
As background, DMMA contracts with MCOs to administer the Diamond State Health Plan and Diamond State Health Plan Plus programs. Federal regulation 42 C.F.R. §438.116 (attached) requires MCOs to either meet state solvency standards for private health maintenance organizations or be licensed or certified by the state as a risk-bearing entity. Delaware DMMA is adopting the second option, i.e., it will certify MCOs which meet certain standards contained in the proposed regulation.
Agency Response Note: This characterization is correct. Thank you for your thoughtful comments on the proposed standards for the regulation of the financial solvency of MCOs.
Agency Response: This edit has been made.
Second, §3.1.2 requires an MCO to demonstrate “net equity in excess of $[10] million.” At a minimum, the brackets should be deleted. On a substantive level, the Councils questions whether net equity of $10 million is sufficient. Delaware’s Medicaid population has grown to approximately 230,000 individuals. See DHSS Secretary’s FY16 budget presentation to OMB (November 20, 2014), available at Most of Delaware’s Medicaid population is served by two MCOs (Highmark; United Healthcare). Assuming equal enrollment, each MCO would serve 115,000 individuals and have approximately $86 in equity for each participant. Some of the $10 million in equity could be in fixed or non-liquid assets out-of state or out of the country. We recognize that the managed care system is intended to not tap equity, i.e., monthly State capitation payments (§5.2) should ideally cover MCO outlays. Moreover, DMMA enjoys the protection of a performance bond equal to one month’s capitation payment. In reality, an MCO could suffer huge losses if an epidemic or natural disaster resulted in unanticipated health costs. An MCO with only $10 million in net equity may be unable to absorb such costs.
Agency Response: The recommended deletion of the brackets has been made. DMMA believes that the $10 million in net equity, coupled with the required performance bond and certification of financial stability, is adequate.
Third, §5.0 may merit further review to ensure consistency. On the one hand, an MCO is required to submit a performance bond equal to the projected first month’s capitation payment “up front”. See §§5.1 and 5.2. On the other hand, §5.4 requires MCO supplementation of the bond “if the performance bond falls below 90% of the first month’s capitation in any month”. Literally, this could never occur since the performance bond based on 100% of the first month’s capitation amount was already submitted to DMMA up front. If DMMA intends that the MCO increase the bond based on later increases in monthly capitation amounts, the regulation should be reworded.
Agency Response: DMMA has made changes to the regulation based on this comment. First, it has stricken the words “and submit” since the MCOs will maintain the performance bond, and report that to DMMA. The performance bond is only required to cover startup costs for the first 12 months of the MCO contracts. Thereafter, DMMA gauges and assesses the financial stability of the MCO through record review and mandatory notice requirements contained in the MCO contracts.
Agency Response: DMMA believes that the regulation as written, e.g. annual reviews, not biannual reviews, of the methodology for estimating and tracking IBNR, is appropriate. The MCOs are required to report actual IBNR to DMMA quarterly. DMMA believes that this mechanism addresses the concerns raised by this comment.
Agency Response: The DMMA-MCO contract does indeed authorize collection of unpaid monies from the performance bond to collect in the event of an MCO default.
Agency Response: This edit has been made.
1.2 Pursuant to Section 1902(a)(4) of Title XIX of the Social Security Act (42 U.S.C. §1396a(4)) and 42 C.F.R. §438.1 et. seq., the states are authorized to administer Medicaid through Medicaid managed care organizations (each an “MMCO”).
1.5 Pursuant to 18 Del.C. §7931(c), the Division of Medicaid and Medical Assistance (“DMMA”), which is under the direction and control of the Secretary of the Department of Health and Social Services (“DHSS”), is responsible for the performance of all of the powers, duties, and functions specifically related to Medicaid, which includes certification of MMCOs.
2.1.5 An opinion of Delaware counsel to the MMCO will be prima facie evidence that the criteria in this Section 2 are satisfied.
3.1.2 Audited financial statements for the most recent calendar or fiscal year demonstrating, on a consolidated basis, [GAAP generally accepted accounting principles] net equity in excess of [$[10] $10] million.
4.1.1 The person or persons responsible for preparing the MMCO’s financial statements in U.S. [GAAP and/or STAT generally accepted accounting principles] format and for preparing any financial reporting required under the Contract. Such person shall have accounting or finance training and experience, and shall have experience in the preparation of financial statements for health plans.
5.1 Prior to certification, the MMCO shall obtain [and submit to DHSS] a performance bond from a surety licensed to write surety business in Delaware and rated A- (Excellent) or better by A.M. Best and Company. The performance bond shall be restricted to the Contract.
11.2 In the event of such decertification, DHSS shall notify the MMCO of the proposed decertification in accordance with 29 Del.C. §§10122 and 10131. If the MMCO requests a hearing on the proposed decertification, DHSS shall appoint a hearing officer to preside over the hearing.
11.3.7 If the MMCO fails to appear at the decertification hearing after receiving the notice required by 29 Del.C. §10122 and 10131, the hearing officer may proceed to hear and determine the validity of the proposed decertification.
Last Updated: December 31 1969 19:00:00.
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