CMS Clarifies In Lieu of Services Rules in Hopes of Widening Adoption
Post Written by Greg Allen, Senior Advisor, Innovative Care and Financial Models
A new letter to Medicaid directors in January helps provide additional guidance to state Medicaid agencies on how the flexibilities found in the “In Lieu Of Services” option for managed care programs can help address (and pay for) health-related social needs. The agency is hoping for more wide scale adoption and evaluation of these flexibilities, specifically as it relates to reducing cost of care and its impact on health equity.
On January 4, the Centers for Medicare & Medicaid Services (CMS) released a letter to State Medicaid Directors to provide clarifying and additional guidance on the “In Lieu of Services and Settings” (ILOS) option for Medicaid managed care programs. In releasing its guidance, CMS said they were hopeful the In Lieu of Services clarification would provide “an innovative opportunity for states to address health-related social needs for people with Medicaid coverage” and would “help states offer alternative benefits that take aim at a range of unmet health-related social needs, such as housing instability and food insecurity, to help enrollees maintain their coverage and to improve their health outcomes.”
The January 4th letter builds on a State Health Official letter (SHO# 21-001) from January 7, 2021 entitled “Opportunities in Medicaid and CHIP to Address Social Determinants of Health” and importantly on the 2016 Medicaid and CHIP managed care final rule (42 CFR § 438.3(e)(2)) delineating requirements for ILOS.
Under the 2016 final rule, ILOS may be covered under Medicaid managed care as long as:
States determine the ILOS is a medically appropriate and cost-effective substitute for covered services or settings under the state plan;
Enrollees are not required to use the ILOS;
An approved ILOS is in the managed care plan contract and is offered to enrollees at the option of the managed care plan; and
The utilization and actual costs of the ILOS are considered in developing the cost component of the managed care capitation rates.
In this most recent letter, CMS lays out six principles (below) states must address for CMS approval of ILOS. A quantitative and qualitative risk-based review process is also introduced to govern ILOS application approval during State (and CMS) managed care plan contract and rate reviews. An ILOS Cost Percentage corridor is utilized to help quantify cost effectiveness and target risk.
The formula to calculate the ILOS Cost Percentage:
Total capitation payments attributable to all ILOSs, excluding short-term stays in an Institution for Mental Disease (less than 16 days)
divided by
Total capitation payments specific to the managed care program (including all CMS-approved state directed payments and pass through payments)
Equals
ILOS Cost Percentage
States proposing to use an ILOS as part of managed care contracts will now be required to submit a projected ILOS Cost Percentage attributable to the ILOS. States with an ILOS Cost Percentage that is less than or equal to 1.5% have fewer documentation and monitoring requirements and are considered streamlined. States with higher ILOS Cost Percentages are subject to additional requirements. CMS will deny approval for any ILOS that does not meet the requirements in the guidance.
Effective January 4, 2023, CMS will not approve state’s managed care plan contracts, with new ILOSs, that do not meet the standards in this new guidance.
However, CMS did note that states with existing ILOS programs will need time to comply with the new standards. States that currently include ILOSs in managed care contracts will have until the contract rating period beginning on or after January 1, 2024, to meet the standards in this guidance.
Six CMS ILOS Principles from the January 4th Letter:
● ILOSs must advance the objectives of the Medicaid program
All applicable federal requirements must be adhered to in implementing the ILOS, including general Medicaid prohibitions on payment for room and board.
ILOSs services must be approvable through a state plan amendment (SPA), or waiver through 1915(c).
● ILOSs must be cost-effective
ILOSs must be cost-effective substitutes for traditionally covered state plan services or settings.
Expenditures should be limited for ILOSs to reduce member inequities across delivery systems and ensure appropriate fiscal constraints.
CMS limits the ILOS Cost Percentage per managed care program at 5%.
CMS requires the ILOS Cost Percentages be certified by states’ actuaries and ILOS Cost Percentages will be reviewed as a part of the applicable rate certification review process. Detailed requirements for benefit structure and cost calculation are required of State’s actuaries for both approving and monitoring the ILOS.
For projected ILOS Cost Percentages that are greater than 1.5%, states must offer a description of their processes for determining that the ILOS is cost-effective.
● ILOSs must be medically appropriate.
States must submit, detailed information from their managed care contracts relative to the ILOS including:
The name and definition (including diagnostic and service codes) for each ILOS;
The state plan services or settings being substituted;
The definitions for the target population(s); and
A managed care plan contractual requirement to demonstrate and document a consistent process to ensure the provider (or plan’s) professional judgment has determined that the ILOS is medically appropriate.
States may impose additional limitations, provider qualifications or approval protocols to ensure that ILOSs are medically appropriate (and cost effective).
If the projected ILOS Cost Percentage is greater than 1.5%, states must provide a description of the process for determining medical appropriateness.
If the projected ILOS Cost Percentage is greater than 5%, the ILOS is likely not approvable.
● ILOSs must be provided in a manner that preserves enrollee rights and protections.
Managed care plans can not require enrollees to utilize ILOSs.
Managed care plans can’t deny an enrollee a medically appropriate Medicaid covered state plan service or setting because of the availability of ILOS.
Medicaid enrollees have appeals and grievances rights regarding the denial of an ILOS.
● ILOSs must be subject to appropriate monitoring and oversight.
CMS requires that state’s provide evidence of effective oversight of ILOS service including:
An actuarial certification the final ILOS Cost Percentage specific to each managed care program. The report should demonstrate that the final annual ILOS Cost Percentage does not exceed 5%. Documentation of how cost, utilization and savings were considered in the development of managed care rates and rate certification.
Written notification to CMS when a state determines an ILOS is no longer medically appropriate or cost-effective or if significant non-compliance arises.
States must attest they will audit grievances, appeals, plan claims data and state fair hearing data to ensure accuracy and timeliness. To inform health equity and reduce health disparities, this data should stratify ILOS utilization based on sex, race, ethnicity, disability status, and language spoken.
● ILOSs must be subject to retrospective evaluation, when applicable.
States are encouraged to complete a retrospective evaluation of ILOSs.
However, if final ILOS Cost Percentages are more than 1.5%, States are required to submit a retrospective evaluation for each such managed care program (no later than 24 months after the completion of the first five contract years).
Retrospective evaluations include the following:
How each ILOS impacted utilization of state plan-covered services or settings with the associated cost savings;
Trends in managed care plan and enrollee use of each ILOS;
Quality of Care impacts of each ILOS;
An assessment of encounter data that supports the state’s determination that each ILOS is a medically appropriate and cost-effective substitute;
The final ILOS Cost Percentage for each year;
Appeals, grievances, and state fair hearings data; and
ILOS impact on health equity and disparity initiatives
While the principles and standards laid out in the guidance can appear somewhat daunting, CMS is actively encouraging states to consider the further development of ILOSs. In the release of the new guidance, HHS and CMS administrators were clearly promoting adoption. “We are deeply committed to strengthening Medicaid for the millions of Americans covered by it,” said HHS Secretary Xavier Becerra. “Today’s step ensures people with Medicaid receive the broader care they need to live safe and healthy lives. We call on all states to leverage these innovative options and stand ready to partner with them in providing essential health care services.”
“In partnership with CMS, states have been working hard to better meet the health-related social needs of people with Medicaid coverage,” said CMS Administrator Chiquita Brooks-LaSure. “Today’s announcement is the next step in CMS’ effort to use every lever available to protect and expand coverage for all eligible individuals as we work with our state partners to offer whole-person care.”
Right before the new guidance was issued, CMS approved a proposal by California that authorized ILOS to further integrate “health-related services” into the California Medicaid Managed Care services and payment menu. Approved in December of 2022, the California ILOS includes providing asthma remediation in the home, nutritious foods for members with food insecurity and chronic health care conditions, and additional supports for nursing home eligible people who want to continue living in their community rather than in an institution. One example of the nursing home diversion services menu is the provision of housing deposits to allow members easier access to a home in the community. Eligible individuals enrolled in Medicaid managed care can access these supports from community providers just like they can get medical services from medical providers.. The cost of the optional ILOS are built into California Medicaid managed care rates, along with savings assumptions from reductions in inpatient, ER and other Medicaid services.
As examples of how ILOS can advance social support in any state, 12 services were approved in California under ILOS authority. In addition to nutritious meals, asthma remediation and housing supports, CMS also approved ILOS for housing navigation and tenancy support services, sobering centers, day habilitation, home modifications, caregiver respite, as well as personal care and homemaker services. California also requested approval for two other services: recuperative care (often referred to as medical respite) and short-term post hospitalization housing. These services were not approved under ILOS authority due to federal exclusions on Medicaid payment for room and board, but were funded under the state’s section 1115 waiver and will have similar implementation rules and funding.
Curious about how you can use In Lieu of Services to advance your goals in the Medicaid space? We are happy to help with some of the leading minds on how to use ILOS flexibilities to meet your needs, whether you’re a payer or provider. Reach out to us for a consultation at connect@hsg.global.
About the Author: Greg Allen is Senior Advisor, Innovative Care and Financial Models at HSG. Connect with him on LinkedIn.
