The Centers for Medicare and Medicaid Services (CMS) issued Additional Guidance on Use of In Lieu of Services and Settings in Medicaid Managed Care, aimed at helping reduce health disparities and address unmet health-related social needs (HRSNs). This guidance is in addition to the 2016 Medicaid and Children’s Health Insurance Program (CHIP) managed care final rule, which recognized the ability of states and managed care plans to cover “in lieu of” services while also expanding its flexibility by allowing coverage of services in an institution for mental disease with certain limitations. The final rule also required that “in lieu of” services must: be medically appropriate and cost-effective; not be mandated for beneficiaries; be authorized and identified in the managed care plan contract and offered to enrollees at the option of the managed cre plan; and that the utilization and actual cost of the “in lieu of” services be taken into account in developing the capitation rates that represents the covered state plan services (unless otherwise prohibited by federal statute or regulation).
One of the most common uses of “in lieu of” services is inpatient mental health or substance use disorder treatment provided during a short-term stay (less than 15 days) in an institution for mental diseases (IMD).
This recent guidance provides six clarifying parameters for states’ use of “in lieu of” services:
- “In lieu of” services must advance the objectives of the Medicaid program;
- “In lieu of” services must be cost effective;
- “In lieu of” services must be medically appropriate;
- “In lieu of” services must be provided in a manner that preserves enrollee rights and protections;
- “In lieu of” services must be subject to appropriate monitoring and oversight; and
- “In lieu of” services must be subject to retrospective evaluation, when applicable.
Advance the Objectives of Medicaid
Included in this parameter, “in lieu of” services are not permitted to “violate any applicable federal requirements,” including general prohibitions on payment for room and board under title XIX of the Social Security Act, the Americans with Disabilities Act, Section 504 of the Rehabilitation Act, or the Emergency Medical Treatment and Labor Act. Additionally, “in lieu of” services must be approved through a state plan amendment or waiver authorized through the Social Security Act.
Cost Effective
Under the penumbra, states must be able to demonstrate to CMS that the “in lieu of” services are cost effective substitutes. CMS will review the states’ determinations of cost effectiveness to ensure compliance and reserves the right to request additional documentation to aid with the review.
CMS also notes that the “in lieu of” services Cost Percentage should not exceed 5% and that both the projected “in lieu of” services Cost Percentage and the final “in lieu of” services Cost Percentage must be developed and certified by actuaries working for the states. Additional guidance on what CMS expects specifically with respect to cost-effectiveness are included in the guidance.
Medically Appropriate
CMS is also requiring states to find “in lieu of” services to be medically appropriate substitutes for state plan-covered services or settings and the states must show CMS that the “in lieu of” services are medically appropriate. Similar to the cost-effectiveness, CMS will also review states determinations to ensure they are acceptable. CMS outlined three items that must be submitted to the Agency by states for review.
Preserving Enrollee Rights and Protections
CMS clarified that “the rights and protections guaranteed to Medicaid managed care enrollees under federal regulations remain in full effect when an enrollee is eligible to be offered or elects to receive” any “in lieu of” services.
Monitoring and Oversight
CMS also tasked states with “ongoing and robust monitoring and oversight activities,” including evaluating compliance with federal requirements; using appropriate quantitative and qualitative measures; and ensuring that managed care plans submit timely, complete, accurate, and validated encounter data for the “in lieu of” services to the Transformed Medicaid Statistical Information System. CMS again outlined what must be submitted to the Agency for confirmation that this is being met.
Retrospective Evaluation
CMS notes that while all states with “in lieu of” services in their managed care plan contracts should conduct a retrospective evaluation of all “in lieu of” services, states with final “in lieu of” services Cost Percentages higher than 1.5% are required to submit a retrospective evaluation for each managed care program that includes “in lieu of” services to determine its overall impact on whether it is meeting the purposes of the Medicaid program and whether it is a medically appropriate and cost-effective substitute for state plan-covered services and settings.
What Do States Need to Do?
States currently using “in lieu of” services that are clearly documented in an approved managed care plan contract will have until the contract rating period beginning on or after January 1, 2024, to conform with this guidance for existing “in lieu of” services. If these states elect to add any new “in lieu of” services (that are not currently in an approved contract), they must conform with this guidance for new “in lieu of” services. States will need to submit an assurance that they comply with all applicable principles of the “in lieu of” services policy in this guidance and associated regulatory requirements and provide the documentation requested in the guidance. Additional documentation may also be requested by CMS to help with the review.