GenIc #37 (Revised): Medicaid Managed Care Rate Development Guide (CMS-10398)

DEPARTMENT OF HEALTH & HUMAN SERVICES
Centers for Medicare & Medicaid Services
7500 Security Boulevard, Mail Stop S2-26-12
Baltimore, Maryland 21244-1850
Disabled and Elderly Health Programs Group

2020-2021 Medicaid Managed Care Rate Development Guide
For Rating Periods Starting between July 1, 2020 and June 30, 2021 1
June 23, 2020
Introduction
The Centers for Medicare and Medicaid Services (CMS) is releasing the 2020-2021 Medicaid
Managed Care Rate Development Guide for use in setting rates for rating periods starting
between July 1, 2020 and June 30, 2021 for managed care programs subject to the actuarial
soundness requirements in 42 CFR §438.4. 2 Consistent with the letter from the Administrator on
March 14, 2017, and the Informational Bulletin released on June 30, 2017, CMS engaged in a
comprehensive review of the managed care rules to prioritize beneficiary outcomes and more
effective program management, culminating in release of a Notice of Proposed Rulemaking in
November 2018, which included proposals to change the standards used to evaluate the actuarial
soundness of Medicaid managed care plan capitation rates. 3 Pending adoption of a final rule
amending them, the regulations currently in place continue to govern the rate setting practices for
Medicaid managed care plans that are outlined in this rate guide. This rate development guide
This guide outlines federal standards for rate development and describes information required from states and their
actuaries as part of actuarial rate certifications required under 42 CFR §438.7(a). Under the Privacy Act of 1974 any
personally identifying information obtained will be kept private to the extent of the law.
1

According to the Paperwork Reduction Act of 1995, no persons are required to respond to a collection of
information unless it displays a valid OMB control number. The valid OMB control number for this information
collection is OMB 0938-1148 (CMS-10398 #37). The time required to complete the information collection is
estimated to average 4.5 hours per response, including the time to review instructions, search existing data
resources, gather the data needed, and complete and review the information collection. If you have comments
concerning the accuracy of the time estimate(s) or suggestions for improving this form, please write to: CMS, 7500
Security Boulevard, Attn: PRA Reports Clearance Officer, Mail Stop C4-26-05, Baltimore, Maryland 21244-1850.
2
Except as noted in the regulation text itself, all regulations related to rate setting at §§438.4, 438.5, 438.6 and
438.7 are applicable to the rating periods under contracts beginning on or after July 1, 2020. In addition, States must
be compliant with provisions that impact rate development, including §§438.2, 438.3(c), 438.3(e), 438.8, 438.14,
and 438.608(d).
3

The Notice of Proposed Rulemaking, Medicaid and Children’s Health Insurance Plan (CHIP) Managed Care,
was published in the Federal Register on November 14, 2018 (CMS-2408-P) (83 FR 57264).

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builds upon the Medicaid Managed Care Rate Development Guide effective July 1, 2019 through
June 30, 2020, and the experience of states and CMS in completing rate certifications and
reviews.
This guide outlines federal standards for rate development and describes information required
from states and their actuaries as part of actuarial rate certifications required under 42 CFR
§438.7(a). The information outlined in this guide must be included within the rate certification in
adequate detail to allow CMS (or its actuaries) to determine compliance with the applicable
provisions of 42 CFR part 438, including that the data, assumptions, and methodologies used for
rate development are consistent with generally accepted actuarial principles and practices and
that the capitation rates are appropriate for the populations and services to be covered. CMS
strives to review states’ submissions of rate certification as efficiently as possible, and therefore,
this guide describes the required standards for rate development in accordance with 42 CFR
§438.5 and appropriate documentation for each submission in accordance with 42 CFR §438.7 to
facilitate our review. The failure to include appropriate documentation may result in additional
CMS questions and/or requests to obtain the information described in the guide as part of our
review.
Additionally, as part of the CMS effort to review states’ submissions of rate certification as
efficiently as possible, CMS is implementing an accelerated rate review process. Appendix A
contains additional information regarding this accelerated rate review process, specifically the
criteria that a state must meet for the capitation rates to be eligible for an accelerated rate review
and the rate development summary that states must provide in order to go through an accelerated
rate review.
Section 1903(m)(2) of the Social Security Act and 42 CFR §438.4 require that capitation rates be
actuarially sound, meaning that the capitation rates are projected to provide for all reasonable,
appropriate, and attainable costs that are required under the terms of the contract and for the
operation of the managed care plan for the time period and the population covered under the
terms of the contract. Such capitation rates are developed in accordance with 42 CFR §438.4(b).
In applying the regulation standards, CMS will also use these three principles:
•

the capitation rates are reasonable and comply with all applicable laws (statutes and
regulations) for Medicaid managed care;

•

the rate development process complies with all applicable laws (statutes and regulations)
for the Medicaid program, including but not limited to eligibility, benefits, financing, any
applicable waiver or demonstration requirements, and program integrity; and

•

the documentation is sufficient to demonstrate that the rate development process meets the
requirements of 42 CFR part 438 and generally accepted actuarial principles and practices.

There are three sections for this guide. The first section applies to all Medicaid managed care
capitation rates. The second section outlines specific concepts that states and their actuaries must
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consider when developing rates that include long-term services and supports (LTSS). The third
section focuses on issues specific to new adult group capitation rates.
Most of the information discussed in this guide is or should be already part of ongoing actuarial
work and program management in states. CMS provides the specific elements to be included in
the rate certification to ensure consistency in the material that is submitted and transparency for
what is included in federal review. Following CMS guidance included within this guide is more
likely to result in a faster CMS review and reduce the number of questions. At this time, CMS
does not prescribe a specific format for supplying this information in the rate certification
although each of the relevant sections below must be discussed in sufficient detail in the rate
certification.
Throughout this guide, CMS uses the term “rate certification” to mean both the letter (or
attestation) from the actuary that specifically certifies that the rates are actuarially sound and
meets the requirements of CMS regulation and any supporting documentation that relates the
letter or attestation, including the actuarial report, other reports, letters, memorandums, other
communications, and other workbooks or data. In practice, most states provide the information
requested in the guide in the supporting documentation and not directly in the letter or
attestation.
In accordance with 42 CFR §438.7(a), states must submit to CMS for review and approval all
MCO, PIHP and PAHP rate certifications, concurrent with the review and approval of the
contracts. CMS requests that states submit contract actions, rate certification(s) and associated
supporting documentation as distinct documents within one submission rather than combining all
materials into one electronic document. If multiple rate certifications are associated with the
same contract action(s), CMS requests that states provide the supporting documentation that
relates to each certification.

Section I. Medicaid Managed Care Rates
This section of the guidance is directed to all states setting Medicaid managed care rates that are
subject to the actuarial soundness requirements in 42 CFR §438.4. The rate development and
documentation standards outlined below are consistent with 42 CFR part 438 and relevant
Actuarial Standards of Practice (ASOP). Actuaries are required to follow all Actuarial Standards
of Practice; particularly relevant are ASOP 1 (Introductory Actuarial Standard of Practice);
ASOP 5 (Incurred Health and Disability Claims); ASOP 12 (Risk Classification (for All Practice
Areas)); ASOP 23 (Data Quality); ASOP 25 (Credibility Procedures); ASOP 41 (Actuarial
Communications); ASOP 45 (The Use of Health Status Based Risk Adjustment Methodologies);
and ASOP 49 (Medicaid Managed Care Capitation Rate Development and Certification). ASOP
49 is especially relevant because it focuses on the development of Medicaid managed care rates.
The new applicable requirements under 42 CFR §438.4 are consistent with ASOP 49.
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1. General Information
A. Rate Development Standards
i. Rate certifications must be done for a 12-month rating period. 4 CMS will consider a
time period other than 12 months to address unusual circumstances. For example,
CMS would approve a time period other than 12 months for the following reasons:
(a) when the state is trying to align program rating periods, which may require a
rating period longer than one year (but less than two years); or
(b) when the state needs to make an amendment to the contract and the rates for an
already approved rating period need to be adjusted accordingly.
ii. In accordance with 42 CFR §438.4, 438.5, 438.6, and 438.7, an acceptable rate
certification submission, as supported by the assurances from the state, includes the
following items and information:
(a) a letter from the certifying actuary, who meets the requirements for an actuary in
42 CFR §438.2, who certifies that the final capitation rates meet the standards in
42 CFR §438.3(c), 438.3(e), 438.4, 438.5, 438.6, and 438.7.
(b) the final and certified capitation rates for all rate cells in accordance with 42 CFR
§438.4(b)(4), and all regions (as applicable). 5 Additionally, the contract must
specify the final capitation rate(s) in accordance with 42 CFR §438.3(c)(1)(i).
(c) brief descriptions of the following information (to show that the actuary
developing and/or certifying the rates has an appropriate understanding of the
program for which he or she is developing rates):
(i) a summary of the specific state Medicaid managed care programs covered by
the rate certification, including, but not limited to:
(A) the types and numbers of managed care plans included in the rate
development (e.g., type means managed care organizations, prepaid
inpatient health plans, or prepaid ambulatory health plans).
(B) a general description or list of the benefits that are required to be
provided by the managed care plan or plans (e.g., types of medical
services, behavioral health or mental health services, long-term care
services, etc.), particularly noting any benefits that are carved out of

Per 42 CFR §438.2, “rating period” means a period of 12 months selected by the state for which the actuarially
sound capitation rates are developed and documented in the rate certification.
5
Actuaries must certify specific rates for each rate cell in accordance with 42 CFR §438.4(b)(4) and 438.7(c), and it
is no longer be permissible to certify rate ranges. However, 42 CFR §438.7(c)(3) allows states to increase or
decrease the capitation rate per rate cell up to 1.5 percent without submitting a revised rate certification.
4

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the managed care program or that are new to the managed care
program in that rating period covered.
(C) the areas of the state covered by the managed care rates and
approximate length of time the managed care program has been in
operation.
(ii) the rating period covered by the rate certification.
(iii) the Medicaid population(s) covered through the managed care program(s) to
which the rate certification applies.
(iv) any eligibility or enrollment criteria that could have a significant influence
on the specific population to be covered within the managed care program
(e.g., the definition of medically frail, or if enrollment in managed care plans
is voluntary or mandatory).
(v) a summary of the special contract provisions related to payment that, per 42
CFR §438.6, are included within rate development (e.g. risk-sharing
mechanisms, incentive arrangements, withhold arrangements, state-directed
delivery system reform and provider payment initiatives, 6 pass-through
payments, and payments to MCOs and PIHPs for enrollees that are a patient
in an Institution of Mental Disease (IMD)).
(vi) if the state determines that a retroactive adjustment to the capitation rates is
necessary, these retroactive adjustments must be certified by an actuary in a
revised rate certification and submitted as a contract amendment in
accordance with 42 CFR §438.7(c)(2). The revised rate certification must:
(A) describe the rationale for the adjustment; and
(B) the data, assumptions and methodologies used to develop the
magnitude of the adjustment.
iii. Any proposed differences among capitation rates according to covered populations
must be based on valid rate development standards and not based on the rate of
federal financial participation associated with the covered populations.
iv. Payments from any rate cell must not cross-subsidize or be cross-subsidized by
payments from any other rate cell.

State direction of managed care plan expenditures under the contract (e.g., value-based purchasing arrangements,
multi-payer initiatives, quality/performance incentive programs, and all fee schedules) must meet the requirements
in 42 CFR §438.6(c) and receive prior approval before implementation. In order to ensure that States can have these
directed payment arrangements reviewed and approved prior to developing rates, CMS has a separate process for
submitting payment arrangements under 42 CR §438.6(c).
6

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v. The effective dates of changes to the Medicaid managed care program (including
eligibility, benefits, payment rate requirements, incentive programs, and program
initiatives) must be consistent with the assumptions used to develop the capitation
rates.
vi. Capitation rates must be developed in such a way that the MCO, PIHP, or PAHP
would reasonably achieve a medical loss ratio, as calculated under 42 CFR §438.8, of
at least 85 percent for the rate year. The capitation rates may be developed in such a
way that the MCO, PIHP, or PAHP would reasonably achieve a medical loss ratio
standard greater than 85 percent, as calculated under 42 CFR §438.8, as long as the
capitation rates are adequate for reasonable, appropriate, and attainable non-benefit
costs. Under §438.8(j), the state may choose to impose remittance provisions related
to this medical loss ratio. The terms and conditions of any remittance must clearly be
outlined in the rate certification and demonstrate compliance with 438.8(c), which
requires a State, that elects to mandate a minimum MLR for its MCOs, PIHPs, or
PAHPs, to use a minimum MLR equal to or higher than 85 percent. 7
vii. As part of CMS’s determination of whether or not the rate certification submission
and supporting documentation adequately demonstrate that the rates were developed
using generally accepted actuarial practices and principles, CMS will consider
whether the submission demonstrates the following:
(a) all adjustments to the capitation rates, or to any portion of the capitation rates,
must reflect reasonable, appropriate, and attainable costs in the actuary’s
judgment and must be included in the rate certification.
(b) adjustments to the rates that are performed outside of the rate setting process
described in the rate certification are not considered actuarially sound under 42
CFR §438.4. Therefore, the rates will not be considered actuarially sound if
adjustments are made outside of the rate setting process described in the rate
certification.
(c) consistent with 42 CFR §438.7(c), the final contracted rates in each cell must
match the capitation rates in the rate certification. This is required in total and for
each and every rate cell.
viii. Rates must be certified for all time periods in which they are effective, and a
certification must be provided for rates for all time periods. Rates from a previous
rating period cannot be used for a future time period without an actuarial certification
of the rates for the new rating period.

On May 15, 2019, the Center for Medicaid & CHIP Services (CMCS) published a CMCS Informational Bulletin
outlining Medical Loss Ratio requirements related to third-party vendors.
7

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ix. Procedures for rate certifications for rate and contract amendments, include:
(a) if a state intends to claim Federal financial participation (FFP) for capitation rates,
the state must comply with the time limit for filing claims for FFP specified in
section 1132 of the Social Security Act and implementing regulations at 45 CFR
part 95. States should timely submit rate certifications to CMS to help mitigate
timely filing concerns.
(b) the state must submit a revised rate certification when the rates change, except for
changes permitted in 42 CFR §438.7(c)(3).
(c) for contract amendments that do not affect the rates (except for changes permitted
in 42 CFR §438.7(c)(3)), CMS does not require a rate amendment from the state.
However, if the contract amendment revises the covered populations, services
furnished under the contract or other changes that could reasonably change the
rate development and rates, the state and its actuary must provide supporting
documentation indicating the rationale as to why the rates continue to be
actuarially sound in accordance with 42 CFR §438.4.
(d) there are several circumstances when CMS would not require a rate amendment:
(i) the state may increase or decrease capitation rate per rate cell up to 1.5 percent
range, in accordance with 42 CFR §438.7(c)(3).
(ii) a state applies risk scores to the capitation rates paid to the plans under a risk
adjustment methodology described in the rate certification for that rating
period and contract, in accordance with 42 CFR §438.7(b)(5)(iii).
(e) any time a rate changes for any reason other than application of an approved
payment term (e.g., risk adjustment methodology), which was included in the
initial managed care contract, the state must submit a contract amendment to
CMS, even if the rate change does not need a rate amendment.
(f) State Medicaid program features are sometimes invalidated by courts of law, or
by changes in federal statutes, regulations or approvals. A state must submit a rate
amendment adjusting capitation rates to remove costs that are specific to any
program or activity that is no longer authorized by law. The rate amendment must
take into account the effective date of the loss of program authority.
B. Appropriate Documentation
i. States and their actuaries must document all the elements described within their rate
certification to provide adequate detail that CMS is able to determine whether or not
the regulatory standards are met. In evaluating the rate certification, CMS will look to
the reasonableness of the information contained in the rate certification for the
purposes of rate development and may require additional information or
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documentation as necessary to review and approve the rates. States and their actuaries
must ensure that the following elements are properly documented:
(a) data used, including citations to studies, research papers, other states’ analyses, or
similar secondary data sources.
(b) assumptions made, including any basis or justification for the assumption.
(c) methods for analyzing data and developing assumptions and adjustments.
ii. CMS understands that there are instances where actuaries develop ranges around
various assumptions and adjustments. We believe this is a valid and appropriate
approach to aid in the development and selection of the final assumptions that
underlie the certified capitation rates, but note that actuaries must certify specific
rates for each rate cell in accordance with 42 CFR §438.4(b)(4) and 438.7(c), and it is
not permissible to certify rate ranges. Therefore, the actuary must be responsible for
all assumptions and adjustments underlying the certified capitation rates, and the
certification must disclose and support the specific assumptions that underlie the
certified rates for each rate cell, including the magnitude and narrative support for
each specific assumption or adjustment that underlies the certified rates for each rate
cell. To the extent assumptions or adjustments underlying the capitation rates varies
between managed care plans, the certification must also describe the basis for this
variation.
iii. The rate certification must include an index that identifies the page number or the
section number for each item described within this guidance. In cases where not all
sections of this guidance are relevant for a particular rate certification (i.e., an
amended certification that adds a new benefit for part of the year), inapplicable
sections of the guidance must be included and marked as “Not Applicable” in the
index. CMS prefers that the rate certification include an index and also follow the
structure of this guidance.
iv. There are services, populations, or programs for which the state receives a different
federal medical assistance percentage (FMAP) than the regular state FMAP. In those
cases, the portions or amounts of the costs subject to the different FMAP must be
separately shown as part of the rate certification to the extent possible.
v. CMS requests that states that operated the managed care program or programs
covered by the rate certification in previous rating periods provide:
(a) A comparison to the final certified rates in the previous rate certification. For the
first rate certification for a rating period, this should be a comparison to the prior
rating period’s rates or rate ranges. For rate certifications that revise or amend
rates in a rating period, this should be a comparison to the latest certified rates for
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the rating period. If there are large or negative changes in rates from the previous
year, the actuary must describe what is leading to these differences.
(b) A description of any other material changes to the capitation rates or the rate
development process compared to the prior rating period (or compared to the
latest rate certification for rate certifications that amend rates) not otherwise
addressed in the other sections of this guidance.
vi. The rate certification should include a list of known amendments that will be
provided to CMS in the future, when the state expects the amendments will be
submitted to CMS, and why the current certification cannot account for changes that
are anticipated to be made to the rates.
2. Data
A. Rate Development Standards
i. In accordance with 42 CFR §438.5(c), states and actuaries must follow rate
development standards related to base data, including:
(a) states must provide all the validated encounter data and/or fee-for-service (FFS)
data (as appropriate) and audited financial reports (as defined in see §438.3(m))
that demonstrates experience for the populations to be served by the health plan to
the state’s actuary developing the capitation rates for at least the three most recent
and complete years prior to the rating period.
(b) states and their actuaries must use the most appropriate base data, from the three
most recent and complete years prior to the rating period, for developing
capitation rates.
(c) base data must be derived from the Medicaid population, or, if data on the
Medicaid population is not available, derived from a similar population and
adjusted to make the utilization and price data comparable to data from the
Medicaid population.
(d) states that are unable to develop rates using data that is no older than from the
three most recent and complete years prior to the rating period may request
approval for an exception as follows:
(i) this request should be submitted by the state as soon as the actuary starts
developing the rate certification and makes a determination that base data
will not comply with 42 CFR §438.5(c)(1)-(2).
(ii) the request must describe why an exception is necessary and describe the
actions the state intends to take to come into compliance with those
requirements.
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(iii)the request must also describe the state’s proposed corrective action plan
outlining how the state will come into compliance with the base data
standards per 42 CFR §438.5(c) no later than two years from the rating
period for which the deficiency is identified.
B. Appropriate Documentation
i. In accordance with 42 CFR §438.7(b)(1), the rate certification must include:
(a) a description of base data requested and used for the rate setting process,
including:
(i) a summary of the base data that was requested by the actuary.
(ii) a summary of the base data that was provided by the state.
(iii) an explanation of why any base data requested was not provided by the state.
ii. The rate certification, as supported by the assurances from the state, must thoroughly
describe the data used to develop the capitation rates, including:
(a) a description of the data, including:
(i) the types of data used, which may include, but is not limited to: fee-forservice claims data; managed care encounter data; health plan financial data;
information from program integrity audits; or other Medicaid program data.
(ii) the age or time periods of all data used.
(iii)the sources of all data used (e.g., State Medicaid Agency; other state
agencies; health plans; or other third parties).
(iv) if a significant portion of the benefits under the contract with the managed
care entity are provided through arrangements with subcontractors that are
also paid on a capitated basis (or subcapitated arrangements), a description of
the data received from the subcapitated plans or providers; or, if data is not
received from the subcapitated plans or providers, a description of how the
historical costs related to subcapitated arrangements were developed or
verified.
(b) information related to the availability and the quality of the data used for rate
development, including:
(i) the steps taken by the actuary or by others (e.g., State Medicaid Agency;
health plans; external quality review organizations; financial auditors; etc.) to
validate the data, including:
(A) completeness of the data.
(B) accuracy of the data.
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(C) consistency of the data across data sources.
(ii) a summary of the actuary’s assessment of the data.
(iii)any concerns that the actuary has over the availability or quality of the data.
(c) a description of how the actuary determined what data was appropriate to use for
the rating period, including:
(i) if fee-for-service claims or managed care encounter data are not used (or are
not available), this description should include an explanation of why the data
used in rate development is appropriate for setting capitation rates for the
populations and services to be covered.
(ii) if managed care encounter data was not used in the rate development, this
description should include an explanation of why encounter data was not
used as well as any review of the encounter data and the concerns identified
which led to not including the encounter data.
(d) if there is any reliance or use of a data book in the rate development, the details of
the template and relevant instructions used in the data book.
iii. The rate certification, as supported by the assurances from the state, must thoroughly
describe any significant adjustments, and the basis for the adjustments, that are made
to the data, including but not limited to adjustments for:
(a) the credibility of the data.
(b) completion factors.
(c) errors found in the data.
(d) changes in the program between the time period from which the data is obtained
and the rating period (e.g., changes in the population covered; changes in benefits
or services; changes to payment models or reimbursement rates to providers; or
changes to the structure of the managed care program).
(e) exclusions of certain payments or services from the data.
3. Projected Benefit Costs and Trends
A. Rate Development Standards
i. Final capitation rates must be based only upon the services allowed in 42 CFR
§438.3(c)(1)(ii) and 438.3(e).
ii. Variations in the assumptions used to develop the projected benefit costs for covered
populations must be based on valid rate development standards and not based on the
rate of federal financial participation associated with the covered populations.
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iii. In accordance with 42 CFR §438.5(d), each projected benefit cost trend assumption
must be reasonable and developed in accordance with generally accepted actuarial
principles and practices. Trend assumptions must be developed primarily from actual
experience of the Medicaid population or from a similar population and include
consideration of other factors that may affect projected benefit cost trends through the
rating period.
iv. If the projected benefit costs include costs for in-lieu-of services defined at 42 CFR
§438.3(e)(2) (i.e., substitutes for State Plan services or settings), the utilization and
unit costs of the in-lieu-of services must be taken into account in developing the
projected benefit costs of the covered services (as opposed to utilization and unit
costs of the State plan services or settings), unless a statute or regulation explicitly
requires otherwise. The costs of an IMD as an in-lieu-of-service must not be used in
rate development. See Section I, item 3.A.v of this guide.
v. When IMDs are used to provide in-lieu-of services, states may make a monthly
capitation payment to an MCO or PIHP under a “risk contract” (as defined in 42 CFR
§438.2) for an enrollee age 21 to 64 receiving inpatient treatment in an IMD (as
defined in 42 CFR §435.1010) for a short-term stay of no more than 15 days during
the period of the monthly capitation payment in accordance with 42 CFR §438.6(e).
In this case, when developing the projected benefit costs for these services, the
actuary must use the unit costs of providers delivering the same services included in
the State Plan, as opposed to the unit costs of the IMD services. The actuary may use
the utilization of the services provided to an enrollee in an IMD in developing the
utilization component of projected benefit costs. The data used for developing the
projected benefit costs for these services must not include:
(a) costs associated with an IMD stay of more than 15 days.
(b) any other costs for any services delivered during the time an enrollee is in an IMD
for more than 15 days.
B. Appropriate Documentation
i. The rate certification must clearly document the final projected benefit costs by
relevant level of detail (e.g., rate cell, or aligned with how the state makes payments
to the plans).
ii. The rate certification and supporting documentation must describe the development
of the projected benefit costs included in the capitation rates, including:
(a) a description of the data, assumptions, and methodologies used to develop the
projected benefit costs and, in particular, all significant and material items in
developing the projected benefit costs.
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(b) any material changes to the data, assumptions, and methodologies used to develop
projected benefit costs since the last rate certification must be described.
(c) the amount of overpayments to providers and a description of how the state
accounted for this in rate development. See §438.608(d).
iii. The rate certification and supporting documentation must include a section on
projected benefit cost trends (i.e. an estimate the projected change in benefit costs
from the historical base data period(s) to the rating period of the rate certification) in
accordance with 42 CFR §438.7(b)(2).
(a) this section must include:
(i) any data used or assumptions made in developing projected benefit cost
trends, including a description of the sources of those data and assumptions.
(A) citations for the data and sources used to develop the assumptions
should be included whenever possible, particularly when published
articles, reports, and sources other than actual experience from the
Medicaid population are used.
(B) the description should state whether the trend is developed primarily
with actual experience from the Medicaid population or provide
rationale for the experience from a similar population that is utilized,
and consideration of other factors expected to impact trend.
(ii) the methodologies used to develop projected benefit trends.
(iii)any comparisons to historical benefit cost trends, or other program benefit
cost trends, that were analyzed as part of the development of the trend for the
rating period of the rate certification.
(iv) documentation supporting the chosen trend rates and explanation of outlier
and negative trends.
(b) this section must include the projected benefit cost trends separated into
components, specifically:
(i) the projected benefit cost trends should be separated into:
(A) changes in price (i.e., pricing differences due to different provider
reimbursement rates or payment models); and
(B) changes in utilization (i.e., differences in the amount, duration, or mix
of benefits or services provided).

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(ii) if the actuary did not develop the projected benefit cost trends using price
and utilization components, the actuary should describe and justify the
method(s) used to develop projected benefit cost trends.
(iii)the projected benefit cost trends may include other components as applicable
and used by the actuary in developing rates (e.g., changes in location of
service delivery; the effect of utilization or care management on projected
benefit cost trends; regional differences or variations).
(c) variations in the projected benefit cost trends must be explained. Projected benefit
cost trends may vary by:
(i) Medicaid populations.
(ii) rate cells.
(iii)subsets of benefits within a category of services (e.g., specialty vs. nonspecialty drugs).
(d) any other material adjustments to projected benefit cost trends must be described
in accordance with 42 CFR §438.7(b)(4), including:
(i) a description of the data, assumptions, and methodologies used to determine
each adjustment.
(ii) the cost impact of each material adjustment.
(iii)where in the rate setting process the material adjustment was applied.
(e) any other adjustments to projected benefit costs trends must be listed. CMS also
requests the following detail about non-material adjustments:
(i) the impact of managed care on the utilization and the unit costs of health care
services.
(ii) changes to projected benefit costs trend in the rating period outside of regular
changes in utilization or unit cost of services.
iv. If the projected benefit costs include additional services deemed by the state to be
necessary to comply with the mental health parity standards in 42 CFR Part 438,
subpart K 8 as required by 42 CFR §438.3(c)(1)(ii), the following must be described:
(a) the categories of service that contain these additional services necessary for
parity.
(b) the percentage of cost that these services represent in each category of service.
8
Part 438, subpart K applies the parity standards of the Mental Health Parity and Addiction Equity Act to Medicaid
managed care plans consistent with the requirements of section 1832 of the Act.

Page 14 of 46

(c) how these services were taken into account in the development of the projected
benefit costs, and if this approach was different than that for any of the other
services in the categories of service.
(d) an assurance that the payment represents a payment amount that is adequate to
allow the MCO, PIHP or PAHP to efficiently deliver covered services to
Medicaid-eligible individuals in a manner compliant with contractual
requirements.
v. For in-lieu-of services defined at 42 CFR §438.3(e)(2) (i.e., substitutes for State Plan
services), the following information must be provided and documented:
(a) the categories of covered service that contain in-lieu-of-services.
(b) the percentage of cost that in-lieu-of services represent in each category of
service.
(c) how the in-lieu-of services were taken into account in the development of the
projected benefit costs, and if this approach was different than that for any of the
other services in the categories of service.
(d) for inpatient psychiatric or substance use disorder services provided in an IMD
setting, rate development must comply with the requirements of 42 CFR
§438.6(e) and the data and assumptions utilized should be described in the rate
certification. The costs of an IMD as an in-lieu-of-service must not be used in rate
development. See Section I, item 3.A.v of this guide.
vi. The rate certification must describe how retrospective eligibility periods are
accounted for in rate development, including but not limited to:
(a) the managed care plan’s responsibility to pay for claims incurred during the
retroactive eligibility period.
(b) how the claims information are included in the base data.
(c) how the enrollment or exposure information is included in the base data.
(d) how the capitation rates are adjusted to reflect the retroactive eligibility period,
and the assumptions and methodologies used to develop those adjustments.
vii. The rate certification must clearly document the impact on projected costs for all
material changes to covered benefits or services since the last rate certification,
including, but not limited to:
(a) more or fewer state plan benefits covered by Medicaid managed care.
(b) any recoveries of overpayments made to providers by health plans in accordance
with 42 CFR §438.608(d).
Page 15 of 46

(c) requirements related to payments from health plans to any providers or class of
providers.
(d) requirements or conditions of any applicable waivers.
(e) requirements or conditions of any litigation to which the state is subjected.
viii. For each change related to covered benefits or services, the rate certification must
include an estimated impact of the change on the amount of projected benefit costs
and a description of the data, assumptions, and methodologies used to develop the
adjustment.
(a) any change determined by the actuary to be non-material can be grouped with
other non-material changes and described within the rate certification, provided
that:
(i) the rate certification includes a list of all non-material adjustments used in the
rate development process.
(ii) the actuary must give a description of why the changes were not considered
material and how they were aggregated into a single adjustment.
(iii) the rate certification provides a description of where in the rate setting
process the adjustments were applied.
(iv) The rate certification documents the aggregate cost impact of all non-material
adjustments.
4. Special Contract Provisions Related to Payment
A. Incentive Arrangements
i. Rate Development Standards
(a) the rate certification and supporting documentation must describe any incentives
included in the contract between the state and the health plans. An incentive
arrangement, as defined in 42 CFR §438.6(a), is any payment mechanism under
which a health plan may receive additional funds over and above the capitation
rate it was paid for meeting targets specified in the contract.
(i) the rate certification must include documentation that the total payments
under the incentive arrangement (i.e., capitation rate payments plus incentive
payments) will not exceed 105 percent of the approved capitation payments
under the contract that are attributable to the enrollees or services covered by
the incentive arrangements as required in 42 CFR §438.6(b)(2).
ii. Appropriate Documentation

Page 16 of 46

(a) the rate certification must include a description of the incentive arrangement. An
adequate description includes at least:
(i) the time period of the incentive arrangement (which must not be longer than
the rating period).
(ii) the enrollees, services, and providers covered by the incentive arrangement.
(iii)the purpose of the incentive arrangement (e.g. specified activities, targets,
performance measures, or quality-based outcomes, etc.).
(iv) confirmation that the total payments under the incentive arrangements will
not exceed 105 percent of the capitation payments.
(v) a description of any effect that each incentive arrangement has on the
development of the capitation rates.
B. Withhold Arrangements
i. Rate Development Standards
(a) the rate certification and supporting documentation must describe any withhold
arrangements in the contract between the state and the health plans. As defined in
42 CFR §438.6(a), a withhold arrangement is any payment mechanism under
which a portion of a capitation rate is withheld from an MCO, PIHP, or PAHP
and a portion of or all of the withheld amount will be paid to the MCO, PIHP, or
PAHP for meeting targets specified in the contract.
(i) the targets for a withhold arrangement are distinct from general operational
requirements under the contract.
(ii) arrangements that withhold a portion of a capitation rate for noncompliance
with general operational requirements are a penalty and not a withhold
arrangement.
(b) in accordance with 42 CFR §438.6(b)(3), the capitation payment(s) minus any
portion of the withhold that is not reasonably achievable must be actuarially
sound.
ii. Appropriate Documentation
(a) the rate certification must include a description of the withhold arrangement. An
adequate description includes at least the following:
(i) the time period of the withhold arrangement (which must not be longer than
the rating period).
(ii) the enrollees, services, and providers covered by the withhold arrangement.

Page 17 of 46

(iii)the purpose of the withhold arrangement (e.g. specified activities, targets,
performance measures, or quality-based outcomes, etc.).
(iv) a description of the total percentage of the certified capitation rates being
withheld through withhold arrangements.
(v) an estimate of the percentage of the withheld amount in a withhold
arrangement that is not reasonably achievable and the basis for that
determination, including the data, assumptions, and methodologies used to
make this determination.
(vi) a description of how the total withhold arrangement, achievable or not, is
reasonable and takes into consideration the health plan’s financial operating
needs accounting for the size and characteristics of the populations covered
under the contract, as well as the health plan’s capital reserves as measured
by the risk-based capital level, months of claims reserve, or other appropriate
measure of reserves.
(vii) a description of any effect that each withhold arrangement has on the
development of the capitation rates.
(b) the actuary must certify capitation payment(s) minus any portion of the withhold
that is not reasonably achievable as actuarially sound.
C. Risk-Sharing Mechanisms
i. Rate Development Standards
(a) in accordance with 42 CFR §438.6(b), if the state utilizes risk-sharing

mechanisms with its health plan(s), such as reinsurance, risk corridors, or stoploss limits, these arrangements must be described in the contract(s) and must be
developed in accordance with §438.4, the rate development standards in §438.5,
and generally accepted actuarial principles and practices.

(b) the rate certification and supporting documentation must describe any risk

mitigation that may affect the rates or the final net payments to the health plan(s)
under the applicable contract.

ii. Appropriate Documentation
(a) the rate certification and supporting documentation must include a description of
any other risk-sharing arrangements, such as a risk corridor or a large claims pool.
An adequate description of these includes at least the following:
(i) a rationale for the use of the risk sharing arrangement.
(ii) a detailed description of how the risk-sharing arrangement is implemented.
Page 18 of 46

(iii)a description of any effect that the risk-sharing arrangements have on the
development of the capitation rates.
(iv) documentation demonstrating that the risk-sharing mechanism has been
developed in accordance with generally accepted actuarial principles and
practices.
(b) if the contract includes a remittance/payment requirement for being below/above

a specified medical loss ratio (MLR), the rate certification and supporting
documentation must include a description of this MLR arrangement. An adequate
description includes at least the following:
(i) the methodology used to calculate the medical loss ratio.
(ii) the formula for calculating a remittance/payment for having a medical loss
ratio below/above the minimum requirements.
(iii)any other consequences for a remittance/payment for a medical loss ratio
below/above the minimum requirements.

(c) if the contract has reinsurance requirements, the rate certification and supporting
document must include a description of the reinsurance requirements. An
adequate description includes at least the following:
(i) a detailed description of any reinsurance requirements under the contract
associated with the rate certification, including the reinsurance premiums and
any relevant historical reinsurance experience.
(ii) identification of any effect that the reinsurance requirements have on the
development of the capitation rates.
(iii)documentation that the reinsurance mechanism has been developed in
accordance with generally accepted actuarial principles and practices.
(iv) if the actuary develops the reinsurance premiums, a description of how the
reinsurance premiums were developed, including the data, assumptions and
methodology used.
D. Delivery System and Provider Payment Initiatives
i. Rate Development Standards

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(a) consistent with 42 CFR §438.6(c), states may utilize delivery system and provider
payment initiatives, including requiring managed care plans to: 9
(i) implement value-based purchasing models for provider reimbursement, such
as pay for performance arrangements, bundled payments, or other service
payment models intended to recognize value or outcomes over volume of
services.
(ii) participate in a multi-payer or Medicaid-specific delivery system reform or
performance improvement initiative.
(iii)adopt a minimum fee schedule for network providers that provide a particular
service under the contract.
(iv) provide a uniform dollar or percentage increase for network providers that
provide a particular service under the contract.
(v) adopt a maximum fee schedule for network providers that provide a
particular service under the contract, so long as the health plan retains the
ability to reasonably manage risk and has discretion in accomplishing the
goals of the contract.
(b) The state’s rate certification for the applicable period must address how each
payment arrangement approved by CMS under 42 CFR 438.6(c) is reflected in the
payments to the managed care plan from the state. Such payment arrangements
can be incorporated into the base capitation rates as an adjustment to the rate or
addressed through a separate payment term. When the payment arrangement is
addressed through a separate payment term, CMS’s expectations are as follows:
(i) documentation related to the payment term will be included in the initial rate
certification as outlined in Section I, Item 4.D.ii.a.iii of the guide.
(ii) when a material portion of the total capitation payment to the managed care
plan for any rate cell is for directed payments addressed through separate
payment terms, an estimate of the magnitude of that portion of the payment
on a PMPM basis for each rate cell (CMS recognizes that this is an estimate,
and that the state will provide the final figures after the payment has been
made).

All state directed payments in Medicaid managed care contracts that are authorized under 42 CFR §438.6(c) must
be based on the utilization and delivery of services to Medicaid beneficiaries covered under the contract. These
payments must be directed equally, and using the same terms of performance across a class of providers. Further
details on these payments are described in §438.6(c) and the CMCS Informational Bulletin, dated November 2,
2017: https://www.medicaid.gov/federal-policy-guidance/downloads/cib11022017.pdf. Payments permitted under
42 CFR §438.6(d) must be addressed as noted in section E.
9

Page 20 of 46

(iii)after the rating period is complete and the state makes the payment consistent
with the contract and as reflected in the initial rate certification, the state
must submit documentation to CMS that incorporates the total amount of the
payment into the rate certification’s rate cells consistent with the distribution
methodology described in the initial rate certification, as if the payment
information (e.g., providers receiving the payment, amount of the payment,
utilization that occurred, enrollees seen, etc.) had been known when the rates
were initially developed.
(iv) please note, if the total amount of the payment or distribution methodology is
changed from the initial rate certification, CMS expects the state to submit a
rate amendment for the rating period, and clearly describe the magnitude of
and the reason for the change.
ii. Appropriate Documentation
(a) the rate certification and supporting documentation must include a description of
each delivery system and provider payment initiative. The documentation needed
depends on which approach the state has used to incorporate the payment into its
rate certification. Please provide the following information for each delivery
system and provider payment initiative:
(i) a brief description of the delivery system and provider payment initiative(s)
included in the rates for this rating period, including:
(A) the type of directed payment arrangement (minimum fee schedule,
maximum fee schedule, bundled payment, etc.).
(B) a brief description (e.g. minimum fee schedule is set at $x as approved
in the Medicaid state plan, minimum fee schedule is set at y% of
Medicare, etc.).
(ii) if a payment will be incorporated into the rate certification in the base

capitation rates as a rate adjustment, then the following information should
be included in the state’s rate certification (please include this information
for each separate directed payment arrangement):

(A) an indication of which rate cells were affected by the directed payment
arrangement.
(B) the impact the directed payment has on the rates, for each rate cell.
(C) a description of how the payment arrangement is reflected in the certified
capitation rates. To the extent an adjustment is applied to account for the
impact of the payment arrangement or changes to the payment
arrangement from the base data period, the actuary should provide a
Page 21 of 46

description of the data, assumptions, and methodologies used to develop
the adjustment.
(D) an indication that the payment is being made under an approved §438.6(c)
payment arrangement in a manner that is consistent with the pre-print
(including any correspondence between the state and CMS regarding the
pre-print) reviewed by CMS. To the extent the payment arrangement has
not been approved by CMS before the actuary certifies the capitation rates,
this should be noted in the certification and the payment arrangement that
is under review should still be accounted for in rate development. In this
case, the actuary should also provide an indication that the payment
arrangement is accounted for in a manner consistent with the pre-print that
is under CMS review. If the preprint has not yet been submitted to CMS
for review, the certification should indicate when the preprint will be
submitted to CMS.
(E) if implementing a maximum fee schedule, the actuary should explain if
there are any instances in the base data where the plans paid above the
maximum fee schedule and how the actuary determined that it was
reasonable to assume that the plans that currently pay above the maximum
fee schedule will be able to lower their reimbursement rates consistent
with the maximum fee schedule requirement. The actuary should also
explain whether there are any exemptions to the maximum fee schedule
which allow for plans to pay above the maximum fee schedule during the
rating period and how these exemptions were considered in rate
development.
(iii)if the payment will be incorporated into the initial rate certification as a
separate payment term, then the following information should be included in
the state’s rate certification (please include this information for each separate
directed payment arrangement):
(A) the aggregate amount of the payment applicable to the rate certification.
(B) an explicit statement from the actuary that he or she certifies the amount
of the separate payment term disclosed in the certification (i.e. the amount
in Section I, Item 4.D.ii.a.iii.A).
(C) the provider types that will be receiving the payment.
(D) the distribution methodology.
(E) an estimate of the magnitude of the payment on a PMPM basis for each
rate cell (CMS recognizes that this is an estimate, and that the state will
provide the final figures after the payment has been made).
Page 22 of 46

(F) an indication that the payment is being made under an approved §438.6(c)
payment arrangement in a manner that is consistent with the pre-print
(including correspondence between the state and CMS regarding the preprint) reviewed by CMS. To the extent the payment arrangement has not
been approved by CMS before the actuary certifies the capitation rates,
this should be noted in the certification and the payment arrangement that
is under review should still be accounted for in rate development. In this
case, the actuary should also provide an indication that the payment
arrangement is accounted for in a manner consistent with the pre-print that
is under CMS review. If the preprint has not been submitted to CMS for
review, the certification should indicate when the preprint will be
submitted to CMS.
(G) a statement that after the rating period is complete the state will submit (to
CMS) documentation that incorporates the total amount of the payment
into the rate certification’s rate cells consistent with the distribution
methodology described in the initial rate certification, and as if the
payment information (e.g., providers receiving the payment, amount of the
payment, utilization that occurred, enrollees seen, etc.) had been fully
known when the rates were initially developed.
(b) The rate certification and supporting documentation must confirm that there are
not any additional directed payments in the program that are not addressed in the
certification.
(c) The rate certification and supporting documentation must confirm that there are
not any requirements regarding the reimbursement rates the plans must pay to any
providers unless specifically specified in the certification as a directed payment or
authorized under applicable law, regulation, or waiver.
E. Pass-Through Payments
i. Rate Development Standards
(a) a pass-through payment, as defined in 42 CFR §438.6(a), is any amount required
by the state to be added to the contracted payment rates, and considered in
calculating the actuarially sound capitation rate, between MCOs, PIHPs, or
PAHPs and hospitals, physicians, or nursing facilities that is not for one of the
following purposes: 10,11
States may not require health plans to make pass-through payments other than those permitted to network
providers that are hospitals, physicians, and nursing facilities in accordance with 42 CFR §438.6(d)(1).
11
Pass-through payments are most easily identified as required payments that are not directly tied to utilization or
outcomes based on utilization during the rating period of the contract.
10

Page 23 of 46

(i) a specific service or benefit provided to a specific enrollee covered under the
contract;
(ii) a provider payment methodology permitted under 42 CFR §438.6(c)(1)(i)
through (iii) for services and enrollees covered under the contract;
(iii)a subcapitated payment arrangement for a specific set of services and
enrollees covered under the contract;
(iv) Graduate Medical Education (GME) payments; or
(v) Federally Qualified Health Center (FQHC) or Rural Health Clinic (RHC)
wrap around payments.
(b) pass-through payments are allowed for transition periods as outlined in 42 CFR
§438.6(d). In order to use a transition period, a state must demonstrate that it had
pass-through payments for hospitals, physicians, or nursing facilities, as defined
in 42 CFR §438.6(d)(1)(i), in: 12
(i) managed care contract(s) and rate certification(s) for the rating period that
includes July 5, 2016, and were submitted for CMS review and approval on or
before July 5, 2016; or
(ii) if the managed care contract(s) and rate certification(s) for the rating period
that includes July 5, 2016 had not been submitted to CMS on or before July 5,
2016, the managed care contract(s) and rate certification(s) for a rating period
before July 5, 2016 that had been most recently submitted for CMS review
and approval as of July 5, 2016.
(c) pass-through payments to hospitals must comply with the requirements of 42 CFR
§438.6(d).
(i) in accordance with 42 CFR §438.6(d)(3), the aggregate pass-through
payments to hospitals may not exceed the lesser of: (1) 80 percent of the base
amount; or (2) the total dollar amount of pass-through payments to hospitals
identified in the managed care contract(s) and rate certification(s) used to
meet the requirement of 42 CFR §438.6(d)(1)(i).
(ii) in accordance with 42 CFR §438.6(d)(5), the aggregate pass-through
payments to physicians or nursing facilities may be no more than the total
dollar amount of pass-through payments to physicians or nursing facilities,

In accordance with 42 CFR §438.6(d)(1)(ii), CMS will not approve a retroactive adjustment or amendment,
notwithstanding the adjustments to the base amount permitted in 42 CFR §438.6(d)(2), to managed care contract(s)
and rate certification(s) to add new pass-through payments or increase existing pass-through payments.
12

Page 24 of 46

respectively, identified in the managed care contract(s) and rate
certification(s) used to meet the requirements of 42 CFR 438.6(d)(1)(i).
(d) the base amount, as defined in 42 CFR §438.6(d)(2), is determined as the sum of
(i) and (ii) below:
(i) for inpatient and outpatient hospital services that will be provided to eligible
populations through the MCO, PIHP, or PAHP contracts for the rating period
that includes pass-through payments and that were provided to the eligible
populations under MCO, PIHP, or PAHP contracts two years prior to the
rating period, the state must determine reasonable estimates of the aggregate
difference between:
(A) the amount Medicare FFS would have paid for those inpatient and
outpatient hospital services utilized by the eligible populations under the
MCO, PIHP, or PAHP contracts for the 12-month period immediately two
years prior to the rating period that will include pass-through payments;
and
(B) the amount the MCOs, PIHPs, or PAHPs paid (not including pass-through
payments) for those inpatient and outpatient hospital services utilized by
the eligible populations under MCO, PIHP, or PAHP contracts for the 12month period immediately 2 years prior to the rating period that will
include pass-through payments.
(ii) for inpatient and outpatient hospital services that will be provided to eligible
populations through the MCO, PIHP, or PAHP contracts for the rating period
that includes pass-through payments and that were provided to the eligible
populations under Medicaid FFS for the 12-month period immediately 2 years
prior to the rating period, the state must determine reasonable estimates of the
aggregate difference between:
(A) the amount Medicare FFS would have paid for those inpatient and
outpatient hospital services utilized by the eligible populations under
Medicaid FFS for the 12-month period immediately 2 years prior to the
rating period that will include pass-through payments; and
(B) the amount the state paid under Medicaid FFS (not including pass-through
payments) for those inpatient and outpatient hospital services utilized by
the eligible populations for the 12- month period immediately 2 years
prior to the rating period that will include pass-through payments.
(e) in accordance with 42 CFR §438.6(d)(2)(iii), the base amount must be calculated
on an annual basis and is recalculated annually.
Page 25 of 46

(f) the impact of any §438.6(c) directed payments made to hospitals during the 12month period immediately 2 years prior to the rating period should be included
when calculating amounts in Section I, Item 4.E.i.d.i.B of the guide.
(g) in accordance with 42 CFR §438.6(d)(2)(iv), states may calculate reasonable
estimates of the aggregate differences in paragraph (d) in accordance with the
upper payment limit requirements in 42 CFR part 447.
(i) if the state chooses to utilize a trend adjustment when calculating reasonable
estimates of the aggregate differences in paragraph (d), it must provide a
justification of why an adjustment is reasonable and appropriate, and the state
should utilize the same data source for the trend adjustments when calculating
amounts in Section I, Item 4.E.i.d.i.A, Section I, 4.E.i.d.i.B, Section I, Item
4.E.i.d.ii.A, and Section I, 4.E.i.d.ii.B of the guide.
(h) capitation rates may only include pass-through payments to hospitals, physicians
and nursing facilities when permitted by 42 CFR §438.6(d); states may not
include pass-through payments to providers other than hospitals, physicians, and
nursing facilities in the capitation rates.
(i) if a state chooses to include a pass-through payment as a per member per month
(PMPM) amount, tied to enrollment, the state must monitor the actual passthrough payment amounts paid during the rating period to ensure it does not
exceed the amount permitted under 42 CFR 438.6(d) to ensure compliance with
the regulation. If the actual enrollment were to vary in a way that increases the
pass-through payments beyond the allowable amount, the state must amend the
rates to comply with Federal requirements. Additionally, the state must include
the maximum dollar amount of pass-through payment amounts permitted under
42 CFR 438.6(d) within its contracts with managed care plans.
ii. Appropriate Documentation
(a) the rate certification and supporting documentation must include a description of
each existing pass-through payment incorporated into the rates for this rating
period. An adequate description includes at least the following for each passthrough payment:
(i) a description of the pass-through payment, including the provider type (e.g.
hospital, nursing facility, or physician).
(ii) the amount of the pass-through payment, both in total and on a per member
per month basis (if applicable).
(iii) the program(s) that includes the pass-through payment.
(iv) the providers receiving the pass-through payment.
Page 26 of 46

(v) the financing mechanism for the pass-through payment.
(vi) identification of any §438.6(c) directed payment arrangement(s) which target
the same providers receiving the pass-through payment.
(b) the rate certification and supporting documentation must include a description of
the aggregate pass-through payments incorporated into the rates for this rating
period by provider type. An adequate description includes at least the following
for the pass-through payments by provider type:
(i) the amount of pass-through payments by provider type both in total and on a
per member per month basis (if applicable).
(ii) documentation of historical pass-through payments by provider type that are a
prerequisite for authorization to use a transition period (as outlined in 42 CFR
§438.6(d)(1)(i)):
(A) if the managed care contract(s) and rate certification(s) for the rating
period that includes July 5, 2016 were submitted to CMS on or before July
5, 2016, please provide:
1. the total aggregate amount of pass-through payments per provider type
(i.e. hospital, physician and nursing facility) incorporated into
capitation rates for the rating period in effect on July 5, 2016.
2. the date(s) the managed care contract(s) and rate certification(s) were
submitted to CMS for review and approval.
(B) if the managed care contract(s) and rate certification(s) for the rating
period that includes July 5, 2016 had not been submitted to CMS on or
before July 5, 2016, please provide:
1.

the total aggregate amount of pass-through payments by provider type
incorporated into capitation rates for the rating period before July 5,
2016 that had been most recently submitted for CMS review and
approval as of July 5, 2016.

2. The date(s) the managed care contract(s) and rate certification(s) were
submitted to CMS for review and approval.
(c) in accordance with 42 CFR §438.6(d)(4), the certification must document the
following information about the base amount for hospital pass-through payments:
(i) the data, methodologies, and assumptions used to calculate the base amount,
including the data, methodologies and assumptions for any reasonable
estimate(s) utilized.

Page 27 of 46

(i) the description must include a summary of any adjustment made to the
base data used to calculate amounts for Section I, Item 4.E.i.d.i.A, Section
I, 4.E.i.d.i.B, Section I, Item 4.E.i.d.ii.A, and Section I, 4.E.i.d.ii.B of the
guide, including a rationale and fiscal impact of each adjustment.
(ii) the aggregate amounts calculated for Section I, Item 4.E.i.d.i.A, Section I,
4.E.i.d.i.B, Section I, Item 4.E.i.d.ii.A, and Section I, 4.E.i.d.ii.B of this guide.
(iii)if the state chooses to utilize trend adjustments when calculating the amounts
identified in Section I, Item 4.E.i.d.i.A, Section I, 4.E.i.d.i.B, Section I, Item
4.E.i.d.ii.A, and Section I, 4.E.i.d.ii.B of the guide, the state must ensure clear
documentation, including:
(i) explanation of the purpose of the trend adjustment (e.g. cost inflation,
utilization, etc.) and justification of why an adjustment is reasonable and
appropriate.
(ii) the trend adjustment applied to amounts, as applicable, in Section I, Item
4.E.i.d.i.A, Section I, 4.E.i.d.i.B, Section I, Item 4.E.i.d.ii.A, and Section I,
4.E.i.d.ii.B of the guide.
(iii)a description of the data source, assumptions, and methodology used to
determine each adjustment.
(iv) the fiscal impact of each trend adjustment.
(v) if the state does not utilize a consistent data source for the trend
adjustment used in the base amount calculation and demonstrations of
upper payment limits requirements for inpatient and outpatient hospital
services in accordance with 42 CFR 447, the state must provide a clear
rationale of why a different data source is reasonable and appropriate for
the trend adjustments used in the base amount calculation.
(iv) the calculation of the applicable percentage of the base amount available for
pass-through payments under the schedule in Section I, Item 4.E.i.c. of the
guide.
(v) the amount of any §438.6(c) directed payment arrangements made to hospitals
during the 12-month period immediately 2 years prior to the rating period, and
an explanation of how these were included in the calculations of amounts in
Section I, Item 4.E.i.d.i.B of the guide.
5. Projected Non-Benefit Costs
A. Rate Development Standards

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i. In accordance with 42 CFR §438.5(e), the development of the non-benefit component
of the rate must include reasonable, appropriate, and attainable expenses related to
MCO, PIHP or PAHP administration, taxes, licensing and regulatory fees,
contribution to reserves, risk margin, and cost of capital. In addition, the non-benefit
component must include other operational costs associated with the provision of
services under the contract, including those administrative costs for compliance with
the mental health parity standards in 42 CFR 438.3, subpart K.
ii. Non-benefit costs may be developed as per member per month (PMPM) costs or as a
percentage of projected benefit costs or capitation rates, and different approaches can
be taken for different categories of costs. For non-benefit costs that may be difficult
to allocate to specific enrollees or groups of enrollees, or for taxes and fees that are
assessed as a percentage of premiums, it may be reasonable to calculate those nonbenefit costs as a percentage of benefit costs or capitation rates.
iii. Variations in the assumptions used to develop the projected non-benefit costs for
covered populations must be based on valid rate development standards and not based
on the rate of federal financial participation associated with the covered populations.
iv. Section 9010 of the Patient Protection and Affordable Care Act imposes a Health
Insurance Providers Fee on each covered entity engaged in the business of providing
health insurance for United States health risk. CMS policy regarding how this fee
may be considered in Medicaid managed care rate development is outlined in CMS’s
“Medicaid and CHIP FAQs: Health Insurance Providers Fee for Medicaid Managed
Care Plans,” dated October 2014. 13 States have the flexibility to account for the
Health Insurance Providers Fee on a prospective or retrospective basis into rate
development for either the data year or fee year. Any payment for the fee must be
incorporated in the health plan capitation rates.
(a) due to the health insurance provider fee moratorium established by the
Consolidated Appropriations Act of 2016 and continuing resolution legislation,
Pub. Law. 115-120 (H.R. 195), Division D – Suspension of Certain HealthRelated Taxes, § 4003, CMS does not expect any health insurance provider fees
to be paid for calendar year 2017 and 2019 by managed care plans that are subject
to that fee. Therefore, no amounts should be included in Medicaid managed care
capitation rates for fees that would have been paid by plans to the IRS for 2017 or
2019 (which would have been assessed off of 2016 and 2018 net premiums,
respectively). 14 This fee remains in effect for calendar year 2018 and 2020. The
https://www.medicaid.gov/federal-policy-guidance/downloads/faq-10-06-2014.pdf
More information on this issue can be found at: https://www.irs.gov/Businesses/Corporations/Affordable-CareAct-Provision-9010
13
14

Page 29 of 46

Further Consolidated Appropriations Act, 2020, Division N, Subtitle E § 502
repealed the annual fee on health insurance providers for calendar years beginning
after December 31, 2020.
B. Appropriate Documentation
i. The rate certification and supporting documentation must describe the development
of the projected non-benefit costs included in the capitation rates in enough detail so
CMS or an actuary applying generally accepted actuarial principles and practices can
identify each type of non-benefit expense that is included in the rate and evaluate the
reasonableness of the cost assumptions underlying each expense in accordance with
42 CFR §438.7(b)(3). To meet this standard, the documentation must include:
(a) a description of the data, assumptions, and methodologies used to develop the
projected non-benefit costs, and in particular, all significant and material items in
developing the projected non-benefit costs.
(b) any material changes to the data, assumptions, and methodologies used to develop
projected non-benefit costs since the last rate certification.
(c) any other material adjustments must be described in accordance with 42 CFR
§438.7(b)(4), including:
(i) a description of the data, assumptions, and methodologies used to
determine each adjustment.
(ii) where in the rating setting process each adjustment was applied.
(iii)the cost impact of each material adjustment.
ii. States and actuaries should estimate the projected non-benefit costs for each of the
following categories of costs:
(a) administrative costs.
(b) taxes, licensing and regulatory fees, and other assessments and fees.
(c) contribution to reserves, risk margin, and cost of capital.
(d) other operational costs associated with the provision of services identified in
438.3(c)(1)(ii) to the populations covered under the contract.
iii. Actuaries should disclose historical non-benefit cost data in the certification to the
extent this information was provided by the plans, and explain how the historical nonbenefit cost data was considered in the non-benefit cost assumptions used in rate
development.
iv. Regarding the Health Insurance Providers Fee, the rate certification and supporting
documentation must:
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(a) specifically address how this fee is incorporated into capitation rates if the
managed care plan is required to pay the fee for 2020.
(b) if the fee is incorporated into the rates in the initial rate certification, an
explanation of whether the amount included in the rates is based on the data year
or fee year during the rating period of the rate certification.
(c) a description of how the amount of the fee was determined, and whether or not
any adjustments would be made to the rates once the actual amount of the fee is
known.
(d) if the fee is not incorporated into the rates in the rate certification because the
rates will be adjusted to account for the fee subsequently, an explicit statement
that the fee is not included, and a description of when and how the rates will
ultimately be adjusted to account for the fee.
(e) if the capitation rates include benefits as described in 26 CFR §57.2(h)(2)(ix)
(e.g., long-term care, nursing home care, home health care, or community-based
care), CMS recommends that the per member per month cost associated with
those benefits be explicitly reported as a separate amount in the rate certification
in order to more accurately account for the appropriate revenue on which the
plans will be assessed.
(f) for managed care plans that were required to pay the fee in 2014, 2015, 2016,
and/or 2018, a description as to whether or not the fee has been included in the
capitation rates for those years (either prospectively in the rates or through
amendments to the initially certified rates).
6. Risk Adjustment and Acuity Adjustments
A. Rate Development Standards
i. Risk adjustment is a methodology to account for the health status of enrollees via
relative risk factors when predicting or explaining costs of services covered under the
contract for defined populations or for evaluating retrospectively the experience of
MCOs, PIHPs, or PAHPs contracted with the state.
ii. As required by 42 CFR §438.5(g), if risk adjustment is applied prospectively or
retrospectively, states and their actuaries must select a risk adjustment methodology
that uses generally accepted models and must apply it in a budget neutral manner,
consistent with generally accepted actuarial principles and practices, across all
MCOs, PIHPs or PAHPs in the program to calculate adjustments to the payments as
necessary.
iii. An adjustment applied to the total payments across all managed care plans to account
for significant uncertainty about the health status or risk of a population is considered

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an acuity adjustment, which is a permissible adjustment under 42 CFR §438.5(f) (81
FR 27595).
(a) acuity adjustments may be used prospectively or retrospectively.
(b) while retrospective acuity adjustments may be permissible, they are intended
solely as a mechanism to account for differences between assumed and actual
health status when there is significant uncertainty about the health status or risk of
a population, such as: (1) new populations coming into the Medicaid program; or
(2) a Medicaid population that is moving from FFS to managed care when
enrollment is voluntary and there may be concerns about adverse selection. In the
latter case, there may be significant uncertainty about the health status of which
individuals would remain in FFS versus move to managed care; although this
uncertainty is expected to decrease as the program matures.
(c) CMS may also consider acuity adjustments as a risk mitigation strategy when
there is unusual and significant uncertainty about the health status of the
population (e.g., covering a new population in Medicaid).
B. Appropriate Documentation
i. In accordance with 42 CFR §438.7(b)(5)(i), the rate certification must describe all
prospective risk adjustment methodologies, including:
(a) the data, and any adjustments to that data, to be used to calculate the adjustment.
(b) the model, and any adjustments to that model, to be used to calculate the
adjustment.
(c) the method for calculating the relative risk factors and the reasonableness and
appropriateness of the method in measuring the risk factors of the respective
populations.
(d) the magnitude of the adjustment on the capitation rate per MCO, PIHP, or PAHP.
(e) an assessment of the predictive value of the methodology compared to prior rating
periods.
(f) any concerns the actuary has with the risk adjustment process.
ii. In accordance with 42 CFR §438.7(b)(5)(ii), the rate certification must describe all
retrospective risk adjustment methodologies, including:
(a) the party calculating the risk adjustment.
(b) the data, and any adjustments to that data, to be used to calculate the adjustment.
(c) the model, and any adjustments to that model, to be used to calculate the
adjustment.
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(d) the timing and frequency of the application of the risk adjustment.
(e) any concerns the actuary has with the risk adjustment process.
iii. The rate certification and supporting documentation must also specifically include:
(a) any changes that are made to risk adjustment models since the last rating period.
(b) documentation that the risk adjustment model is budget neutral in accordance
with 42 CFR §438.5(g).
iv. If an acuity adjustment is being used, the rate certification must include a description
of the acuity adjustment and its basis that is adequate to evaluate its reasonableness
and whether it is consistent with generally accepted actuarial principles and practices.
Such a description includes at least:
(a) the reason that there is significant uncertainty about the health status of the
population and the need for an acuity adjustment.
(b) the acuity adjustment model(s) being used to calculate acuity adjustment scores.
(c) the specific data, including the source(s) of the data, being used by the acuity
adjustment model(s).
(d) the relationship and potential interactions between the acuity adjustment.
(e) how frequently the acuity adjustment scores are calculated.
(f) a description of how the acuity adjustment scores are being used to adjust the
capitation rates.
(g) documentation that the acuity adjustment mechanism has been developed in
accordance with generally accepted actuarial principles and practices.

Section II. Medicaid Managed Care Rates with Long-Term Services and
Supports
This section of the guidance is directed to all states setting Medicaid managed care rates that are
subject to the actuarial soundness requirements in 42 CFR §438.4 and include long-term services
and supports (LTSS) as defined at 42 CFR §438.2(a). In determining whether or not rates have
been developed in accordance with generally accepted actuarial practices and principles, CMS
will apply the specific considerations below.
1. Managed Long-Term Services and Supports
A. For managed long-term services and supports (MLTSS) programs, or for programs that
include MLTSS as part of the covered benefits, the guidance above in Section I of the
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guide regarding the required standards for rate development and CMS’s expectations for
appropriate documentation required in the rate certification is also applicable for rates for
provision of MLTSS.
B. Rate Development Standards
i. States may take different approaches for rate setting for MLTSS. The two most
common approaches are to structure the rate cells:
(a) by health care status and the level of need of the beneficiaries (“blended”); or
(b) by the long-term care setting that the beneficiary uses (“non-blended”).
C. Appropriate Documentation
i. The rate certification and supporting documentation for MLTSS programs, or for
programs that include MLTSS as part of the covered benefits must also specifically
address the following considerations:
(a) the structure of the capitation rates and rate cells or rating categories (e.g.
blended, non-blended, etc.).
(b) the structure of the rates and the rate cells, and the data, assumptions, and
methodology used to develop the rates in light of the overall rate setting approach.
(c) any other payment structures, incentives, or disincentives used to pay the MCOs,
PIHPs or PAHPs (for example, states may provide additional payments to plans
that transition beneficiaries from institutional long-term care settings into other
settings, or may pay adjusted rates during time periods of setting transitions).
(d) the expected effect that managing LTSS has on the utilization and unit costs of
services.
(e) any effect that the management of this care is expected to have within each care
setting and any effect in managing the level of care that the beneficiary receives
(e.g., in-home care, community long-term care, nursing facility care).
ii. The projected non-benefit costs, such as administrative costs and care coordination
costs, may differ for populations receiving MLTSS from other managed care
programs, and the rate certification should describe how the projected non-benefit
costs were developed for populations receiving these services.
iii. The rate certification should provide information on historical experience, analysis,
and other sources (e.g., studies or research) used to develop the assumptions used for
rate setting.

Section III. New Adult Group Capitation Rates
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This section of the guidance is focused on rate setting for the new adult group under section
1902(a)(10)(A)(i)(VIII) (“new adult group”) of the Social Security Act. For states that have
previously covered the new adult group, this guide describes the information expected from
states related to how the capitation rates or the rate development process has changed since the
most recent rate certification. Because this is a newly eligible group, CMS expects that rate
development may require additional review in this area to ensure that rates are developed in
accordance with generally accepted actuarial practices and principles. To support such review,
CMS expects states to provide additional documentation as described below.
1. Data
A. In addition to the expectations for all Medicaid managed care rate certifications, as
supported by assurances from the state, described in Section I of the guide, the rate
certification must describe the data used to develop new adult group rates, particularly
where different or additional data was used.
B. For states that have covered the new adult group in Medicaid managed care plans in
previous rating periods (i.e. starting in 2014, 2015, 2016, 2017, 2018, 2019 and/or
January through June 2020), CMS expects the rate certification, as supported by
assurances from the state, to describe:
i. Any new data that is available for use in this rate setting.
ii. How the state and the actuary followed through on any plans to monitor costs and
experience for newly eligible adults.
iii. How actual experience and costs in previous rating periods have differed from
assumptions and expectations in previous rate certifications.
iv. How differences between projected and actual experience in previous rating periods
have been used to adjust these rates.
2. Projected Benefit Costs
A. In addition to the guidance for all Medicaid managed care rate certifications described in
Section I of the guide, states should include in the rate certification submission and
supporting documentation a description of the following issues related to the projected
benefit costs for the new adult group:
i. For states that covered the new adult group in previous rating periods:
(a) any data and experience specific to the new adult group covered in previous rating
periods that was used to develop projected benefits costs for capitation rates.
(b) any changes in data sources, assumptions, or methodologies used to develop
projected benefits costs for capitation rates since the last rate certification.

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(c) how assumptions changed from rate certification(s) for previous rating periods on
the following issues:
(i) acuity or health status adjustments (in most cases comparing the new adult
group enrollees to other Medicaid adult enrollees).
(ii) adjustments for pent-up demand.
(iii)adjustments for adverse selection.
(iv) adjustments for the demographics of the new adult group.
(v) differences in provider reimbursement rates or provider networks, including
any differences between provider reimbursement rates or provider networks
for new adult group rates and other Medicaid population rates.
1. variations in the assumptions used to develop the projected benefit
costs for covered populations must be based on valid rate development
standards and not based on the rate of federal financial participation
associated with the covered populations.
(vi) other material changes or adjustments to the new adult group projected benefit
costs.
(vii)

any changes to the benefit plan offered to the new adult group.

ii. For states that did not cover the new adult group in previous rating periods:
(a) descriptions of any differences of the benefit plan offered to the new adult group
population and other covered populations (i.e., the non-new adult group
population).
iii. For any state that is covering the new adult group, regardless if they have been
covered in previous rating periods, the following key assumptions related to the new
adult group must be identified and describedin the rate certification and supporting
documentation:
(a) Acuity or health status adjustments (in most cases comparing new adult group
enrollees to other Medicaid adult enrollees).
(b) Adjustments for pent-up demand.
(c) Adjustments for adverse selection.
(d) Adjustments for the demographics of the new adult group.
(e) Differences in provider reimbursement rates or provider networks, including any
differences between provider reimbursement rates or provider networks for the
new adult group rates and other Medicaid population rates.
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(f) Other material adjustments to the new adult group projected benefit costs.
B. The rate certification and supporting documentation must describe The rate certification
and supporting documentation must describe any other material changes or adjustments
to projected benefit costs.
3. Projected Non-Benefit Costs
A. In addition to the guidance all Medicaid managed care rate certifications described in
Section I of the guide, states must include in the rate certification submission and
supporting documentation a description of the following issues related to the projected
non-benefit costs for the new adult group:
i. For states that covered the new adult group in Medicaid managed care plans in
previous rating periods, any changes in data sources, assumptions, or methodologies
used to develop projected non-benefit costs since the last rate certification.
ii. How assumptions changed from the rate certification(s) for previous rating periods on
the following issues:
(a) administrative costs.
(b) care coordination and care management.
(c) provision for operating or profit margin.
(d) taxes, fees, and assessments.
(e) other material non-benefit costs.
B. The rate certification and supporting documentation must include information on key
assumptions related to the new adult group and any differences between the assumptions
for this population and the assumptions used to develop projected non-benefit costs for
other Medicaid populations for the following issues:
i. Administrative costs.
ii. Care coordination and care management.
iii. Provision for operating or profit margin.
iv. Taxes, fees, and assessments.
v. Other material non-benefit costs.
4. Final Certified Rates

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A. In addition to the expectations for all Medicaid managed care rate certifications described
in Section I of the guide, CMS requests under 42 CFR §438.7(d) 15 that states that covered
the new adult group in Medicaid managed care plans in previous rating periods provide:
i. A comparison to the final certified rates or rate ranges in the previous rate
certification.
ii. A description of any other material changes to the capitation rates or the rate
development process not otherwise addressed in the other sections of this guidance.
5. Risk Mitigation Strategies
A. CMS requests under 42 CFR §438.7(d) that states describe the risk mitigation strategy
specific to the new adult group rates.
B. For states that covered the new adult group in Medicaid managed care plans in previous
rating periods, CMS requests the following information:
i. Any changes in the risk mitigation strategy from those used during previous rating
periods.
ii. The rationale for making the change in the risk mitigation strategy or removing the

risk mitigation used during previous rating periods. For states that utilize a risk
mitigation strategy specific to the new adult group for the initial rating period that
included this population, CMS believes this risk mitigation strategy should continue
to be utilized until the following three criteria are met:
(a) the state uses data only from the new adult group’s experience to develop

capitation rates;

(b) the state has settled or reconciled previous risk mitigation terms in their contract
(e.g., MLR, risk corridor) to assess the appropriateness of their previous rate
development; and
(c) the state can demonstrate that capitation rates are stable, or that rates have been
adjusted consistent with differences in early experience.
iii. Any relevant experience, results, or preliminary information available related to the
risk mitigation strategy used during previous rating periods.

The regulation provides: (d) Provision of additional information. The State must, upon CMS' request, provide
additional information, whether part of the rate certification or additional supplemental materials, if CMS
determines that information is pertinent to the approval of the certification under this part. The State must identify
whether or not the information provided in addition to the rate certification is proffered by the State, the actuary, or
another party.
15

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Appendix A: CMS MEDICAID MANAGED CARE RATE DEVELOPMENT
SUMMARY FOR ACCELERATED RATE REVIEWS
Introduction
As part of the Centers for Medicare & Medicaid Services’ (CMS) review of Medicaid managed
care rates, CMS is implementing an accelerated rate review process. This appendix summarizes
the accelerated rate review process, criteria for a state to use the accelerated rate review process,
and the documentation required from a state that participates in the accelerated rate review
process. In particular, states that elect to use the accelerated rate review process must submit a
Rate Development Summary that identifies several key elements. The elements of the Rate
Development Summary are described further below. The accelerated rate review process will
focus on reviewing those key elements.
To qualify for review under the accelerated review process, a rate certification must meet the
criteria outlined below. The accelerated review will be of all rates covered by a rate certification
that qualifies for accelerated review . Each state ultimately elects whether to request to
participate in the accelerated rate review process. A state may have one, more, or all rate
certifications for its Medicaid managed care program(s) reviewed through the accelerated
process, depending on the state’s election and whether the particular rate certification qualifies.
New initial rate certifications and rate amendments to those certifications may qualify for the
accelerated review process.
A full review of all rate certifications will be required every 3 years, or earlier if CMS
determines a full review must be performed. Amendments to initial rate certifications that were
reviewed under the accelerated rate review process will also be reviewed under the accelerated
rate review process, unless the rate amendment does not meet the criteria (below) or CMS has
identified material issues in the initial rate certification for the rate amendment.
Under the accelerated rate review process, for certifications that meet the criteria for
participation in the accelerated rate review, states must submit the following:
(1) the Rate Development Summary,
(2) the full rate certification and related supporting documents, and
(3) the executed managed care plan contracts for the certified rates.
All materials described in this Rate Development Guide must be submitted plus the Rate
Development Summary. The accelerated review will focus on the elements in the Rate
Development Summary, and CMS’s review will extend to the full rate certification when more
support, detail, or clarification is needed for the review. In the event there are still questions after
that initial review, CMS will contact that state and the actuary with questions (which may be in
writing and/or through a call).
Criteria for a Rate Certification to Qualify for Accelerated Rate Review

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There are several criteria that must be met for a rate certification to qualify for accelerated rate
review of the rates for the rating period beginning between July 1, 2020 – June 30, 2021. The
criteria are:
1. The state submits a timely request for the accelerated review process and timely submits
the rate certification and required materials for review. Further information is in the
“Required Submission Process and Materials” section below.
2. The review of the prior rating period’s capitation rate certification must be completed.
3. There has been a full review of the capitation rate certification for at least one of the two
prior rating periods.
4. The managed care program covered by the rate certification has been in operation for at
least 24 months.
5. The same actuary or actuarial firm is developing the rates since the previous full review.
6. No material issues have been identified (by any party) in rate setting for the prior rating
period. CMS retains discretion to determine whether or not there were material issues that
were identified in rate setting during the prior rating period, and therefore states should
give CMS prior notice if their intention is to participate in the accelerated rate review.
Material issues are generally discussed through extensive questioning or conference calls.
7. There are no material policy, programmatic, or legal issues related to the state’s managed
care program, in the prior rating period or for the rating period under review.
In addition, CMS retains the discretion to determine whether to conduct an accelerated rate
review or a full rate review. The following criteria are a non-exhaustive list of considerations
CMS will use in determining whether to conduct a full review instead of an accelerated review:
1. Identification of any material issues related to rate setting during the accelerated review.
2. Identification of significant discrepancies or errors in the Rate Development Summary or
rate certification materials.
3. Identification of significant changes to the rate development methodologies and/or the
program.
CMS may choose to request additional information or corrective action in lieu of a full review of
a rate certification.
Required Submission Process and Materials
States must adhere to the following procedural requirements to participate in the accelerated rate
review:
1. Request to participate in the accelerated review 120 days in advance of the start of the

rating period by submitting the request to [email protected] and the DMCO
designated mailbox. One request per certification should be submitted. Depending on the
release of this Rate Guide this timeline may not be possible for rating periods beginning
July 1, 2020. In such situations, the state should submit the request as soon as possible.
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States may send questions regarding eligibility to participate in the accelerated rate
review process to [email protected].
CMS will notify the state within 2 weeks after their request has been submitted whether
or not the certification qualifies for the accelerated review.
2. Submit the following documents to [email protected] and the DMCO

designated mailbox at least 90 days in advance of the rating period:
(1) The Rate Development Summary, including all of the elements outlined in the
next section;
(2) The full rate certification and all supporting documentation; and
(3) Executed contract(s) with signature pages for every managed care plan operating
in the Medicaid, combined Medicaid/CHIP or separate CHIP managed care
program(s) that will be subject to the accelerated rate review.
i. Because many states face challenges in providing rate certifications and
executed contracts at the same time, CMS will accept finalized rate
certifications in advance of the state submitting all other finalized
components of the standardized contract submission.
ii. Note: Some contract submissions also require additional documentation,
such as the annual summary of managed care plans’ medical loss ratio
reports, readiness review results and/or parity analysis. Please see the
Addendum included in CMCS Informational Bulletin, dated November 8,
2019, for additional guidance.

Required Elements for Rate Development Summary
1. Rates
The Rate Development Summary must identify all certified rates for the rating period and
must indicate whether the certified rates have been risk adjusted or the actuary has
certified the risk adjustment methodology and the certified rates will be risk adjusted in
the future.
The rates can be provided in two ways. First, a table can be provided, such as the table
below. This is CMS’s preference.
Rate Cell (Region, Plan, etc.)
A
B
C

Rate (PMPM)
$X
$X
$X

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Alternatively, the Rate Development Summary can specify exactly where in the rate
certification (and any additional materials) that the rates are provided at this level of
detail.
2. Changes in rates from last rating period or initial certification
The Rate Development Summary must compare the rates for this rating period to either
(1) the rates from the previous rating period in the case of a new certification or (2) the
rates from the initial certification or most recent rate amendment in the case of a rate
amendment. This will be used to identify rate changes that are unusually large or that
appear to be inconsistent with the changes described in the certification.
The information about rate changes can be provided in two ways. First, a table can be
provided in the template. This is CMS’s preference.
Rate Cell (Region, Plan, etc.)
A
B
C
Average

Rate
$X
$X
$X
$X

Previous Rate
$Y
$Y
$Y
$Y

Change
Z%
Z%
Z%
Z%

Average rate changes would also be helpful, and could be provided overall for the rate
certification or as appropriate subtotals (aggregating related rate cells together,
aggregating all rate cells by plan, etc.). The table can also split the rate change into
components if available (for example: projected-to-historical cost differences, trend,
programmatic changes, etc.).
Alternatively, the Rate Development Summary can specify exactly where in the rate
certification (and any additional materials) that the rate changes are provided at this level
of detail.
3. Base Data
The Rate Development Summary must include a description of the base data used,
including:
(1) the sources of data used for the base data (encounter data, fee-for-service data, or
other sources);
(2) an assurance that the base data is consistent with the requirements in the
regulation, or a description of why the base data is not consistent with the
regulation including the state’s rationale of why an exemption is necessary and a
description of the actions the state intends to take to come into compliance with
the base data requirements in accordance with 42 CFR 438.5(c)(3);
(3) a description of any data quality issues or concerns identified by the actuary;
(4) a description of any material adjustments made to the base data; and
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(5) references to where the data is described in more detail in the certification and any
additional documents. In addition, the Rate Development Summary can include
references to the summarized base data in the certification or additional
documents.
This will be used to verify that the data used is consistent with CMS regulation and
actuarial standards and to assess any significant issues with or adjustments made to the
data for developing rates.
4. Methodology
The Rate Development Summary must include a high-level description of the
methodologies used to develop the rates. This section must include a description of any
material methodology changes since the last certification and references to descriptions
of the methodologies in the rate certification.
5. Trend
The Rate Development Summary must include a summary of the projected benefit cost
trends used to develop the rates, including:
(1) the total average projected benefit cost trend assumption;
(2) the projected benefit cost trends by category or type of service;
(3) the projected benefit cost trends by rate cell (or similar level of detail, such as
eligibility category);
(4) the projected benefit cost trends separated into price or unit cost trends, and
utilization trends;
(5) any adjustments applied to develop the projected benefit cost trends;
(6) comparisons to the previous year’s trends; and
(7) references to where the trends and their development are described in more detail
in the certification and any additional documents.
This will be used to verify that the trends are reasonable and consistent with the changes
being made to the rates (either in the initial certification or in the rate amendment) and to
identify trends that are unusual (for example, larger than expected or negative), or that
appear to be inconsistent with the changes described in the certification or rate
amendment.
The trends can be provided in several ways. First, the trends can be provided in the tables
in the template. We believe that tables showing the trends by service and the average
trend by rate cell would be the most useful:
Category of
Service

Unit Cost
Trend

Utilization
Trend
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Adjustments to
Trend

Overall
Trend

A
B
C

X%
X%
X%

Y%
Y%
Y%

Rate Cell (Region, Plan, etc.)
A
B
C
Total Average

Z%
Z%
Z%

A%
A%
A%

Trend
A%
A%
A%
A%

Alternatively, the Rate Development Summary can specify exactly where in the rate
certification (and any additional materials) the trends are provided at this level of detail.
6. Non-benefit costs
The Rate Development Summary must summarize non-benefit costs by type or by
category (for example, administrative costs, care management (non-benefit), taxes and
fees, and profit margin) and identify where the non-benefit costs are described in the rate
certification and any additional documents, as well as any comparisons to the previous
year’s non-benefit costs.
This will be used to verify that the non-benefit costs are reasonable and consistent with
the changes being made to the rates (either in the initial certification or in the rate
amendment) and to identify costs that are unusual (for example, significant larger or
smaller than typical), or that appear to be inconsistent with the changes described in the
certification or rate amendment.
The non-benefit costs can be provided in several ways. First, non-benefit costs can be
shown by rate cell (or similar level of detail) or an average across all rate cells if costs are
similar:
Type of Non-Benefit Cost
A
B
C
Total

Amount
X% or $Y PMPM
X% or $Y PMPM
X% or $Y PMPM
Z% or $A PMPM

Alternatively, the Rate Development Summary can specify exactly where in the rate
certification (and any additional materials) that the non-benefit costs are provided at this
level of detail.
7. Program changes
The Rate Development Summary must describe any programmatic changes and the
impacts that they are expected to have on the rates. Programmatic changes that must be
documented in this Rate Development Summary include: new or changing benefits;
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changes to provider reimbursement; new or changing populations covered by managed
care; new programs or initiatives that would affect managed care; new or changing
participating plans; and any other changes to the managed care program that would have
a material impact on the rates.
This section must include a description of those changes and the impacts on the rates, and
must have references to where these are described in more detail in the certification. This
will be used to verify that the program changes are consistent with the changes being
made to the rates and to identify large or unusual impacts to the rates.
8. Financial performance
The Rate Development Summary must include recent financial performance of the
managed care program and the plans in the program, which could include medical loss
ratio (MLR) and/or profit margin by plan. The state must provide some measure of
financial performance (MLR or profit margin, preferably by plan, by program, by year)
and a comparison to the estimated or assumed measure when developing the rates. The
Rate Development Summary must include up to 3 years of experience (or, if the rate
certification is for a program with less than 3 years experience, all available years) and a
brief definition of the measure chosen.
This will be used as a basis for reviewing past results, including the accuracy of previous
rate setting and the stability of program costs and rates. We will review any unexpected
results or changes to assess if the proposed rates are consistent with expectations given
recent financial performance (for example, if costs have generally been higher than
expected, we would expect larger rate increases holding all other factors constant).
This information could be provided in one of two ways. First, the information could be
provided in a table such as the one below for each year. This is CMS’s preference.
Plan
A
B
C
Average

Estimated MLR/Profit Margin
X%
X%
X%
X%

Actual MLR/Profit Margin
Y%
Y%
Y%
Y%

Alternatively, the Rate Development Summary can specify exactly where in the rate
certification (and any additional materials) that the financial performance results and
comparisons are provided.
9. Addressing previous issues
The Rate Development Summary must include a section for the state and its actuary to
address any significant issues identified in previous years (if applicable). CMS previously
communicated issues to states through approval letters (prior to October 2017), and have
also communicated significant issues through calls, emails, or inquired about significant
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issues during rate certification reviews. This section must include a description of how
any issues were considered in setting the rates in the certification or rate amendment, as
well as references to where this is described in more detail in the certification.
10. Other rate and policy items
The Rate Development Summary must identify any of the following items that are
applicable to the capitation rates and/or the managed care program for the rating period.
For each item, this section must include a description of how the rate or policy item was
considered in setting the rates in the certification or rate amendment, as well as references
to where each item is described in more detail in the certification.
• Institution of mental disease (IMD) services;
• Directed payments (42 CFR 438.6(c));
• Pass-through payments;
• Additional payments added to the rates that currently do not qualify as directed
payments or pass-through payments;
• Confirm that any proposed differences among capitation rates according to
covered populations are based on valid rate development standards and not based
on the rate of federal financial participation associated with the covered
populations;
• Withhold arrangements;
• Incentive arrangements;
• Risk adjustment;
• Acuity adjustment;
• Reinsurance;
• Minimum medical loss ratio (MLR) requirements;
• Risk corridors;
• Other risk sharing strategies; and
• Other notable policy, Medicaid authority, or programmatic changes.

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