CMS-10398 #37 2022-2023 Medicaid Managed Care Rate Development Guide

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

2022-2023 Medicaid Managed Care Rate Development Guide
For Rating Periods Starting between July 1, 2022 and June 30, 2023 1,2
[DATE of issuance]
Introduction
The Centers for Medicare & Medicaid Services (CMS) is releasing the 2022-2023 Medicaid
Managed Care Rate Development Guide for use in setting rates for rating periods starting
between July 1, 2022, and June 30, 2023 for managed care programs subject to the actuarial
soundness requirements in 42 C.F.R. § 438.4. 3,4 This guidance is released in accordance with 42
C.F.R. § 438.7(e). This rate development guide builds upon the Medicaid Managed Care Rate
Development Guide effective for rating periods that start between July 1, 2021, through June 30,
2022, and the experience of states and CMS in completing rate certifications and reviews, but
this rate development guide does not replace or revise the guidance in place for those prior rating

The contents of this document do not have the force and effect of law and are not meant to bind the public in any
way, unless specifically incorporated into a contract. This document is intended only to provide clarity to the public
regarding existing requirements under the law.
2
This guide outlines federal standards for rate development in 42 C.F.R. §§ 438.4 through 438.7 and describes
information required from states and their actuaries as part of actuarial rate certifications required under 42 C.F.R. §
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.
3
Except as noted in the regulation text itself, all regulations related to rate setting at 42 C.F.R. §§ 438.4, 438.5,
438.6 and 438.7 are applicable. In addition, States must be compliant with provisions that impact rate development,
including 42 C.F.R. §§ 438.2, 438.3(c), 438.3(e), 438.8, 438.14, and 438.608(d).
4
States must comply with all applicable federal statutory and regulatory requirements as well as guidance that
impacts Medicaid managed care rate development. CMS will evaluate if addendums to this rate guide are necessary
if any new federal requirements are implemented.

Page 1 of 58

periods. If states or their actuaries have questions regarding this guidance, please contact
[email protected].
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 C.F.R. §
438.7(a). All standards and documentation expectations outlined in this rate development guide
for capitation rates also apply for rate ranges developed in accordance with 42 C.F.R. § 438.4(c)
unless otherwise stated. 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 C.F.R. 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 C.F.R. § 438.5 and appropriate documentation for each
submission in accordance with 42 C.F.R. § 438.7 to facilitate our review. Adherence by states
and their actuaries to the rate development standards and documentation expectations outlined in
this guide, will aid in ensuring compliance with the regulations and in CMS’s review and
approval of actuarially sound capitation rates and associated federal financial participation. 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 implemented an accelerated rate review process. Appendix A
contains additional information regarding this accelerated rate review process and procedures,
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 (the Act) and 42 C.F.R. § 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 C.F.R. § 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
Page 2 of 58

•

the documentation is sufficient to demonstrate that the rate development process meets the
requirements of 42 C.F.R. 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
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. Additionally, Appendix A
outlines information regarding the accelerated rate review process and procedures.
Most of the information discussed in this guide is or should be already part of ongoing actuarial
work and program management in states as part of ensuring compliance with 42 C.F.R. §§ 438.4
through 438.7. CMS provides the specific elements to be included in the rate certification to
ensure compliance with the regulations, 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, including those specified in 42 C.F.R. § 438.7.
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 regulations and any supporting documentation that relates to 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 C.F.R. § 438.7, states must submit to CMS for review and approval all
rate certifications for managed care organizations (MCOs), prepaid inpatient health plans
(PIHPs), and prepaid ambulatory health plans (PAHPs), 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 capitation
rates (including rate ranges) subject to the actuarial soundness requirements in 42 C.F.R. § 438.4.
Page 3 of 58

The rate development and documentation standards outlined below are consistent with 42 C.F.R.
part 438 and relevant Actuarial Standards of Practice (ASOPs). Actuaries are required to follow
all ASOPs as part of the obligation to develop rates and certain payment terms in accordance
with generally accepted actuarial principles and practices. See 42 C.F.R. §§ 438.4 through 438.7.
Particularly relevant are ASOP No. 1 (Introductory Actuarial Standard of Practice); ASOP No. 5
(Incurred Health and Disability Claims); ASOP No. 12 (Risk Classification (for All Practice
Areas)); ASOP No. 23 (Data Quality); ASOP No. 25 (Credibility Procedures); ASOP No. 41
(Actuarial Communications); ASOP No. 45 (The Use of Health Status Based Risk Adjustment
Methodologies); ASOP No. 49 (Medicaid Managed Care Capitation Rate Development and
Certification); and ASOP No. 56 (Modeling). ASOP No. 49 is especially relevant because it
focuses on the development of Medicaid managed care rates. The applicable requirements under
42 C.F.R. §§ 438.4 and 438.5 are consistent with ASOP No. 49.
1. General Information
A. Rate Development Standards
i. Unless otherwise stated, all standards and documentation expectations outlined in this
rate development guide for capitation rates also apply for the development of the
upper and lower bounds of rate ranges, in accordance with 42 C.F.R. § 438.4(c).
ii. Rate certifications must be done for a 12-month rating period. 5
iii. In accordance with 42 C.F.R. §§ 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 C.F.R. § 438.2, who certifies that the final capitation rates or rate ranges meet
the standards in 42 C.F.R. §§ 438.3(c), 438.3(e), 438.4, 438.5, 438.6, and 438.7.
(b) The final and certified capitation rates or rate ranges for all rate cells in
accordance with 42 C.F.R. § 438.4(b)(4) or § 438.4(c) for all regions (as
applicable). Additionally, the contract must specify the final capitation rate(s) in
accordance with 42 C.F.R. § 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:
Per 42 C.F.R. § 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

Page 4 of 58

(A) The types and numbers of managed care plan(s) included in the rate
development (e.g., type means managed care organization(s), prepaid
inpatient health plan(s), or prepaid ambulatory health plan(s)).
(B) A general description or list of the benefits that are required to be
provided by the managed care plan(s) (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 the
managed care program, provided on a non-risk basis by the managed
care plan(s), or that are new to the managed care program in the
covered rating period.
(C) The geographic 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
plan(s) is voluntary or mandatory).
(v) A summary of the special contract provisions related to payment described in
42 C.F.R. § 438.6 (e.g., risk-sharing mechanisms, 6 incentive arrangements,

States planning to implement one or more risk mitigation strategy(ies) for a future rating period must submit
contract and rate certification documentation to CMS prior to the start of the rating period. This documentation must
include contract and rate certification documents that describe the risk mitigation strategy included in the contract
between the state and the managed care plan. States must supply this information even if the state implemented the
risk corridor (or other risk mitigation provision) in a prior rating period. Examples of risk mitigation include (but are
not limited to): reinsurance, stop loss limits, risk corridors, and a minimum MLR with a remittance. For rating
periods starting on or after January 1, 2021, submission of contract and rate certification documentation of the final
risk mitigation arrangement(s) prior to the start of the rating period is required to meet the regulatory standard of
documenting those arrangement(s) to CMS for the rating period prior to the start of the rating period. CMS will
accept states’ submissions of draft managed care contract actions that are not officially executed and documentation
from a state’s actuary that may not reflect final full rate development or is limited to a description of the risk sharing
arrangement(s). States must submit both contract and rate certification documentation prior to the start of the rating
period. The risk mitigation arrangement(s) in the final, executed contract and rate certification documents must be
unchanged from the prior submission to CMS for the risk mitigation arrangement(s) to be approvable under 42
C.F.R. 438.6(b)(1).

6

Page 5 of 58

withhold arrangements, state directed payments, 7 pass-through payments,
and payments to MCOs and PIHPs for enrollees that are a patient in an
Institution of Mental Disease (IMD)) 8.
(vi) If the actuary is certifying rates (not rate ranges) and the state and its actuary
determine that a retroactive adjustment to the capitation rates is necessary,
these retroactive adjustments must be certified by an actuary in a revised rate
certification (CMS would accept a new rate certification or rate amendment) 9
and submitted as a contract amendment in accordance with 42 C.F.R. §
438.7(c)(2). 10 The revisions to the rate certification must:
(A) describe the rationale for the adjustment;
(B) describe the data, assumptions and methodologies used to develop the
magnitude of the adjustment;
(C) describe whether the state adjusted rates in the rating period by a de
minimis amount in accordance with 42 C.F.R. § 438.7(c)(3) prior to
the submission of the rate amendment; and
(D) address and account for all differences from the most recently
certified rates.
iv. Any differences in the assumptions, methodologies, or factors used to develop
capitation rates for covered populations must be based on valid rate development
standards that represent actual cost differences in providing covered services to the
covered populations. Any differences in the assumptions, methodologies, or factors
used to develop capitation rates must not vary with the rate of Federal financial
participation (FFP) associated with the covered populations in a manner that increases
Federal costs. The determination that differences in the assumptions, methodologies,
or factors used to develop capitation rates for MCOs, PIHPs, and PAHPs increase
Federal costs and vary with the rate of FFP associated with the covered populations

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 C.F.R. § 438.6(c) and receive prior approval before implementation.
8
Additional requirements in 42 C.F.R. § 438.6 apply to the various types of special contract provisions; see Section
I, Item 4, for more discussion.
9
The rate guide utilizes the term “rate amendment” throughout this guide to reference an amendment to the initial
rate certification.
10
In accordance with 42 C.F.R. § 438.4(c)(2)(ii), States that use rate ranges are not permitted to modify the
capitation rates under 438.7(c)(3).
7

Page 6 of 58

must be evaluated for the entire managed care program and include all managed care
contracts for all covered populations. 11
v. Payments from any rate cell must not cross-subsidize or be cross-subsidized by
payments from any other rate cell.
vi. The assumptions used for development of the capitation rates must be consistent with
the effective dates of changes to the Medicaid managed care program (including but
not limited to eligibility, benefits, payment rate requirements, incentive programs, and
program initiatives).
vii. 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 C.F.R. § 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 C.F.R. § 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.
viii. In accordance with 42 C.F.R. § 438.4(c), the State and its actuary may develop
and certify a range of capitation rates per rate cell as actuarially sound, when all of
the following conditions are met:
(a) The rate certification identifies and justifies the assumptions, data, and
methodologies specific to both the upper and lower bounds of the rate range.
(b) Both the upper and lower bounds of the rate range must be certified as actuarially
sound consistent with the requirements of 42 C.F.R. § 438.4.
(c) The upper bound of the rate range does not exceed the lower bound of the rate
range multiplied by 1.05.
(d) The rate certification documents the State’s criteria for paying MCOs, PIHPs, and
PAHPs at different points within the rate range.

11
In accordance with 42 C.F.R. § 438.4(b)(1) and 438.7(d), CMS may require a State to provide written
documentation and justification that any differences in the assumptions, methodologies, or factors used to develop
capitation rates for covered populations or contracts represent actual cost differences based on the characteristics and
mix of the covered services or the covered populations.

Page 7 of 58

(e) The State does not use as a criterion for paying MCOs, PIHPs, and PAHPs at
different points within the rate range any of the following: 12
(i) the willingness or agreement of the MCOs, PIHPs, or PAHPs or their
network providers to enter into, or adhere to, intergovernmental transfer
(IGT) agreements; or
(ii) the amount of funding the MCOs, PIHPs, or PAHPs or their network
providers provide through IGT agreements.
ix. When a State develops and certifies a range of capitation rates per rate cell as
actuarially sound consistent with 42 C.F.R. § 438.4(c), the State must:
(a) Document the capitation rates, prior to the start of the rating period, for the
MCOs, PIHPs, and PAHPs at points within the rate range, consistent with 42
C.F.R. § 438.4 (c)(1)(iv).
(b) Not modify the capitation rates under 42 C.F.R. § 438.7(c)(3).
(c) Not modify the capitation rates within the rate range, unless the State is increasing
or decreasing the capitation rate per rate cell within the rate range up to 1 percent
during the rating period. However, any changes of the capitation rate within the
permissible 1 percent range must be consistent with a modification of the contract
as required in 42 C.F.R. § 438.3(c) and are subject to the requirements of 42
C.F.R. § 438.4(b)(1). Any modification to the capitation rates within the rate
range greater than the permissible 1 percent range will require the State to provide
a revised rate certification for CMS approval, which demonstrates that:
(i) the criteria in 42 C.F.R. § 438.4(c)(1)(iv), as described in the initial rate
certification, were not applied accurately;
(ii) there was a material error in the data, assumptions, or methodologies used to
develop the initial rate certification and that the modifications are necessary
to correct the error; or
(iii) other adjustments are appropriate and reasonable to account for
programmatic changes.
(d) Post on the website, as required in 42 C.F.R. § 438.10(c)(3), the following
information prior to executing a managed care contract or contract amendment
that includes or modifies a rate range:
(i) the upper and lower bounds of each rate cell;

The state’s criteria for paying managed care plans at different points within the rate range, must comply with the
prohibition in 42 C.F.R.§ 438.4(c)(1)(v) and other applicable legal authority.
12

Page 8 of 58

(ii) a description of all assumptions that vary between the upper and lower
bounds of each rate cell, including for the assumptions that vary, the specific
assumptions used for the upper and lower bounds of each rate cell; and
(iii) a description of the data and methodologies that vary between the upper and
lower bounds of each rate cell, including for the data and methodologies that
vary, the specific data and methodologies used for the upper and lower
bounds of each rate cell.
x. 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 and consistent with the
regulatory requirements, CMS will consider whether the submission demonstrates the
following:
(a) All adjustments to the capitation rates or to any portion of the capitation rates
referenced in 42 C.F.R. §§ 438.5(b)(4) and 438.5(f) 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
C.F.R. § 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 C.F.R. §§ 438.7(c) and 438.4(c)(2)(i), the final contracted
rates in each cell must match the capitation rates or, for rate ranges that are
approvable under § 438.4(c), be within rate ranges in the rate certification. This is
required in total and for each and every rate cell.
xi. Rates must be certified for all time periods for 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.
xii. The state and its actuary should describe the evaluation conducted, and the rationale
for any applicable assumptions included or not included in rate development related
to the COVID-19 public health emergency within the rate certification. States and
their actuaries should evaluate state specific, and other applicable national or regional
data that is available and applicable for determining how to address the direct and
indirect impacts of the COVID-19 public health emergency in rate setting. CMS
recommends all states implement a 2-sided risk mitigation strategy for rating periods
impacted by the public health emergency. Please refer to the CMCS Informational
Page 9 of 58

Bulletin published on May 14, 2020 and COVID Frequently Asked Questions for
State Medicaid and CHIP Agencies for further information regarding rate
development and risk mitigation considerations around the COVID-19 public health
emergency. The state must ensure that it complies with the requirements in 42 C.F.R.
§ 438.6(b)(1), including that the risk mitigation strategy must be documented in the
contract and rate certification documents for the rating period prior to the start of the
rating period. 13
xiii.

Procedures for rate certifications for rate and contract amendments, include:

(a) If a state intends to claim FFP for capitation rates, the state must comply with the
time limit for filing claims for FFP specified in section 1132 of the Act and
implementing regulations at 45 C.F.R. part 95. States should timely submit rate
certifications to CMS to help mitigate timely filing concerns.
(b) If the actuary is certifying rates (and not rate ranges), the state must submit a
revised rate certification when the rates change, except for changes permitted as
specified in 42 C.F.R. § 438.4(c) or 42 C.F.R. § 438.7(c)(3). 14 In accordance with
438.4(c)(2)(ii), States that use rate ranges are not permitted to modify the
capitation rates under 438.7(c)(3). 15 CMS standards for a revised rate certification
if the state and its actuary determine that changes are needed within the rate range
during the rate year are outlined in Section I, Item 1.A.ix.c of this rate guide.
(c) For contract amendments that do not affect the rates and for rate changes
permitted as specified in 42 C.F.R. §§ 438.4(c) or 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 C.F.R. §
438.4.
(d) New or revised rate certifications are not required for limited payment changes:
(i) If the actuary certified rates per rate cell (and not rate ranges), the state may
increase or decrease the most recently certified actuarially sound capitation
Please see footnote 5 for additional documentation requirements for risk-sharing strategies.
For states that implement capitation rate adjustments that result in an increase or decrease of more than 1.5
percent from the most recently certified capitation rates for any rate cell, states will need to submit a rate amendment
and contract amendment. The rate amendment must address and account for all differences from the most recently
certified rates.
15
States are permitted to either use the rate range option under 42 C.F.R. §§ 438.4(c)(1) or use the de minimis rate
adjustment under 438.7(c)(3), but states are not permitted to use both mechanisms in combination.
13
14

Page 10 of 58

rates per rate cell, as required in 42 C.F.R. §§ 438.7(c) and 438.4(b)(4), up to
1.5 percent during the rating period, in accordance with 42 C.F.R. §
438.7(c)(3). 16
(ii) If the actuary certified rate ranges for the rate cell(s), the state may increase or
decrease the capitation rates per rate cell within the certified rate range up to 1
percent during the rating period, in accordance with 42 C.F.R. § 438.4(c)(2). 17
(iii) If the contract and rate certification specify an approved risk adjustment
methodology (such as applying risk scores to the capitation rates paid to the
managed care plan(s)), the state may apply that specified methodology to
increase or decrease payment to the managed care plan(s), in accordance with
42 C.F.R. § 438.7(b)(5)(iii). The changes to payment in this situation are
within the scope of the original, approved rate certification and contract that
was reviewed and approved by CMS. The State must provide to CMS the
payment terms updated by the application of the risk adjustment methodology
consistent with § 438.3(c).
(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
contract amendment and rate amendment to adjust capitation rates to address
changes in applicable law or losses of program authority. The rate amendment
must take into account the effective date of the loss of program authority. Each

While a rate amendment to the actuarial certification is not required in accordance with 42 C.F.R. § 438.7(c)(3),
states must submit a contract amendment to effectuate any rate adjustment as the final capitation rates must be
specifically identified in the managed care plan contracts in accordance with 42 C.F.R. § 438.3(c) and are subject to
the requirements at 42 C.F.R. § 438.4(b)(1). CMS also expects states to provide documentation that this de minimis
rate adjustment ensures compliance with 42 C.F.R. § 438.3(c), 438.3(e), 438.4(b)(1) and 438.7(c)(3). States must
provide documentation of the percentage change of the rate adjustment per rate cell in comparison to the most
recently certified actuarially sound capitation rates and an assurance that the state has not previously utilized the
flexibility outlined in 42 C.F.R. § 438.7(c)(3) during the applicable rating period.
17
While a rate amendment to the actuarial certification is not required when the state adjusts the capitation rates
within the permissible 1 percent range in accordance with 42 C.F.R. § 438.4(c), states must submit a contract
amendment to effectuate any rate adjustment as the final capitation rates must be specifically identified in the
managed care plan contracts in accordance with 42 C.F.R. § 438.3(c)(1) and are subject to the requirements at 42
C.F.R. § 438.4(b)(1). CMS also expects states to provide documentation ensuring compliance with 42 C.F.R. §
438.4(b)(1) and (c). States must provide documentation of the percentage change of the rate adjustment per rate cell
in comparison to the most recently contracted rates consistent with the certified actuarially sound rate ranges and an
assurance that the state has not previously utilized the flexibility outlined in 42 C.F.R. § 438.4(c) during the
applicable rating period.
16

Page 11 of 58

state’s circumstances may vary and CMS is available to provide technical
assistance as needed.
B. Appropriate Documentation
i. The certification must clearly indicate whether the actuary is either certifying
capitation rates or capitation rate ranges.
ii. States and their actuaries must document all the elements described within their rate
certification and provide adequate detail such 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
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; and
(c) methods for analyzing data and developing assumptions and adjustments.
iii. If the State and its actuary develop and certify capitation rates per rate cell (and not
rate ranges), 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.
iv. If the State and its actuary develop and certify capitation rate ranges per rate cell in
accordance with 42 C.F.R. § 438.4(c), the rate certification must include the
following:
(a) A statement that both the upper and lower bounds of the rate range are being
certified as actuarially sound consistent with the requirements in 42 C.F.R. §§
438.4 through 438.7.
(b) A table of the certified rate ranges clearly showing that the upper bound of the
rate range does not exceed the lower bound of the rate range multiplied by 1.05
for each rate cell.
(c) The data, assumptions, and methodologies used to develop the upper and lower
bounds of the rate range for each rate cell. This documentation should include:

Page 12 of 58

(i) any assumptions (such as trend) for which values are varied in order to
develop rate ranges;
(ii) the values of each of the assumptions used to develop the lower bound and
the upper bounds of the rate ranges for each rate cell; and
(iii) a description of the data, assumptions, and methodologies that were used to
develop the values of the assumptions for the lower bound and the upper
bound of the rate ranges.
(d) The state’s criteria for paying managed care plans at different points within the
rate range, which must comply with the prohibition in 42 C.F.R. § 438.4(c)(1)(v)
and other applicable legal authority. 18,19
(e) The information related to rate range development must be included either in the
relevant sections of the rate certification or in a separate section related
specifically to the rate range development. For example, a description of how
certain assumptions related to projected benefit costs vary to develop the rate
ranges may be included with the description of other information related to
projected benefit costs, or may be included in a section that describes all of the
assumptions that were varied to develop the rates. The rate certification index
must identify where the information and data are described.
v. 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., a rate
amendment 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
As outlined in the preamble of the 2020 Medicaid and Children’s Health Insurance Program (CHIP) Managed
Care Rule (85 FR 72764), “we confirm that such criteria could include state negotiations with managed care plans or
a competitive bidding process, as long as states document in the rate certification how the negotiations or the
competitive bidding process produced different points within the rate range. For example, if specific, documentable
components of the capitation rates varied because of state negotiations or a competitive bidding process, the rate
certification must document those specific variations, as well as document how those variations produced different
points within the rate range, to comply with § 438.4(c)(1)(iv) and (c)(2)(i). We understand that capitation rate
development necessarily involves the use of actuarial judgment, such as adjustments to base data, trend projections,
etc., and that could be impacted by specific managed care plan considerations (for example, one managed care
plan’s utilization management policies are more aggressive versus another managed care plan’s narrow networks);
under this final rule, states must document such criteria as part of the rate certification to comply with §
438.4(c)(1)(iv) and (c)(2)(i).”
19
When the state submits its rate certification for rate ranges to CMS for review, in accordance with 42 C.F.R. §
438.4(c)(v), the state must also provide an assurance that the State does not use as a criterion for paying managed
care plans at different points within the rate range any of the following: (1) the willingness or agreement of the
MCOs, PIHPs, or PAHPs or their network providers to enter into, or adhere to, IGT agreements; or (B) The amount
of funding the MCOs, PIHPs, or PAHPs or their network providers provide through IGT agreements. In addition,
other applicable law concerning the Medicaid program or use of federal grants apply even if not specifically cited in
§ 438.4(c).
18

Page 13 of 58

requires that the rate certification include an index and this index should also follow
the structure of this guidance.
vi. The rate certification must include an assurance that any proposed differences in the
assumptions, methodologies, or factors used to develop capitation rates for covered
populations comply with 42 C.F.R. § 438.4(b)(1), including that any differences in
the assumptions, methodologies, or factors used to develop capitation rates for
covered populations are based on valid rate development standards that represent
actual cost differences in providing covered services to the covered populations, and
that these differences do not vary with the rate of FFP associated with the covered
populations in a manner that increases federal costs. States and their actuaries are
reminded that 42 C.F.R. § 438.4(b)(6) requires the actuary to certify compliance with
the rate development requirements in 42 C.F.R. Part 438, including compliance with
these requirements related to differences in rates and rate development for different
covered populations. CMS may require a state to provide written documentation and
justification that any differences in the assumptions, methodologies, or factors used to
develop capitation rates for covered populations or contracts represent actual cost
assumptions based on the characteristics and mix of the covered services or the
covered populations. The state must have documentation to provide to CMS upon
request, which may include the following information:
(a) A description of each assumption, methodology, or factor used to develop
capitation rates that varies by the rate of FFP associated with all covered
populations.
(b) A justification of how each difference in the assumptions, methodologies, or
factors used to develop capitation rates for the covered population represents
actual cost differences based on the characteristics and mix of the covered
services or the covered populations.
(c) The financial impact on federal costs of the difference in each of the
assumptions, methodologies, or factors used to develop capitation rates for
covered populations that varies by the rate of FFP associated with all covered
populations.
vii. 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.
viii. CMS requests that states that operated the managed care program or programs
covered by the rate certification in previous rating periods provide:

Page 14 of 58

(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. For rate certifications that revise or amend previously
certified rates for a rating period, this should be a comparison to the latest
certified rates for the rating period or to the extent there has been a de minimis
change to the rates under 42 C.F.R. § 438.7(c)(3), this should be a comparison to
the rates after the de minimis change. 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.
(c) A description of whether the state adjusted the actuarially sound capitation rates
in the previous rating period by a de minimis amount using the authority in 42
C.F.R. § 438.7(c)(3).
ix. 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.
x. States and actuaries must document in their rate certification the approach to address
the impact of the COVID-19 public health emergency to ensure the rates are
actuarially sound in accordance with 42 C.F.R. § 438.4. This must include the
following:
(a) A detailed description of state specific, and other applicable national or regional
data and information (utilization, enrollment, deferred caseload, vaccinations or
treatments, etc.) that is available and applicable for determining how to address
the COVID-19 public health emergency in rate setting.
(b) A description of how the capitation rates account for the direct and indirect
impacts of the COVID-19 public health emergency including but not limited to
changes in acuity of the covered population due to enrollment changes, changes in
utilization of services, COVID-19 testing, new treatments and vaccines, deferred
care, expanded coverage of telehealth, etc.
(c) A description of any COVID-19 related costs that are covered on a non-risk basis
outside of the capitation rates (COVID-19 testing, vaccines, treatments, etc.).

Page 15 of 58

(d) A description of any risk mitigation strategies being utilized, how the strategies in
place compare to the strategies (if any) utilized in the prior rating period, and
explanation for any changes.
2. Data
A. Rate Development Standards
i. In accordance with 42 C.F.R. § 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 (see § 438.3(m)) that
demonstrates experience for the populations to be served by the managed care
plan(s) 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. 20
(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:

20
The preamble of the 2016 Medicaid and CHIP Managed Care Rule provides additional context around data
requirements related to 42 C.F.R. 438.5(c)(2) per 81 FR 27573: “In § 438.5(c), we proposed standards for selection
of appropriate base data. In paragraph (c)(1), we proposed that, for purposes of rate setting, states provide to the
actuary Medicaid-specific data such as validated encounter data, FFS data (if applicable), and audited financial
reports for the 3 most recent years completed prior to the rating period under development. In § 438.5(c)(2), we
proposed that the actuary exercise professional judgment to determine which data is appropriate after examination of
all data sources provided by the state, setting a minimum parameter that such data be derived from the Medicaid
population or derived from a similar population and adjusted as necessary to make the utilization and cost data
comparable to the Medicaid population for which the rates are being developed. We proposed that the data that the
actuary uses must be from the 3 most recent years that have been completed prior to the rating period for which rates
are being developed. For example, for rate setting activities in 2016 for CY 2017, the data used must at least include
data from calendar year 2013 and later. We noted that while claims may not be finalized for 2015, we would expect
the actuary to make appropriate and reasonable judgments as to whether 2013 or 2014 data, which would be
complete, must account for a greater percentage of the base data set. We used a calendar year for ease of reference in
the example, but a calendar year is interchangeable with the state’s contracting cycle period (for example, state fiscal
year).”

Page 16 of 58

(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 C.F.R. § 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.
(iii) The request must describe the corrective action plan for the state to come
into compliance with base data standards per 42 C.F.R. § 438.5(c) no later
than two years after the last day of the rating period for which the deficiency
is identified.
B. Appropriate Documentation
i. In accordance with 42 C.F.R. § 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 requested base data 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: FFS claims
data; managed care encounter data; managed care 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; managed care plan(s); or other third parties); and
(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 plan(s) or provider(s); or, if data is
not received from the subcapitated plan(s) or provider(s), a description of
how the historical costs related to subcapitated arrangements were developed
or verified.
Page 17 of 58

(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;
managed care plan(s); external quality review organizations; financial
auditors; etc.) to validate the data, including:
(A) completeness of the data;
(B) accuracy of the data; and
(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 regarding 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 FFS 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 material 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); and
(e) exclusions of certain payments or services from the data.
Page 18 of 58

3. Projected Benefit Costs and Trends
A. Rate Development Standards 21
i. Final capitation rates must be based only upon the services allowed in 42 C.F.R. §§
438.3(c)(1)(ii) and 438.3(e).
ii. In accordance with 42 C.F.R. § 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.
iii. If the projected benefit costs include costs for in-lieu-of services defined at 42 C.F.R.
§ 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.iv of this guide.
iv. 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
C.F.R. § 438.2; see also section 1903(m)(7) of the Act) for an enrollee age 21 to 64
receiving inpatient treatment in an IMD (as defined in 42 C.F.R. § 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 C.F.R. § 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; and
(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

The state must ensure that it complies with 42 C.F.R. § 438.4(b)(1). Rate development standards and
documentation requirements are outlined in Section I, Item.1 of this guide.
21

Page 19 of 58

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 managed care plan(s)).
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 material items in developing the
projected benefit costs.
(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 recoveries 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 of the projected change in benefit costs
from the historical base data period to the rating period of the rate certification) in
accordance with 42 C.F.R. § 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/or negative trends.
(b) This section must include the projected benefit cost trends separated into
components, specifically:
Page 20 of 58

(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).
(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; 22
(ii) rate cells; and
(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 C.F.R. § 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.

The state must ensure that it complies with 42 C.F.R. § 438.4(b)(1). Rate development standards and
documentation requirements are outlined in Section I, Item.1 of this guide.

22

Page 21 of 58

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 C.F.R. Part 438,
subpart K 23 as required by 42 C.F.R. § 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;
(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 C.F.R. § 438.3(e)(2) (i.e., substitutes for State
plan services), the following information must be provided and documented:
(a) The categories of covered services 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 C.F.R. §
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.iv 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.

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 1932(b) of the Act.
23

Page 22 of 58

(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 Medicaid State plan benefits covered by Medicaid managed care;
(b) any recoveries of overpayments made to providers by managed care plans in
accordance with 42 C.F.R. § 438.608(d);
(c) requirements related to payments from managed care plans to any providers or
class of providers;
(d) requirements or conditions of any applicable waivers; and
(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 nonmaterial adjustments.
4. Special Contract Provisions Related to Payment 24
A. Incentive Arrangements

This rate guidance does not address all requirements for these special contract provisions. States, plans and
actuaries are encouraged to review 42 C.F.R. § 438.6 and additional guidance issued by CMS (posted on
Medicaid.gov and in the HHS Guidance Portal) for more information and guidance.
24

Page 23 of 58

i. Rate Development Standards
(a) The rate certification and supporting documentation must describe any incentives
included in the contract between the state and the managed care plan(s). An
incentive arrangement, as defined in 42 C.F.R. § 438.6(a), is any payment
mechanism under which a managed care 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 C.F.R. § 438.6(b)(2).
ii. Appropriate Documentation
(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 managed care plan(s). As
defined in 42 C.F.R. § 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.
Page 24 of 58

(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 C.F.R. § 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.
(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 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 managed care plan’s financial
operating needs accounting for the size and characteristics of the populations
covered under the contract, as well as the managed care 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

Page 25 of 58

(a) In accordance with 42 C.F.R. § 438.6(b), if the state utilizes risk-sharing
mechanisms with its managed care plan(s) 25 these arrangements must be
documented in the contract(s) and rate certification documents for the rating
period prior to the start of the rating period, 26 and must be developed in
accordance with § 438.4, the rate development standards in § 438.5, and generally
accepted actuarial principles and practices. Risk-sharing mechanisms may not be
added or modified after the start of the rating period.
(b) The rate certification and supporting documentation must describe all risk-sharing
mechanisms and indicate if the arrangements affect the rates or the final net
payments to the managed care plan(s) under the applicable contract.
ii. Appropriate Documentation
(a) The rate certification and supporting documentation must include a description of
any risk-sharing arrangements. An adequate description of each arrangement
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.
(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.
(v) Documentation demonstrating that the risk-sharing arrangement is consistent
with pricing assumptions used in capitation rate development.
(vi) Documentation demonstrating that the risk-sharing arrangement will not
result in a remittance/payment if calculated based on pricing assumptions
used in capitation rate development.

25
As used in section 438.6(b)(1), “risk sharing mechanisms” includes any and all mechanisms or arrangements that
have the effect of sharing risk between the MCO, PIHP or PAHP and the state on an aggregate level; these include
risk mitigation strategies and other arrangements that protect the state or the MCO, PIHP, or PAHP against the risk
that the assumptions used in the initial development of capitation rates differ from actual experience. Common risk
mitigation strategies include reinsurance, risk corridors, stop-loss limits, a medical loss ratio (MLR) with a
remittance, or a risk-based reconciliation payment. 2020 Final Medicaid and Children’s Health Insurance Program
(CHIP) Managed Care Rule published in the Federal Register on November 13, 2020 (CMS-2408-F) (85 FR 72754,
72774)
26
Please see footnote 5 for additional documentation requirements for risk-sharing strategies.

Page 26 of 58

(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 also include 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 requirements.
(iii) Any other consequences for a remittance/payment for a medical loss ratio
below/above the requirements.
(c) If the contract has reinsurance requirements, the rate certification and supporting
document must also include 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. State Directed Payments
i. Rate Development Standards
(a) Consistent with 42 C.F.R. § 438.6(c), states may utilize delivery system and
provider payment initiatives (i.e., state directed payments), including requiring
managed care plans to: 27
(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;

All state directed payments in Medicaid managed care contracts that are authorized under 42 C.F.R. § 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 C.F.R. § 438.6(d) must be addressed as noted in section E.
27

Page 27 of 58

(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 using Medicaid State plan approved
rates;
(iv) adopt a minimum fee schedule for network providers that provide a
particular service under the contract using rates other than the Medicaid State
plan approved rates;
(v) provide a uniform dollar or percentage increase for network providers that
provide a particular service under the contract; and
(vi) adopt a maximum fee schedule for network providers that provide a
particular service under the contract, so long as the managed care plan retains
the ability to reasonably manage risk and has discretion in accomplishing the
goals of the contract.
(b) In accordance with 42 C.F.R. § 438.6(c)(2), all state directed payments, except for
minimum fee schedules using Medicaid State plan approved rates as defined in 42
C.F.R. § 438.6(a), must receive written prior approval from CMS. Review of rate
certification(s) and related contract actions that incorporate these state directed
payments cannot be finalized until all necessary written prior approvals are
obtained. The state directed payment(s) included in the rate certification must be
consistent with the information in the approved preprint and related preprint
review documents in order for CMS to review and evaluate the state-directed
payment and the associated capitation rates and rate certification for approval
under §§ 438.4 through 438.7.
(c) All contract arrangements that direct MCO’s, PIHP’s, or PAHP’s expenditures
must be developed in accordance with 42 C.F.R. § 438.4, the standards specified
in § 438.5, and generally accepted actuarial principles and practices. 28
(d) The state’s rate certification for the applicable period must address how each state
directed payment arrangement under 42 C.F.R. § 438.6(c) is reflected in the
payments to the managed care plan from the state in accordance with §
438.7(b)(6) in order to comply with the requirement that the rate certification
include a description of any special contract provision related to payment
described in § 438.6; in addition, CMS requires the information specified here in
order to evaluate compliance of the state-directed payment under § 438.6(c) and
While some state directed payments do not require written approval prior to implementation, all state directed
payments must meet the standards in 42 C.F.R. § 438.6(c)(2)(ii)(A) through (F) and be documented in the rate
certifications and states’ contracts with its managed care plans.
28

Page 28 of 58

the rates as a whole under §§ 438.4 through 438.7. State directed payments can be
incorporated into the base capitation rates as an adjustment as defined in §
438.5(f) or addressed through a separate payment term. The method by which a
state incorporates a state directed payment into a related rate certification(s) will
be identified and documented as part of the preprint review process. To comply
with 42 C.F.R. §§ 438.7(b)(6) and 438.7(d), when the approved state directed
payment preprint and related review documents indicate that the state directed
payment will be incorporated through a separate payment term, the state:
(i) must include documentation related to the payment term in the initial rate
certification as outlined in Section I, Item 4.D.ii.a.iii of the guide;
(ii) must include in the initial rate certification documentation 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
(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 should submit documentation to CMS that incorporates the total
amount of the payment into the rate certification’s rate cells consistent with
the distribution methodology included in the approved state directed payment
preprint, 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) Additionally, 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
both the magnitude of and the reason for the change.
ii. Appropriate Documentation
(a) To comply with 42 C.F.R. §§ 438.7(b)(6) and 438.6(c), the rate certification and
supporting documentation must include a description of each state directed
payment utilized by the state within the applicable Medicaid managed care
program(s), including those that do not require prior approval in accordance with
42 C.F.R. § 438.6(c). The specific description and additional documentation
needed depends on which approach the state has used to incorporate the payment
into its rate certification. In addition to the information provided in the body of
the certification, the state must provide the following information for each state
directed payment, including those that do not require prior approval, in the table
format outlined below (please include this information for each applicable state
directed payment in a separate row):
Page 29 of 58

Control name of the
state directed
payment 29

Type of payment
(see (i)(A) below)

Brief description
(see (i)(B) below)

Is the payment
included as a rate
adjustment or
separate payment
term? (see (ii) and
(iii) below)

A
B
C
(i) A brief description of the state directed payment, including the following:
(A) The type of state directed payment (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) To comply with 42 C.F.R. §§ 438.7(b)(6) and 438.6(d), if the state directed
payment will be incorporated into the rate certification in the base capitation
rates as a rate adjustment consistent with the approved preprint and related
preprint review documentation, then in addition to the information provided
in the body of the certification, the following information must be included in
the state’s rate certification in the table format (please include this
information for each applicable state directed payment in a separate row,
including those that do not require prior approval):
Control
name of the
state
directed
payment 30

Rate
cells
affected
(see (A)
below)

Impact
(see (B)
below)

Description
of the
adjustment
(see (C)
below)

A
B
C

Confirmation
the rates are
consistent with
the preprint
(see (D) below)

For maximum
fee schedules,
provide the
information
requested in
(E) below

(A) An indication of each rate cell affected by the state directed payment.

If the state directed payment does not require written approval prior to implementation per 42 C.F.R. §
438.6(c)(2)(ii), and thus does not have a CMS issued control name, the state should provide a name for the state
directed payment that clearly describes the arrangement for tracking and organizational purposes.
30
See prior footnote.
29

Page 30 of 58

(B) A clear reference to the specific exhibit that shows the impact of the
state directed payment has on the rates, for each rate cell. Each state
directed payment rate adjustment must be separately identified in the
exhibit; the exhibit cannot combine the impacts of state directed
payments.
(C) A description of how the state directed payment is reflected in the
certified capitation rates. To the extent an adjustment is applied in rate
development to account for the impact of the state directed payment,
or changes to the state directed payment from the base data period, the
actuary should provide a description of the data, assumptions, and
methodologies used to develop the adjustment.
(D) An indication that the state directed payment is consistent with the preprint (including any correspondence between the state and CMS
regarding the pre-print) reviewed and approved by CMS, when prior
approval is required per 42 C.F.R. § 438.6(c)(2)(ii). To the extent the
state directed payment preprint has not been approved by CMS before
the actuary certifies the capitation rates, this should be noted in the
certification, and the state directed payment that is under review
should still be accounted for in rate development. In this case, the
actuary should also provide an indication that the state directed
payment is accounted for in a manner consistent with the pre-print that
is under CMS review. If the state directed payment preprint has not yet
been submitted to CMS for review, the certification should provide a
specific timeline for 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 managed care
plan(s) paid above the maximum fee schedule and how the actuary
determined that it was reasonable to assume that the managed care
plan(s) 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 managed care plan(s) to pay above the maximum fee schedule
during the rating period and how these exemptions were considered in
rate development.
(iii) If the state directed payment will be incorporated into the initial rate
certification as a separate payment term consistent with the approved preprint
and related preprint review documentation, then in addition to the
Page 31 of 58

information provided in the body of the certification, the following
information must be included in the state’s rate certification in the following
format (please include this information for each applicable state directed
payment in a separate row, including those that do not require prior
approval):

Control
name of
the state
directed
payment
31

A
B
C

Aggregate
amount
included in
the
certification
(see (A)
below)

Statement
that the
actuary is
certifying the
separate
payment
term (see (B)
below)

The
magnitude
on a
PMPM
basis (see
(C) below)

Confirmation
the rate
development
is consistent
with the
preprint (see
(D) below)

Confirmation
that the state and
actuary will
submit required
documentation at
the end of the
rating period (as
applicable; see
(E) below)

(A) The aggregate amount of the payment applicable to the rate
certification. If the separate payment term directed payment is paid
and certified as a part of the capitation rate on a PMPM basis, provide
the estimated aggregate amount of the payment.
(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) A clear reference to the specific exhibit that shows an estimate of the
magnitude of the state directed payment on a PMPM basis for each
rate cell (CMS recognizes that this is an estimate for separate payment
terms that are incorporated as pools). If the state directed payment,
addressed as a separate payment term, is paid and certified as a part of
the capitation rate on a PMPM basis, provide the amount of the
payment on a PMPM basis. Each separate payment term must be
separately identified in the exhibit; the exhibit cannot combine the
impacts of state directed payments.
(D) An indication that the state directed payment is consistent with the preprint (including correspondence between the state and CMS regarding

31

See prior footnote.

Page 32 of 58

the pre-print) reviewed and approved by CMS, when prior approval is
required per 42 C.F.R. § 438.6(c)(2)(ii). To the extent the state
directed payment preprint has not been approved by CMS before the
actuary certifies the capitation rates, this should be noted in the
certification and the state directed payment that is under review should
still be accounted for in rate development. In this case, the actuary
should also provide an indication that the state directed payment 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 provide a specific timeline for when
the preprint will be submitted to CMS.
(E) A statement that after the rating period is complete, the state will
submit to CMS documentation that incorporates the total amount of
the state directed payment into the rate certification’s rate cells
consistent with the distribution methodology included in the approved
state directed payment preprint, 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. Note this is only applicable to
separate payment terms that are included in the certification as
separate pools that are certified in addition to the base PMPM
capitation rates.
(b) The rate certification and supporting documentation must confirm that there are
no additional directed payments in the program that are not addressed in the
certification including minimum fee schedules using Medicaid State plan
approved rates as defined in 42 C.F.R. § 438.6(a).
(c) The rate certification and supporting documentation must confirm that there are
no requirements regarding the reimbursement rates the managed care plan(s) must
pay to any providers unless specifically specified in the certification as a state
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 C.F.R. § 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

Page 33 of 58

PAHPs and hospitals, physicians, or nursing facilities that is not for one of the
following purposes: 32,33, 34
(i) a specific service or benefit provided to a specific enrollee covered under the
contract;
(ii) a provider payment methodology permitted under 42 C.F.R. §§ 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 for hospitals are allowed for a transition period as outlined
in 42 C.F.R. § 438.6(d). In order to use a transition period, unless permissible in
accordance with § 438.6(d)(6), 35 a state must demonstrate that it had pass-through
payments for hospitals as defined in 42 C.F.R. § 438.6(d)(1)(i), in: 36
(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.

32
States may not require managed care plans to make pass-through payments other than those permitted to network
providers that are hospitals, physicians, and nursing facilities in accordance with 42 C.F.R. § 438.6(d)(1).
33
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.
34
In accordance with 42 C.F.R. § 438.6(d)(5), for rating periods beginning on or after July 1, 2022, states cannot
require pass-through payments for physicians or nursing facilities. Pass-through payments for physicians and
nursing facilities are no longer allowed as the transition period has ended. The only exception relates to states
initially transitioning services or populations from a FFS delivery system to a managed care delivery system. See 42
C.F.R. § 438.6(d)(6) for further details.
35
Pass-through payments to network providers that are hospitals, nursing facilities, or physicians are allowable for
the transition period identified in 42 C.F.R. § 438.6(d)(6) for states transitioning services and populations from a
FFS delivery system to a managed care delivery system when the state meets the requirements in 42 C.F.R.
438.6(d)(6).
36
In accordance with 42 C.F.R. § 438.6(d)(1)(ii), CMS will not approve a retroactive adjustment or amendment,
notwithstanding the adjustments to the base amount permitted in 42 C.F.R. § 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.

Page 34 of 58

(c) Pass-through payments to hospitals must comply with the requirements of 42
C.F.R. § 438.6(d).
(i) In accordance with 42 C.F.R. § 438.6(d)(3), the aggregate pass-through
payments to hospitals may not exceed the lesser of: (1) 50 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 C.F.R. § 438.6(d)(1)(i).
(ii) In accordance with 42 C.F.R. § 438.6(d)(5), for rating periods beginning on or
after July 1, 2022, states cannot require pass-through payments for physicians
or nursing facilities as the transition period has ended. The only exception is
outlined below in (c)(iii) as it relates to states initially transitioning services or
populations from a FFS delivery system to a managed care delivery system.
See 42 C.F.R. § 438.6(d)(6) for further details.
(iii) In accordance with 42 C.F.R. § 438.6(d)(6), for states transitioning services
or populations from a FFS delivery system to a managed care delivery system,
the aggregate amount of the pass-through payments the State requires the
MCO, PIHP or PAHP to make to hospitals, nursing facilities or physicians is
less than or equal to the amounts calculated in 42 C.F.R. § 438.6(d)(6)(iii)(A),
(B), or (C). 37
(A) In determining the amount of each component for the calculations
contained in 42 C.F.R. § 438.6(d)(6)(iii)(A) through (C), the State must
use the amounts paid for services during the 12-month period immediately
2 years prior to the first rating period of the transition period.
(d) The base amount, as defined in 42 C.F.R. § 438.6(d)(2) is used when determining
the allowable amount of pass-through payments for hospitals, and is calculated 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
This requirement is effective for rating periods beginning on or after July 1, 2021 in accordance with the 2020
Final Medicaid and Children’s Health Insurance Program (CHIP) Managed Care Rule published in the Federal
Register on November 13, 2020 (CMS-2408-F) (85 FR 72754).
37

Page 35 of 58

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 C.F.R. § 438.6(d)(2)(iii), the base amount must be
calculated on an annual basis and is recalculated annually.
(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 accordance with 42 C.F.R. § 438.6(d)(2)(i)(B).
(g) In accordance with 42 C.F.R. § 438.6(d)(2)(iv), states may calculate reasonable
estimates of the aggregate differences in § 438.6(d)(2)(i) and (ii) in accordance
with the upper payment limit requirements in 42 C.F.R. part 447.
(i) If the state chooses to utilize a trend adjustment when calculating reasonable
estimates of the aggregate differences in § 438.6(d)(2)(i) and (ii), 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 § 438.6(d)(2)(i)(A), (i)(B), (ii)(A) and (ii)(B).

Page 36 of 58

(h) Capitation rates may only include pass-through payments to hospitals when
permitted by 42 C.F.R. § 438.6(d). There are only very limited circumstances,
outlined in 42 C.F.R. § 438.6(d)(6), where capitation rates are allowed to include
pass-through payments for physicians and nursing facilities when states are
initially transitioning services or populations from a FFS delivery system to a
managed care delivery system. 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 C.F.R. § 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 C.F.R. § 438.6(d) within its contracts with managed care plan(s).
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).
(ii) A description of how the pass-through payment will be paid (e.g. an aggregate
payment or a PMPM amount where the final aggregate payment varies based
on actual enrollment).
(iii) The amount of the pass-through payment, both in total and on a per member
per month basis (if applicable).
(iv) The program(s) that includes the pass-through payment.
(v) The providers receiving the pass-through payment.
(vi) The financing mechanism for the pass-through payment including the
following: 38

States must use permissible funding sources that comply with all federal statute and regulations, including section
1903(w) of the Act and 42 C.F.R. Part 433 subpart B, to fund the non-federal share of pass-through payments.

38

Page 37 of 58

(A) A description of the non-federal share of the pass-through payment,
including the source of the non-Federal share and the amount of the nonfederal share financing. For example, the funds for the non-federal share
may be from state legislative appropriations to the Medicaid agency,
intergovernmental transfers (from a state or local government entity),
provider taxes, or some other mechanism used by the state to provide the
non-Federal share.
(B) For any payment funded by intergovernmental transfers, the description
should include the following:
1. A complete list of the names of entities transferring funds.
2. The operational nature of the entity (state, county, city, other).
3. The total amounts transferred by each entity.
4. Clarification on whether the transferring entity has general taxing
authority.
5. Clarification on whether the transferring entity received appropriations
(identify level of appropriations).
6. Additional information or documentation regarding any written
agreements that exist between the state and healthcare providers or
amongst healthcare providers and/or related entities relating to the
non-federal share of the payment arrangement, including a description
of any additional written agreements the state is aware may exist with
healthcare providers to support and finance the non-federal share of
the payment arrangement.
(C) Identification of any 42 C.F.R. § 438.6(c) state directed payment(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
C.F.R. § 438.6(d)(1)(i)), unless permissible in accordance with § 438.6(d)(6):

Page 38 of 58

(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) 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.
(iii) In accordance with 42 C.F.R. § 438.6(d)(6), for states transitioning services
or populations from a FFS delivery system to a managed care delivery system,
please provide:
(A) Confirmation that services will be covered for the first time under a
managed care contract and were previously provided in a FFS delivery
system prior to the first rating period of the transition period.
(B) Confirmation that the state made supplemental payments, as defined in 42
C.F.R. § 438.6 (a), to hospitals, nursing facilities, or physicians during the
12-month period immediately 2 years prior to the first year of the
transition period.
(c) In accordance with 42 C.F.R. § 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.
(A) The description must include a summary of any adjustment made to the
base data used to calculate amounts in accordance with 42 C.F.R. §

Page 39 of 58

438.6(d)(2)(i)(A), (i)(B), (ii)(A) and (ii)(B), including a rationale and
fiscal impact of each adjustment.
(B) An explanation of any changes to the methodology utilized for the base
amount calculation from the previous years’ calculations including a
rationale and the fiscal impact of the proposed methodology changes.
(ii) The aggregate amounts calculated for each amount in accordance with 42
C.F.R. § 438.6(d)(2)(i)(A), (i)(B), (ii)(A) and (ii)(B).
(iii) If the state chooses to utilize trend adjustments when calculating the amounts
identified in accordance with 42 C.F.R. § 438.6(d)(2)(i)(A), (i)(B), (ii)(A) and
(ii)(B), the state must ensure clear documentation, including:
(A) Explanation of the purpose of the trend adjustment (e.g., cost inflation,
utilization, etc.) and justification of why an adjustment is reasonable and
appropriate.
(B) The trend adjustment applied to amounts, as applicable, in accordance
with 42 C.F.R. § 438.6(d)(2)(i)(A), (i)(B), (ii)(A) and (ii)(B).
(C) A description of the data source, assumptions, and methodology used to
determine each adjustment.
(D) The fiscal impact of each trend adjustment.
(E) 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 C.F.R. 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 accordance with 42 C.F.R. §
438.6(d)(3).
(v) The amount of any § 438.6(c) state directed payment(s) 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
accordance with 42 C.F.R. § 438.6(d)(2)(i)(B).
(d) In accordance with 42 C.F.R. § 438.6(d)(6), the certification must document the
calculations in 42 C.F.R. § 438.6(d)(6)(iii)(A), (B), or (C) for states transitioning
services or populations from a FFS delivery system to a managed care delivery
system, including the data, methodologies and assumptions used to develop these
calculations.
Page 40 of 58

5. Projected Non-Benefit Costs
A. Rate Development Standards 39
i. In accordance with 42 C.F.R. § 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 C.F.R. § 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.
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 C.F.R. § 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 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 C.F.R. §
438.7(b)(4), including:
(i) A description of the data, assumptions, and methodologies used to
determine each adjustment.
(ii) Where in the rate setting process each adjustment was applied.
(iii) The cost impact of each material adjustment.
The state must ensure that it complies with 42 C.F.R. § 438.4(b)(1). Rate development standards and
documentation requirements are outlined in Section I, Item.1 of this guide.
39

Page 41 of 58

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; and
(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 managed care plan(s), and explain how
the historical non-benefit cost data was considered in the non-benefit cost
assumptions used in rate development.
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 C.F.R. § 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
an acuity adjustment, which is a permissible adjustment under 42 C.F.R. § 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.
Page 42 of 58

B. Appropriate Documentation
i. In accordance with 42 C.F.R. § 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 C.F.R. § 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.
(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 C.F.R. § 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.

Page 43 of 58

(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 C.F.R. § 438.4 and include long-term
services and supports (LTSS) as defined at 42 C.F.R. § 438.2(a). All general rate development
standards outlined in Section I of this guide apply to rate development for all covered
populations and services, but this section provides additional guidance that is specific to rate
development guidance for LTSS. 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
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

Page 44 of 58

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
managed care plan(s) 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
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 Act. For states that have previously covered
the new adult group, this guide describes the additional information expected from states related
to how the capitation rates or the rate development process has changed since the most recent
rate certification. All general rate development standards outlined in Section I of this guide apply
to rate development for all covered population and services, but this section provides additional
guidance that is specific to rate development for the new adult group. 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
Page 45 of 58

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 plan(s) in
previous rating periods (i.e., starting in 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021
and/or January through June 2022), 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.
(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;
Page 46 of 58

(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;
(vi) other material changes or adjustments to the new adult group projected
benefit costs; and
(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
populations).
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 described in 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; and
(f) other material adjustments to the new adult group projected benefit costs.
B. 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 for 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:

Page 47 of 58

i. For states that covered the new adult group in Medicaid managed care plan(s) 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; and
(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; and
v. other material non-benefit costs.
4. Final Certified Rates
A. In addition to the expectations for all Medicaid managed care rate certifications described
in Section I of the guide, CMS requests under 42 C.F.R. § 438.7(d) 40 that states that
covered the new adult group in Medicaid managed care plan(s) in previous rating periods
provide:
i. A comparison to the final certified rates 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 C.F.R. § 438.7(d) that states describe any risk mitigation strategy
that is specific to the new adult group. In accordance with 42 C.F.R. § 438.6(b), if the
40
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.

Page 48 of 58

state utilizes risk-sharing mechanisms with its managed care plan(s) 41 these arrangements
must be documented in the contract(s) and rate certification documents for the rating
period prior to the start of the rating period, 42 and must be developed in accordance with
§ 438.4, the rate development standards in § 438.5, and generally accepted actuarial
principles and practices. Risk-sharing mechanisms may not be added or modified after
the start of the rating period.
B. For states that covered the new adult group in Medicaid managed care plan(s) 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.

41
As used in section 438.6(b)(1), “risk sharing mechanisms” includes any and all mechanisms or arrangements that
have the effect of sharing risk between the MCO, PIHP or PAHP and the state on an aggregate level; these include
risk mitigation strategies and other arrangements that protect the state or the MCO, PIHP, or PAHP against the risk
that the assumptions used in the initial development of capitation rates differ from actual experience. Common risk
mitigation strategies include reinsurance, risk corridors, stop-loss limits, a medical loss ratio (MLR) with a
remittance, or a risk-based reconciliation payment. 2020 Final Medicaid and Children’s Health Insurance Program
(CHIP) Managed Care Rule published in the Federal Register on November 13, 2020 (CMS-2408-F) (85 FR 72754,
72774)
42
Please see footnote 5 for additional documentation requirements for risk-sharing strategies.

Page 49 of 58

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 procedures for an accelerated rate review. This appendix
summarizes the accelerated rate review process and procedures, criteria for a state to use the
accelerated rate review process and procedures, and the documentation required from a state that
participates in the accelerated rate review process and procedures. In particular, states that elect
to use the accelerated rate review process must also 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 and procedures, 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 or more 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.
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 more frequently if CMS
determines a full review must be performed. Amendments to initial rate certifications 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 qualifying criteria, 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

Page 50 of 58

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
Several criteria must be met for a rate certification to qualify for accelerated rate review for the
rating period beginning between July 1, 2022 – June 30, 2023. The criteria include:
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 CMS review of the prior rating period’s capitation rate certification must be
completed.
3. At least one of the two prior rating periods had a full review of the capitation rate
certification.
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 has developed the rates for and since the previous full
review, including the rates submitted to the accelerated rate review process and
procedures.
6. No material issues have been identified (by any party) in rate setting for the prior rating
period. Material issues are generally identified through extensive questioning or
conference calls. CMS retains discretion to determine whether or not material issues were
identified in rate setting for the prior rating period; therefore, states should give CMS
prior notice if they intend to participate in the accelerated rate review.
7. There are no material policy, programmatic, or legal issues related to the state’s managed
care program, either in the prior rating period or for the rating period under review.
8. The actuary is certifying rates or rate ranges consistent with the certification covered by
the previous full review. For example, if the actuary certified rates in calendar year 2022,
which was the last full review, and the state would like to participate in the accelerated
review for calendar year 2023, the actuary must certify rates and not rate ranges.
CMS retains the discretion to review the rates and rate certification for a particular managed care
program using these accelerated rate review procedures or a full rate review. The following
criteria are a non-exhaustive list of considerations CMS will use in determining whether to use
the procedures for a full review or an accelerated rate review:
1. Identification of any material rate setting issues during the accelerated review.
2. Identification of significant discrepancies or errors in the Rate Development Summary or
rate certification materials.
Page 51 of 58

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
[email protected]. One request per certification should be submitted.
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 to participate in the
accelerated rate review if the certification qualifies for the accelerated review.
2. Submit the following documents to [email protected] and
[email protected] 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) Fully 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) associated with the rate certification 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 before the state submits 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
Page 52 of 58

1. Rates
The Rate Development Summary must identify all certified rates for the rating period and
must indicate whether (i) the certified rates have been risk adjusted or (ii) the actuary has
certified the risk adjustment methodology and the certified rates will be risk adjusted in
the future, or (iii) the certified rates are not and will not be risk adjusted.
The rates can be provided in two ways. CMS prefers that a table is provided, such as the
one below.
Rate Cell (Region, Managed Care Plan, etc.)
A
B
C

Rate (PMPM)
$X
$X
$X

Alternatively, the Rate Development Summary can specify exactly where this level of
detail is provided in the rate certification (and any additional materials).
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. CMS prefers that a
table is provided such as below.
Rate Cell (Region, Managed Care 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 managed care 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.).
Page 53 of 58

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 42 C.F.R. §
438.5(c)(3), or an explanation of why the base data is inconsistent with the
regulation including the state’s rationale of why an exemption is necessary and a
description of the corrective action plan to come into compliance with the base
data standards no later than 2 years after the last day of the rating period for which
the deficiency was identified in accordance with 42 C.F.R. § 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.
(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 documentation will be used to verify that the data used is consistent with CMS
regulation and actuarial standards as well as to assess any significant data issues 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:

Page 54 of 58

(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 information 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. CMS believes that tables showing the trends by service and the average
trend by rate cell would be the most useful:
Category of
Service
A
B
C

Unit Cost
Trend
X%
X%
X%

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

Utilization
Trend
Y%
Y%
Y%

Adjustments to
Trend
Z%
Z%
Z%

Overall
Trend
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

Page 55 of 58

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). The Rate Development Summary should also 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 information 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 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

Amount

A
B
C
Total

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

Amount in
Previous Rating
Period
X% or $Y PMPM
X% or $Y P MPM
X% or $Y PMPM
Z% or $A
PMPM

Percentage
Change between
Rating Periods
%
%
%
%

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 have on the certified capitation rates. Programmatic changes must be
documented in this Rate Development Summary including new or changing benefits;
changes to provider reimbursement; new or changing populations covered by managed
care; new programs or initiatives that affect managed care; new managed care plan(s) or
changes in participating managed care plan(s); and any other changes to the managed
care program that have a material impact on the rates.

Page 56 of 58

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
information 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 as a whole and by individual managed care plan in the program,
which could include medical loss ratio (MLR) and/or profit margin by managed care
plan. The state must provide some measure of financial performance (MLR or profit
margin, preferably by managed care 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 financial performance measure chosen.
This information 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. CMS 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, CMS would expect larger rate increases holding all other
factors constant).
This information could be provided in one of two ways. CMS prefers the information in a
table such as the one below for each year.
Managed Care
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

Page 57 of 58

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 has
also communicated significant issues through calls, emails, or inquired about significant
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 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;
• State directed payments (42 C.F.R. § 438.6(c));
• Pass-through payments (42 C.F.R. § 438.6(d));
• Additional payments added to the rates that currently do not qualify as state
directed payments or pass-through payments;
• Confirmation that any proposed differences in the assumptions, methodologies, or
factors used to develop capitation rates for covered populations comply with 42
C.F.R. § 438.4(b)(1);
• 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.

Page 58 of 58