Code of Federal Regulations
* * * * * * *
* * * * * * *
The following definitions apply to this part:* * *
Opioid agonist treatment medication means any opioid agonist drug that is approved by the Food and Drug Administration under section 505 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 355) for use in the treatment of opiate addiction.
Opioid dependence means repeated self-administration that usually results in opioid tolerance, withdrawal symptoms, and compulsive drug-taking. Dependence may occur with or without the physiological symptoms of tolerance and withdrawal.
Opioid drug means any drug having an addiction-forming or addiction-sustaining liability similar to morphine or being capable of conversion into a drug having such addiction-forming or addiction- sustaining liability.
Opioid treatment program or “OTP” means a program or practitioner engaged in opioid treatment of individuals with an opioid agonist treatment medication registered under 21 U.S.C. 823(g)(1).
Opioid treatment program certification means the process by which SAMHSA determines that an opioid treatment program is qualified to provide opioid treatment under the Federal opioid treatment standards described in § 8.12.
Opioid use disorder means a cluster of cognitive, behavioral, and physiological symptoms in which the individual continues use of opioids despite significant opioid-induced problems.
Opioid use disorder treatment means the dispensing of an opioid agonist treatment medication, along with a comprehensive range of medical and rehabilitative services, when clinically necessary, to an individual to alleviate the adverse medical, psychological, or physical effects incident to an opioid use disorder. This term includes a range of services including detoxification treatment, short-term detoxification treatment, long-term detoxification treatment, maintenance treatment, comprehensive maintenance treatment, and interim maintenance treatment.
* * * * * * *
§405.454. Payments to providers.
* * * * * * *
(j) Periodic interim payment method of reimbursement.—
(1)(i) Covered services furnished before July 1, 1987. In addition to the regular methods of interim payment on individual provider billings for covered services, the periodic interim payment (PIP) method is available for Part A hospital and SNF inpatient services and for both Part A and Part B HHA services.
(ii) Covered services furnished on or after July 1, 1987. Effective with covered services furnished to beneficiaries on or after July 1, 1987, the PIP method, in addition to the other methods of interim payment on individual provider billings for covered services, is available only for the following:
(A) Part A SNF services.
(B) Part A and Part B HHA services.
(C) Part A services furnished in hospitals receiving payment in accordance with a demonstration project authorized under section 402(a) of Pub. L. 90-248 (42 U.S.C. 1395b-1) or section 222(a) of Pub. L. 92-603 (42 U.S.C. 1395b-1 (note)), or a State reimbursement control system approved under section 1886(c) of the Act and Subpart C of Part 403 of this chapter, if that type of payment is specifically approved by HCFA as a part of the demonstration or control system.
(D) Part A services furnished in hospitals located in a rural area as defined in §412.62(f) of this chapter that have fewer than 100 beds available for use excluding beds assigned to newborns.
(2) Any participating provider furnishing the services described in paragraph (j)(1) of this section that establishes to the satisfaction of the intermediary that it meets the following requirements may elect to be reimbursed under the PIP method, beginning with the first month after its request that the intermediary finds administratively feasible:
(i) The provider’s estimated total Medicare reimbursement for inpatient services is at least $25,000 a year computed under the PIP formula or, in the case of an HHA, either its estimated—
(A) Total Medicare reimbursement for Part A and Part B services is at least $25,000 a year computed under the PIP formula; or
(B) Medicare reimbursement computed under the PIP formula is at least 50 percent of estimated total allowable cost.
(ii) The provider has filed at least one completed Medicare cost report accepted by the intermediary as providing an accurate basis for computation of program payment (except in the case of a provider requesting reimbursement under the PIP method upon first entering the Medicare program).
(iii) The provider has the continuing capability of maintaining in its records the cost, charge, and statistical data needed to accurately complete a Medicare cost report on a timely basis.
(iv) The provider has repaid or agrees to repay any outstanding current financing payment in full, such payment to be made before the effective date of its requested conversion from a regular interim payment method to the PIP method.
(3) No conversion to the PIP method may be made with respect to any provider until after that provider has repaid in full its outstanding current financing payment.
(4) The intermediary’s approval of a provider’s request for reimbursement under the PIP method will be conditioned upon the intermediary’s best judgment as to whether payment can be made to the provider under the PIP method without undue risk of its resulting in an overpayment because of greatly varying or substantially declining Medicare utilization, inadequate billing practices, or other circumstances. The intermediary may terminate PIP reimbursement to a provider at any time it determines that the provider no longer meets the qualifying requirements or that the provider’s experience under the PIP method shows that proper payment cannot be made under this method.
(5) Payment will be made biweekly under the PIP method unless the provider requests a longer fixed interval (not to exceed 1 month) between payments. The payment amount will be computed by the intermediary to approximate, on the average, the cost of covered inpatient or home health services rendered by the provider during the period for which the payment is to be made, and each payment will be made 2 weeks after the end of such period of services. Upon request, the intermediary will, if feasible, compute the provider’s payments to recognize significant seasonal variation in Medicare utilization of services on a quarterly basis starting with the beginning of the provider’s reporting year.
(6) A provider’s periodic interim payment amount may be appropriately adjusted at any time if the provider presents or the intermediary otherwise obtains evidence relating to the provider’s costs or Medicare utilization that warrants such adjustment. In addition, the intermediary will recompute the payment immediately upon completion of the desk review of a provider’s cost report and also at regular intervals not less often than quarterly. The intermediary may make a retroactive lump sum interim payment to a provider, based upon an increase in its periodic interim payment amount, in order to bring past interim payments for the provider’s current cost reporting period into line with the adjusted payment amount. The objective of intermediary monitoring of provider costs and utilization is to assure payments approximating, as closely as possible, the reimbursement to be determined at settlement for the cost reporting period. A significant factor in evaluating the amount of the payment in terms of the realization of the projected Medicare utilization of services is the timely submittal to the intermediary of completed admission and billing forms. All providers must complete billings in detail under this method as under regular interim payment procedures.
* * * * * * *
§412.101. Special treatment: Inpatient hospital payment adjustment for low-volume hospitals.
* * * * * * *
(e) Special treatment regarding hospitals operated by the Indian Health Service (IHS) or a Tribe.For discharges occurring in FY 2018 and subsequent fiscal years—
(1) A hospital operated by the IHS or a Tribe will be considered to meet the applicable mileage criterion specified under paragraph (b)(2) of this section if it is located more than the specified number of road miles from the nearest subsection (d) hospital operated by the IHS or a Tribe.
(2) A hospital, other than a hospital operated by the IHS or a Tribe, will be considered to meet the applicable mileage criterion specified under paragraph (b)(2) of this section if it is located more than the specified number of road miles from the nearest subsection (d) hospital other than a subsection (d) hospital operated by the IHS or a Tribe.
* * * * * * *
§431.52. Payments for services furnished out of State.
(a) Statutory basis.Section 1902(a)(16) of the Act authorizes the Secretary to prescribe State plan requirements for furnishing Medicaid to State residents who are absent from the State.
(b) Payment for services.A State plan must provide that the State will pay for services furnished in another State to the same extent that it would pay for services furnished within its boundaries if the services are furnished to a recipient who is a resident of the State, and any of the following conditions is met:
(1) Medical services are needed because of a medical emergency;
(2) Medical services are needed and the recipient’s health would be endangered if he were required to travel to his State of residence;
(3) The State determines, on the basis of medical advice, that the needed medical services, or necessary supplementary resources, are more readily available in the other State;
(4) It is general practice for recipients in a particular locality to use medical resources in another State.
(c) Cooperation among States.The plan must provide that the State will establish procedures to facilitate the furnishing of medical services to individuals who are present in the State and are eligible for Medicaid under another State’s plan.
* * * * * * *
§435.1010. Definitions relating to institutional status.
Institution for mental diseases means a hospital, nursing facility, or other institution of more than 16 beds that is primarily engaged in providing diagnosis, treatment or care of persons with mental diseases, including medical attention, nursing care and related services. Whether an institution is an institution for mental diseases is determined by its overall character as that of a facility established and maintained primarily for the care and treatment of individuals with mental diseases, whether or not it is licensed as such. An institution for Individuals with Intellectual Disabilities is not an institution for mental diseases.
* * * * * * *
* * * * * * *
Prepaid inpatient health plan (PIHP)means an entity that -
(1) Provides services to enrollees under contract with the State, and on the basis of capitation payments, or other payment arrangements that do not use State plan payment rates.
(2) Provides, arranges for, or otherwise has responsibility for the provision of any inpatient hospital or institutional services for its enrollees; and
(3) Does not have a comprehensive risk contract.
* * * * * * *
§438.3. Standard contract requirements.
* * * * * * *
(s) Requirements for MCOs, PIHPs, or PAHPs that provide covered outpatient drugs.Contracts that obligate MCOs, PIHPs or PAHPs to provide coverage of covered outpatient drugs must include the following requirements:
* * * * * * *
(2) The MCO, PIHP, or PAHP reports drug utilization data that is necessary for States to bill manufacturers for rebates in accordance with section 1927(b)(1)(A) of the Act no later than 45 calendar days after the end of each quarterly rebate period. Such utilization information must include, at a minimum, information on the total number of units of each dosage form, strength, and package size by National Drug Code of each covered outpatient drug dispensed or covered by the MCO, PIHP, or PAHP.
* * * * * * *
(4) The MCO, PIHP or PAHP must operate a drug utilization review program that complies with the requirements described in section 1927(g) of the Act and 42 CFR part 456, subpart K, as if such requirement applied to the MCO, PIHP, or PAHP instead of the State.
(5) The MCO, PIHP or PAHP must provide a detailed description of its drug utilization review program activities to the State on an annual basis.
* * * * * * *
§438.6. Special contract provisions related to payment.
* * * * * * *
(e) Payments to MCOs and PIHPs for enrollees that are a patient in an institution for mental disease.The State may make a monthly capitation payment to an MCO or PIHP for an enrollee aged 21-64 receiving inpatient treatment in an Institution for Mental Diseases, as defined in §435.1010 of this chapter, so long as the facility is a hospital providing psychiatric or substance use disorder inpatient care or a sub-acute facility providing psychiatric or substance use disorder crisis residential services, and length of stay in the IMD is for a short term stay of no more than 15 days during the period of the monthly capitation payment. The provision of inpatient psychiatric or substance use disorder treatment in an IMD must meet the requirements for in lieu of services at §438.3(e)(2)(i) through (iii). For purposes of rate setting, the state may use the utilization of services provided to an enrollee under this section when developing the inpatient psychiatric or substance use disorder component of the capitation rate, but must price utilization at the cost of the same services through providers included under the State plan.
* * * * * * *
§438.8. Medical loss ratio (MLR) standards.
(a) Basic rule.The State must ensure, through its contracts starting on or after July 1, 2017, that each MCO, PIHP, and PAHP calculate and report a MLR in accordance with this section. For multi-year contracts that do not start in 2017, the State must require the MCO, PIHP, or PAHP to calculate and report a MLR for the rating period that begins in 2017.
(b) Definitions.As used in this section, the following terms have the indicated meanings:
Credibility adjustment means an adjustment to the MLR for a partially credible MCO, PIHP, or PAHP to account for a difference between the actual and target MLRs that may be due to random statistical variation.
Full credibility means a standard for which the experience of an MCO, PIHP, or PAHP is determined to be sufficient for the calculation of a MLR with a minimal chance that the difference between the actual and target medical loss ratio is not statistically significant. An MCO, PIHP, or PAHP that is assigned full credibility (or is fully credible) will not receive a credibility adjustment to its MLR.
Member months mean the number of months an enrollee or a group of enrollees is covered by an MCO, PIHP, or PAHP over a specified time period, such as a year.
MLR reporting yearmeans a period of 12 months consistent with the rating period selected by the State.
No credibility means a standard for which the experience of an MCO, PIHP, or PAHP is determined to be insufficient for the calculation of a MLR. An MCO, PIHP, or PAHP that is assigned no credibility (or is non-credible) will not be measured against any MLR requirements.
Non-claims costs means those expenses for administrative services that are not: Incurred claims (as defined in paragraph (e)(2) of this section); expenditures on activities that improve health care quality (as defined in paragraph (e)(3) of this section); or licensing and regulatory fees, or Federal and State taxes (as defined in paragraph (f)(2) of this section).
Partial credibility means a standard for which the experience of an MCO, PIHP, or PAHP is determined to be sufficient for the calculation of a MLR but with a non-negligible chance that the difference between the actual and target medical loss ratios is statistically significant. An MCO, PIHP, or PAHP that is assigned partial credibility (or is partially credible) will receive a credibility adjustment to its MLR.
(c) MLR requirement.If a State elects to mandate a minimum MLR for its MCOs, PIHPs, or PAHPs, that minimum MLR must be equal to or higher than 85 percent (the standard used for projecting actuarial soundness under § 438.4(b)) and the MLR must be calculated and reported for each MLR reporting year by the MCO, PIHP, or PAHP, consistent with this section.
(d) Calculation of the MLR.The MLR experienced for each MCO, PIHP, or PAHP in a MLR reporting year is the ratio of the numerator (as defined in paragraph (e) of this section) to the denominator (as defined in paragraph (f) of this section). A MLR may be increased by a credibility adjustment, in accordance with paragraph (h) of this section.
(1) Required elements. The numerator of an MCO’s, PIHP’s, or PAHP’s MLR for a MLR reporting year is the sum of the MCO’s, PIHP’s, or PAHP’s incurred claims (as defined in (e)(2) of this section); the MCO’s, PIHP’s, or PAHP’s expenditures for activities that improve health care quality (as defined in paragraph (e)(3) of this section); and fraud prevention activities (as defined in paragraph (e)(4) of this section).
(2) Incurred claims.
(i) Incurred claims must include the following:
(A) Direct claims that the MCO, PIHP, or PAHP paid to providers (including under capitated contracts with network providers) for services or supplies covered under the contract and services meeting the requirements of § 438.3(e) provided to enrollees.
(B) Unpaid claims liabilities for the MLR reporting year, including claims reported that are in the process of being adjusted or claims incurred but not reported.
(C) Withholds from payments made to network providers.
(D) Claims that are recoverable for anticipated coordination of benefits.
(E) Claims payments recoveries received as a result of subrogation.
(F) Incurred but not reported claims based on past experience, and modified to reflect current conditions, such as changes in exposure or claim frequency or severity.
(G) Changes in other claims-related reserves.
(H) Reserves for contingent benefits and the medical claim portion of lawsuits.
(ii) Amounts that must be deducted from incurred claims include the following:
(A) Overpayment recoveries received from network providers.
(B) Prescription drug rebates received and accrued.
(iii) Expenditures that must be included in incurred claims include the following:
(A) The amount of incentive and bonus payments made, or expected to be made, to network providers.
(B) The amount of claims payments recovered through fraud reduction efforts, not to exceed the amount of fraud reduction expenses. The amount of fraud reduction expenses must not include activities specified in paragraph (e)(4) of this section.
(iv) Amounts that must either be included in or deducted from incurred claims include, respectively, net payments or receipts related to State mandated solvency funds.
(v) Amounts that must be excluded from incurred claims:
(A) Non-claims costs, as defined in paragraph (b) of this section, which include the following: (1) Amounts paid to third party vendors for secondary network savings. (2) Amounts paid to third party vendors for network development, administrative fees, claims processing, and utilization management. (3) Amounts paid, including amounts paid to a provider, for professional or administrative services that do not represent compensation or reimbursement for State plan services or services meeting the definition in § 438.3(e) and provided to an enrollee. (4) Fines and penalties assessed by regulatory authorities.
(B) Amounts paid to the State as remittance under paragraph (j) of this section.
(C) Amounts paid to network providers under to § 438.6(d).
(vi) Incurred claims paid by one MCO, PIHP, or PAHP that is later assumed by another entity must be reported by the assuming MCO, PIHP, or PAHP for the entire MLR reporting year and no incurred claims for that MLR reporting year may be reported by the ceding MCO, PIHP, or PAHP.
(3) Activities that improve health care quality.Activities that improve health care quality must be in one of the following categories:
(i) An MCO, PIHP, or PAHP activity that meets the requirements of 45 CFR 158.150(b) and is not excluded under 45 CFR 158.150(c).
(ii) An MCO, PIHP, or PAHP activity related to any EQR-related activity as described in § 438.358(b) and (c).
(iii) Any MCO, PIHP, or PAHP expenditure that is related to Health Information Technology and meaningful use, meets the requirements placed on issuers found in 45 CFR 158.151, and is not considered incurred claims, as defined in paragraph (e)(2) of this section.
(4) Fraud prevention activities. MCO, PIHP, or PAHP expenditures on activities related to fraud prevention as adopted for the private market at 45 CFR part 158. Expenditures under this paragraph must not include expenses for fraud reduction efforts in paragraph (e)(2)(iii)(B) of this section.
(1) Required elements. The denominator of an MCO’s, PIHP’s, or PAHP’s MLR for a MLR reporting year must equal the adjusted premium revenue. The adjusted premium revenue is the MCO’s, PIHP’s, or PAHP’s premium revenue (as defined in paragraph (f)(2) of this section) minus the MCO’s, PIHP’s, or PAHP’s Federal, State, and local taxes and licensing and regulatory fees (as defined in paragraph (f)(3) of this section) and is aggregated in accordance with paragraph (i) of this section.
(2) Premium revenue. Premium revenue includes the following for the MLR reporting year:
(i) State capitation payments, developed in accordance with § 438.4, to the MCO, PIHP, or PAHP for all enrollees under a risk contract approved under § 438.3(a), excluding payments made under § 438.6(d).
(ii) State-developed one time payments, for specific life events of enrollees.
(iii) Other payments to the MCO, PIHP, or PAHP approved under §438.6(b)(3).
(iv) Unpaid cost-sharing amounts that the MCO, PIHP, or PAHP could have collected from enrollees under the contract, except those amounts the MCO, PIHP, or PAHP can show it made a reasonable, but unsuccessful, effort to collect.
(v) All changes to unearned premium reserves.
(vi) Net payments or receipts related to risk sharing mechanisms developed in accordance with § 438.5 or § 438.6.
(3) Net payments or receipts related to risk sharing mechanisms developed in accordance with § 438.5 or § 438.6. Taxes, licensing and regulatory fees for the MLR reporting year include:
(i) Statutory assessments to defray the operating expenses of any State or Federal department.
(ii) Examination fees in lieu of premium taxes as specified by State law.
(iii) Federal taxes and assessments allocated to MCOs, PIHPs, and PAHPs, excluding Federal income taxes on investment income and capital gains and Federal employment taxes.
(iv) State and local taxes and assessments including:
(A) Any industry-wide (or subset) assessments (other than surcharges on specific claims) paid to the State or locality directly.
(B) Guaranty fund assessments.
(C) Assessments of State or locality industrial boards or other boards for operating expenses or for benefits to sick employed persons in connection with disability benefit laws or similar taxes levied by States.
(D) State or locality income, excise, and business taxes other than premium taxes and State employment and similar taxes and assessments.
(E) State or locality premium taxes plus State or locality taxes based on reserves, if in lieu of premium taxes.
(v) Payments made by an MCO, PIHP, or PAHP that are otherwise exempt from Federal income taxes, for community benefit expenditures as defined in 45 CFR 158.162(c), limited to the highest of either:
(A) Three percent of earned premium; or
(B) The highest premium tax rate in the State for which the report is being submitted, multiplied by the MCO’s, PIHP’s, or PAHP’s earned premium in the State.
(4) Denominator when MCO, PIHP, or PAHP is assumed.The total amount of the denominator for a MCO, PIHP, or PAHP which is later assumed by another entity must be reported by the assuming MCO, PIHP, or PAHP for the entire MLR reporting year and no amount under this paragraph for that year may be reported by the ceding MCO, PIHP, or PAHP.
(g) Allocation of expense—
(1) General requirements.
(i) Each expense must be included under only one type of expense, unless a portion of the expense fits under the definition of, or criteria for, one type of expense and the remainder fits into a different type of expense, in which case the expense must be pro-rated between types of expenses.
(ii) Expenditures that benefit multiple contracts or populations, or contracts other than those being reported, must be reported on a pro rata basis.
(2) Methods used to allocate expenses.
(i) Allocation to each category must be based on a generally accepted accounting method that is expected to yield the most accurate results.
(ii) Shared expenses, including expenses under the terms of a management contract, must be apportioned pro rata to the contract incurring the expense.
(iii) Expenses that relate solely to the operation of a reporting entity, such as personnel costs associated with the adjusting and paying of claims, must be borne solely by the reporting entity and are not to be apportioned to the other entities.
(h) Credibility adjustment.
(1) A MCO, PIHP, or PAHP may add a credibility adjustment to a calculated MLR if the MLR reporting year experience is partially credible. The credibility adjustment is added to the reported MLR calculation before calculating any remittances, if required by the State as described in paragraph (j) of this section.
(2) A MCO, PIHP, or PAHP may not add a credibility adjustment to a calculated MLR if the MLR reporting year experience is fully credible.
(3) If a MCO’s, PIHP’s, or PAHP’s experience is non-credible, it is presumed to meet or exceed the MLR calculation standards in this section.
(4) On an annual basis, CMS will publish base credibility factors for MCOs, PIHPs, and PAHPs that are developed according to the following methodology:
(i) CMS will use the most recently available and complete managed care encounter data or FFS claims data, and enrollment data, reported by the states to CMS. This data may cover more than 1 year of experience.
(ii) CMS will calculate the credibility adjustment so that a MCO, PIHP, or PAHP receiving a capitation payment that is estimated to have a medical loss ratio of 85 percent would be expected to experience a loss ratio less than 85 percent 1 out of every 4 years, or 25 percent of the time.
(iii) The minimum number of member months necessary for a MCO’s, PIHP’s, or PAHP’s medical loss ratio to be determined at least partially credible will be set so that the credibility adjustment would not exceed 10 percent for any partially credible MCO, PIHP, or PAHP. Any MCO, PIHP, or PAHP with enrollment less than this number of member months will be determined non-credible.
(iv) The minimum number of member months necessary for an MCO’s, PIHP’s, or PAHP’s medical loss ratio to be determined fully credible will be set so that the minimum credibility adjustment for any partially credible MCO, PIHP, or PAHP would be greater than 1 percent. Any MCO, PIHP, or PAHP with enrollment greater than this number of member months will be determined to be fully credible.
(v) A MCO, PIHP, or PAHP with a number of enrollee member months between the levels established for noncredible and fully credible plans will be deemed partially credible, and CMS will develop adjustments, using linear interpolation, based on the number of enrollee member months.
(vi) CMS may adjust the number of enrollee member months necessary for a MCO’s, PIHP’s, or PAHP’s experience to be non-credible, partially credible, or fully credible so that the standards are rounded for the purposes of administrative simplification. The number of member months will be rounded to 1,000 or a different degree of rounding as appropriate to ensure that the credibility thresholds are consistent with the objectives of this regulation.
(i) Aggregation of data.MCOs, PIHPs, or PAHPs will aggregate data for all Medicaid eligibility groups covered under the contract with the State unless the State requires separate reporting and a separate MLR calculation for specific populations.
(j) Remittance to the State if specific MLR is not met.If required by the State, a MCO, PIHP, or PAHP must provide a remittance for an MLR reporting year if the MLR for that MLR reporting year does not meet the minimum MLR standard of 85 percent or higher if set by the State as described in paragraph (c) of this section.
(k) Reporting requirements.
(1) The State, through its contracts, must require each MCO, PIHP, or PAHP to submit a report to the State that includes at least the following information for each MLR reporting year:
(i) Total incurred claims.
(ii) Expenditures on quality improving activities.
(iii) Expenditures on quality improving activities.
(iv) Non-claims costs.
(v) Premium revenue.
(vi) Taxes, licensing and regulatory fees.
(vii) Methodology(ies) for allocation of expenditures.
(viii) Any credibility adjustment applied.
(ix) The calculated MLR.
(x) Any remittance owed to the State, if applicable.
(xi) A comparison of the information reported in this paragraph with the audited financial report required under § 438.3(m).
(xii) A description of the aggregation method used under paragraph (i) of this section.
(xiii) The number of member months.
(2) A MCO, PIHP, or PAHP must submit the report required in paragraph (k)(1) of this section in a timeframe and manner determined by the State, which must be within 12 months of the end of the MLR reporting year.
(3) MCOs, PIHPs, or PAHPs must require any third party vendor providing claims adjudication activities to provide all underlying data associated with MLR reporting to that MCO, PIHP, or PAHP within 180 days of the end of the MLR reporting year or within 30 days of being requested by the MCO, PIHP, or PAHP, whichever comes sooner, regardless of current contractual limitations, to calculate and validate the accuracy of MLR reporting.
(l) Newer experience.A State, in its discretion, may exclude a MCO, PIHP, or PAHP that is newly contracted with the State from the requirements in this section for the first year of the MCO’s, PIHP’s, or PAHP’s operation. Such MCOs, PIHPs, or PAHPs must be required to comply with the requirements in this section during the next MLR reporting year in which the MCO, PIHP, or PAHP is in business with the State, even if the first year was not a full 12 months.
(m) Recalculation of MLR. In any instance where a State makes a retroactive change to the capitation payments for a MLR reporting year where the report has already been submitted to the State, the MCO, PIHP, or PAHP must re-calculate the MLR for all MLR reporting years affected by the change and submit a new report meeting the requirements in paragraph (k) of this section.
(n) Attestation.MCOs, PIHPs, and PAHPs must attest to the accuracy of the calculation of the MLR in accordance with requirements of this section when submitting the report required under paragraph (k) of this section.
* * * * * * *
§447.331. Drugs: Aggregate upper limits of payment. 
§447.332. Upper limits for multiple source drugs. 
§447.333. State plan requirements, findings and assurances. 
§447.334. Upper limits for drugs furnished as part of services. 
* * * * * * *
§447.512. Drugs: Aggregate upper limits of payment.
(a) Multiple source drugs.Except for brand name drugs that are certified in accordance with paragraph (c) of this section, the agency payment for multiple source drugs must not exceed, in the aggregate, the amount that would result from the application of the specific limits established in accordance with § 447.514. If a specific limit has not been established under § 447.514, then the rule for “other drugs” set forth in paragraph (b) of this section applies.
(b) Other drugs.The agency payments for brand name drugs certified in accordance with paragraph (c) of this section and drugs other than multiple source drugs for which a specific limit has been established under § 447.514 must not exceed, in the aggregate, payment levels that the agency has determined by applying the lower of the following:
(1) AAC plus a professional dispensing fee established by the agency; or
(2) Providers' usual and customary charges to the general public.
(c) Certification of brand name drugs.
(1) The upper limit for payment for multiple source drugs for which a specific limit has been established under § 447.514 does not apply if a physician certifies in his or her own handwriting (or by an electronic alternative means approved by the Secretary) that a specific brand is medically necessary for a particular beneficiary.
(2) The agency must decide what certification form and procedure are used.
(3) A check off box on a form is not acceptable but a notation like “brand necessary” is allowable.
(4) The agency may allow providers to keep the certification forms if the forms will be available for inspection by the agency or HHS.
§447.514. Upper limits for multiple source drugs.
(a) Establishment and issuance of a listing.
(1) CMS will establish and issue listings that identify and set upper limits for multiple source drugs available for purchase by retail community pharmacies on a nationwide basis that FDA has rated at least three drug products as pharmaceutically and therapeutically equivalent in the “Approved Drug Products with Therapeutic Equivalence Evaluations” which is available at http://www.accessdata.fda.gov/scripts/cder/ob/. Only pharmaceutically and therapeutically equivalent formulations will be used to determine such limit, and such limit will only be applied to those equivalent drug products.
(2) CMS publishes the list of multiple source drugs for which upper limits have been established and any revisions to the list in Medicaid Program issuances.
(b) Specific upper limits.
(1) The agency's payments for multiple source drugs identified and listed periodically by CMS in Medicaid Program issuances must not exceed, in the aggregate, prior to the application of any federal or state drug rebate considerations, payment levels determined by applying for each pharmaceutically and therapeutically equivalent multiple source drug product, a professional dispensing fee established by the state agency plus an amount established by CMS that is equal to 175 percent of the weighted average of the most recently reported monthly AMPs for such multiple source drugs, using manufacturer submitted utilization data for each multiple source drug for which a Federal upper limit (FUL) is established.
(2) Exception. If the amount established by CMS in paragraph (b)(1) of this section for a pharmaceutically and therapeutically equivalent multiple source drug product is lower than the average retail community pharmacies' acquisition cost for such drug product, as determined by the most current national survey of such costs, CMS will use a percent of the weighted average of the most recently reported monthly AMPs that equals the most current average acquisition costs paid by retail community pharmacies as determined by such survey.
(c) Ensuring a drug is for sale nationally.To assure that a multiple source drug is for sale nationally, CMS will consider the following additional criteria:
(1) The AMP of a terminated NDC will not be used to set the Federal upper limit (FUL) beginning with the first day of the month after the termination date reported by the manufacturer to CMS.
(2) The monthly AMP units data will be used to calculate the weighted average of monthly AMPs for all multiple source drugs to establish the FUL.
(d) The FUL will be applied as an aggregate upper limit.
§447.516. Upper limits for drugs furnished as part of services.
The upper limits for payment for prescribed drugs in this subpart also apply to payment for drugs provided as part of skilled nursing facility services and intermediate care facility services and under prepaid capitation arrangements.
§447.518. State plan requirements, findings, and assurances.
(a) State plan.
(1) The State plan must describe comprehensively the agency's payment methodology for prescription drugs, including the agency's payment methodology for drugs dispensed by all of the following:
(i) A covered entity described in section 1927(a)(5)(B) of the Act.
(ii) A contract pharmacy under contract with a covered entity described in section 1927(a)(5)(B) of the Act.
(iii) An Indian Health Service, tribal and urban Indian pharmacy.
(2) The agency's payment methodology in paragraph (a)(1) of this section must be in accordance with the definition of AAC in § 447.502.
(b) Findings and assurances.Upon proposing significant State plan changes in payments for prescription drugs, and at least annually for multiple source drugs and triennially for all other drugs, the agency must make the following findings and assurances:
(1) Findings. The agency must make the following separate and distinct findings:
(i) In the aggregate, its Medicaid expenditures for multiple source drugs, identified and listed in accordance with §447.332(a) of this subpart, are in accordance with the upper limits specified in §447.332(b) of this subpart; and
(ii) In the aggregate, its Medicaid expenditures for all other drugs are in accordance with § 447.512.
(2) Assurances. The agency must make assurances satisfactory to CMS that the requirements set forth in §§ 447.512 and 447.514 concerning upper limits and in paragraph (b)(1) of this section concerning agency findings are met.
(c) Recordkeeping. The agency must maintain and make available to CMS, upon request, data, mathematical or statistical computations, comparisons, and any other pertinent records to support its findings and assurances.
(d) Data requirements.When proposing changes to either the ingredient cost reimbursement or professional dispensing fee reimbursement, States are required to evaluate their proposed changes in accordance with the requirements of this subpart, and States must consider both the ingredient cost reimbursement and the professional dispensing fee reimbursement when proposing such changes to ensure that total reimbursement to the pharmacy provider is in accordance with requirements of section 1902(a)(30)(A) of the Act. States must provide adequate data such as a State or national survey of retail pharmacy providers or other reliable data other than a survey to support any proposed changes to either or both of the components of the reimbursement methodology. States must submit to CMS the proposed change in reimbursement and the supporting data through a State plan amendment through the formal review process.
* * * * * * *
Termination means —
(1) For a—
(i) Medicaid or CHIP provider, a State Medicaid program or CHIP has taken an action to revoke the provider’s billing privileges, and the provider has exhausted all applicable appeal rights or the timeline for appeal has expired; and
(ii) Medicare provider, supplier or eligible professional, the Medicare program has revoked the provider or supplier’s billing privileges, and the provider has exhausted all applicable appeal rights or the timeline for appeal has expired.
(2) (i) In all three programs, there is no expectation on the part of the provider or supplier or the State or Medicare program that the revocation is temporary.
(ii) The provider, supplier, or eligible professional will be required to reenroll with the applicable program if they wish billing privileges to be reinstated.
(3) The requirement for termination applies in cases where providers, suppliers, or eligible professionals were terminated or had their billing privileges revoked for cause which may include, but is not limited to—
(i) Integrity; or
* * * * * * *
§483.45. Pharmacy services.
The facility must provide routine and emergency drugs and biologicals to its residents, or obtain them under an agreement described in § 483.70(g). The facility may permit unlicensed personnel to administer drugs if State law permits, but only under the general supervision of a licensed nurse.
(a) Procedures.A facility must provide pharmaceutical services (including procedures that assure the accurate acquiring, receiving, dispensing, and administering of all drugs and biologicals) to meet the needs of each resident.
(b) Service consultation.The facility must employ or obtain the services of a licensed pharmacist who—
(1) Provides consultation on all aspects of the provision of pharmacy services in the facility;
(2) Establishes a system of records of receipt and disposition of all controlled drugs in sufficient detail to enable an accurate reconciliation; and
(3) Determines that drug records are in order and that an account of all controlled drugs is maintained and periodically reconciled.
(c) Drug regimen review.
(1) The drug regimen of each resident must be reviewed at least once a month by a licensed pharmacist.
(2) This review must include a review of the resident's medical chart.
(3) A psychotropic drug is any drug that affects brain activities associated with mental processes and behavior. These drugs include, but are not limited to, drugs in the following categories:
(iii) Anti-anxiety; and
(4) The pharmacist must report any irregularities to the attending physician and the facility's medical director and director of nursing, and these reports must be acted upon.
(i) Irregularities include, but are not limited to, any drug that meets the criteria set forth in paragraph (d) of this section for an unnecessary drug.
(ii) Any irregularities noted by the pharmacist during this review must be documented on a separate, written report that is sent to the attending physician and the facility's medical director and director of nursing and lists, at a minimum, the resident's name, the relevant drug, and the irregularity the pharmacist identified.
(iii) The attending physician must document in the resident's medical record that the identified irregularity has been reviewed and what, if any, action has been taken to address it. If there is to be no change in the medication, the attending physician should document his or her rationale in the resident's medical record.
(5) The facility must develop and maintain policies and procedures for the monthly drug regimen review that include, but are not limited to, time frames for the different steps in the process and steps the pharmacist must take when he or she identifies an irregularity that requires urgent action to protect the resident.
(d) Unnecessary drugs—General.Each resident's drug regimen must be free from unnecessary drugs. An unnecessary drug is any drug when used—
(1) In excessive dose (including duplicate drug therapy); or
(2) For excessive duration; or
(3) Without adequate monitoring; or
(4) Without adequate indications for its use; or
(5) In the presence of adverse consequences which indicate the dose should be reduced or discontinued; or
(6) Any combinations of the reasons stated in paragraphs (d)(1) through (5) of this section.
(e) Psychotropic drugs.Based on a comprehensive assessment of a resident, the facility must ensure that—
(1) Residents who have not used psychotropic drugs are not given these drugs unless the medication is necessary to treat a specific condition as diagnosed and documented in the clinical record;
(2) Residents who use psychotropic drugs receive gradual dose reductions, and behavioral interventions, unless clinically contraindicated, in an effort to discontinue these drugs;
(3) Residents do not receive psychotropic drugs pursuant to a PRN order unless that medication is necessary to treat a diagnosed specific condition that is documented in the clinical record; and
(4) PRN orders for psychotropic drugs are limited to 14 days. Except as provided in § 483.45(e)(5), if the attending physician or prescribing practitioner believes that it is appropriate for the PRN order to be extended beyond 14 days, he or she should document their rationale in the resident's medical record and indicate the duration for the PRN order.
(5) PRN orders for anti-psychotic drugs are limited to 14 days and cannot be renewed unless the attending physician or prescribing practitioner evaluates the resident for the appropriateness of that medication.
(f) Medication errors.The facility must ensure that its—
(1) Medication error rates are not 5 percent or greater; and
(2) Residents are free of any significant medication errors.
(g) Labeling of drugs and biologicals. Drugs and biologicals used in the facility must be labeled in accordance with currently accepted professional principles, and include the appropriate accessory and cautionary instructions, and the expiration date when applicable.
(h) Storage of drugs and biologicals.
(1) In accordance with State and Federal laws, the facility must store all drugs and biologicals in locked compartments under proper temperature controls, and permit only authorized personnel to have access to the keys.
(2) The facility must provide separately locked, permanently affixed compartments for storage of controlled drugs listed in Schedule II of the Comprehensive Drug Abuse Prevention and Control Act of 1976 and other drugs subject to abuse, except when the facility uses single unit package drug distribution systems in which the quantity stored is minimal and a missing dose can be readily detected.
* * * * * * *
§483.60. Pharmacy services. 
* * * * * * *
For purposes of this part:* * *Knowingly means that a person, with respect to an act, has actual knowledge of the act, acts in deliberate ignorance of the act, or acts in reckless disregard of the act, and no proof of specific intent to defraud is required.
* * * * * * *
[Internal References.—SSAct §§1815(e)(2); 1886(d)(12)(C)(iii); 1902(m)(7); 1927(e) and (g); and 1932(i) cite title 42, Code of Federal Regulations. Vol. II., P.L. 115–271, §5012, cites 42 C.F.R. §435.1010.]
 As amended through 81 FR 62404, September 9, 2016.
 As in effect October 1, 1986.
 As amended through 83 FR 41702, August 17, 2018.
 As amended through 71 FR 39225, July 12, 2006.
 As amended through 82 FR 5428, January 18, 2017.
 As amended through 82 FR 39, January 3, 2017.
 42 C.F.R. §447.331 was revised and redesignated as §447.512, see 72 FR 39142.
 42 C.F.R. §447.332 was revised and redesignated as §447.514, see 72 FR 39154.
 42 C.F.R. §447.333 was revised and redesignated as §447.518, see 72 FR 39156.
 42 C.F.R. §447.334 was revised and redesignated as §447.516, see 72 FR 39156.
 As amended through 72 FR 39142, July 17, 2007.
 As amended through 76 FR 5861, February 2, 2011.
 As amended through 82 FR 32259, July 13 2017.
 Revised and redesignated as §483.45. See 81 FR 68765.