New CMS guidance for Medicaid managed care medical loss ratio calculations

In May, the Centers for Medicare and Medicaid Services (CMS) released an Informational Bulletin clarifying how payments to subcontracted vendors should be accounted for in the medical loss ratio (MLR) calculation required by 42 CFR §438.8 as established by the Medicaid and Children’s Health Insurance Program managed care final rule published in May 2016. In the bulletin, CMS focuses on the responsibilities of a subcontractor in providing data and the proper accounting of subcontractor payments for purposes of MLR reporting. While the provisions outlined in this bulletin apply to all subcontractor relationships, CMS specifically highlights pharmacy benefit manager arrangements that may include “spread pricing” and rebate retention.