CMS issues guidance clarifying Medicaid, CHIP medical loss ratio requirements

The Centers for Medicare & Medicaid Services’ yesterday issued guidance regarding the calculation of a plan’s Medical Loss Ratio, which represents the percent of premium revenue that goes toward claims and activities that improve health care quality. CMS regulations require Medicaid and CHIP managed care plans to use an MLR target of 85 percent in developing rates, and to exclude prescription drug rebates from the claims costs used to calculate an MLR. CMS said the guidance clarifies that a prescription drug rebate means any price concession or discount received by the managed care plan or by its pharmacy benefit manager, regardless of who pays the rebate or discount. CMS Administrator Seema Verma expressed concern that some managed care plans are not accurately reporting pharmacy benefit “spread pricing” when they calculate and report MLRs. Spread pricing occurs when health plans contract with PBMs to manage their prescription drug benefits, and PBMs keep a portion of the amount paid to them by the health plans for prescription drugs instead of passing the full payments on to pharmacies.