Arizona Medicaid Managed Care Medical Loss Ratio Audit

State Oversight of MCP MLR Reporting: CMS identified template formula errors and misfootnotes in MLR Reporting Template and noted the need for enhanced state oversight of PI/APM reporting and to finalize processes to address inconsistencies.

Provider Incentives/Alternative Payment Models and Contracts: Although leading practices for PI/APM were not federal or state requirements during the audit period, CMS observed contracts with timing issues, missing or unavailable contracts, and misclassification of certain PI/APM payments, requiring improved documentation and oversight.

State Directed Payments, Special Payments, and Risk Sharing Arrangements: SDP and risk-sharing arrangements were inconsistently treated, misclassified, and lacking clear instructions, with a need for separate line items and reconciliation oversight.

Third-Party Vendor Data and Contracts: Third-party vendor data requirements were generally met, but several MCPs misclassified non-claims costs and capitation payments, necessitating clearer guidance and verification procedures.

Allocation of Expenses Methodology: The methodology description for allocating expenses across Medicaid and non-MDLOBs was provided, but the template lacked explicit guidance for non-Medicaid LOB expenses, requiring enhanced instructions.

Quality Improvement Activity Expenditures and Contracts: QIA expenditures required rigorous substantiation and proper classification, with one MCP failing to provide adequate breakdowns; oversight to validate overhead and indirect expenses is recommended.

Non-Claims Costs: Several misclassifications of non-claims costs and misreporting of non-claims costs as part of paid claims were identified, needing clearer instructions and improved validation.

Other High-Risk Expenditures: Several risk corridors and related accruals were not properly reported; finalization and reconciliation guidance for risk corridors is needed.

Update MLR Reporting Template Instructions to augment oversight activities to verify the proper classification and inclusion of PI/APMs.

Augment MLR Reporting Instructions to incorporate additional specificity and guidance to clarify the appropriate treatment of special payments, pass-through payments, and SDPs within the MLR calculation.

Effective July 9, 2024, §§ 438.8(e)(2)(iii)(c) and 438.8(f)(2)(vii) require SDPs, inclusive of separate payment terms, to be included in both the numerator and denominator of the MLR calculation; SDP revenue should be reflected in the denominator and included as separate line item(s).

Closely monitor MCPs’ reporting of SDPs by reviewing the reported incurred claims payments in the MLR calculation and reconcile all amounts with MCPs’ MLR reporting.

Augment the instructions in the MLR Reporting Template to provide clear guidance for the MCPs' proper treatment of special payments as pass-through payments as defined in § 438.6(a).

Enhance oversight and monitoring processes to verify that risk corridor amounts for subcontracted health plans are appropriately reflected within the MLR Reporting Templates.

Enhance oversight and monitoring processes to verify the accounting of accruals to validate the proper classification and inclusion of risk sharing arrangements.

Augment the MLR Reporting Instructions to clarify that any portion of capitation payments to third party vendors attributable to non-claims costs should be excluded from the MLR calculation and implement validation.

Update MLR Reporting Instructions to clearly specify the treatment of non-claims costs and require non-claims costs to be reported to verify exclusion from the numerator.

Update MLR Reporting Instructions to include explicit guidance on non-claims costs and ensure correct reporting and classification of non-claims costs to verify exclusion from numerator.