Manatt on Health: Medicaid Edition

CMS Proposes Permanent Enhanced Funding for Medicaid Eligibility Systems and Stronger Framework for Medicaid IT

Authors: Cindy Mann, Partner | Alice Lam, Senior Manager

Editor’s Note: On April 16, 2015, the Centers for Medicare and Medicaid Services (CMS) issued the long-anticipated notice of proposed rulemaking (NPRM) for a permanent extension of enhanced federal funding for state Medicaid eligibility and enrollment (E&E) systems.1 In addition to permanently extending the funding, the NPRM notably affirms the critical role and importance of E&E systems, updates standards and funding conditions with an increased emphasis on modularity and reuse, and further aligns requirements under an enterprisewide approach for Medicaid IT systems across E&E, Medicaid Management and Information Systems (MMIS), and Health Information Technology for Economic and Clinical Health (HITECH). CMS will accept comments on the NPRM until June 15, 2015. In the following article, Manatt Health provides a detailed look at the NPRM.


Last October the Obama Administration announced it would seek to continue enhanced federal funding for state Medicaid E&E systems, provided states meet updated systems standards and funding conditions.2 Under regulations promulgated in 2011 following the enactment of the Affordable Care Act (ACA), CMS increased the federal matching rate for E&E systems from 50% to 90% for design and development of systems and 75% for maintenance and operations—the same matching rates applied to MMIS. Under these 2011 regulations, however, the 90% match rate is set to expire on December 31, 2015 and the ongoing 75% federal match for maintenance and operations of state Medicaid’s E&E systems is limited to systems in compliance with standards and conditions by December 31, 2015.3  

States have relied heavily on this funding as they revamped their systems to operationalize ACA rules calling for fundamental changes in Medicaid E&E, including new income eligibility methodologies, data-driven verification of eligibility, streamlined renewal procedures, and coordination between Medicaid enrollment and enrollment in the Marketplace; through December 2014, CMS approved $4.7 billion in federal funding.4 While states have made significant progress in establishing new E&E systems, in many states design, development and implementation systems work remains to fully establish core functionality, transition from legacy systems, integrate with Marketplaces as well as human services organizations, and deliver an optimal consumer experience.

On April 16, 2015, CMS issued a proposed rule to permanently extend E&E funding, affirm the critical role and importance of E&E systems, update standards and funding conditions with an increased emphasis on modularity and reuse, and further align requirements under an enterprisewide approach for Medicaid IT systems across E&E, MMIS, and HITECH.

Critical Role of Medicaid E&E System

The NPRM reverses permanently a 1989 regulatory provision that excludes eligibility determination systems from the enhanced funding available for mechanized claims processing and information retrieval systems under Social Security Act § 1903(a)(3), reasoning that the close interrelationship between these cash assistance programs and Medicaid eligibility rendered such enhanced assistance “redundant and unnecessary.”5 Medicaid’s link to cash assistance has long been severed for most of the Medicaid population. Medicaid has its own eligibility rules and enrollment and renewal processes that are aligned and coordinated with other health programs, rather than cash assistance. By establishing an explicit definition for an E&E system as part of the regulatory definition of “mechanized claims processing and information retrieval system,” CMS affirms the critical and distinct function of an E&E system and the integral nature of E&E as a Medicaid core system. The NPRM codifies a definition for “eligibility and enrollment system” or “E&E system” as a system “used to process initial claims (applications) from Medicaid or CHIP applicants and beneficiaries for eligibility for enrollment in the Medicaid or CHIP programs, as well as changes in circumstance updates and renewals.”

Strengthened Systems Standards and Funding Conditions

To promote accountability for the investments in Medicaid IT, the NPRM bolsters and adds to the set of seven standards and funding conditions—modularity, Medicaid Information Technology Architecture (MITA) maturity, industry standards, leverage/reuse, business results, reporting, and interoperability—with which states must comply to access enhanced MMIS and E&E system funding in current regulations and subregulatory guidance.6 Specifically, the NPRM adds industry standards adopted by the Office of the National Coordinator for Health IT (ONC) and, to interoperability standards, seamless coordination and integration with the Federal Data Services Hub. Further, for E&E systems, the NPRM requires states to deliver acceptable Modified Adjusted Gross Income (MAGI) based system functionality as demonstrated by performance testing and results based on the critical success factors.7  

Informed by experience with troubled systems implementations, the NPRM requires as a condition of funding that states specify key personnel and time commitments to demonstrate sufficient capacity to support projects. The proposed rule also requires states to develop mitigation plans to contain failures in achieving major milestones and functionality.

Emphasis on Modularity and Reusability

The NPRM includes a number of changes to further incentivize and compel states to apply a modular, flexible approach to systems development and to share, leverage, and reuse Medicaid technologies and systems between and among states. CMS specifically seeks comment on each of these provisions:

  • Modularized Approach for MMIS Certification. CMS proposes to shift to a modular certification process for MMIS, allowing states to access the 75% federal match for operation and maintenance without needing to wait for completion of the total system. CMS intends to provide additional artifacts, supporting tools, documentation and diagrams as well as subregulatory guidance on the definition of MMIS modules and the modular certification process.
  • Targeted Reduction of Federal Operational Funding. Similar to modular approval, for both MMIS and E&E systems, CMS proposes to shift from the current “all-or-nothing” approach to a more tailored reduction of federal funding if systems fail to meet standards and conditions. The NPRM allows CMS to reduce the federal match from 75% to 50% for the operational costs associated with specific subsystems and lifts current requirements that federal funding be reduced for a minimum of four quarters.
  • Strengthened Requirements on Reuse. For broader benefit and reuse, CMS proposes that states make available federally funded software and document the components and procedures for such software so it may be operated by other users and contractors.
  • Increased Match for Commercial Off the Shelf (COTS) Software. CMS proposes to make available 90% federal match for installation of COTS software and coordination of COTS software with other state systems. With these activities currently matched at 75%, CMS notes states may be pursuing more costly original development rather than leveraging available products.

CMS Prior Approval

To streamline the existing requirements that CMS prior approve state costs for systems equipment and services matched by the federal government, the NPRM aligns requirements across MMIS, E&E and HITECH IT. In general, states may assume exemption from prior approval if the acquisition is documented and consistent with the terms in an approved advance planning document (or APD—the state’s system funding request to CMS) and is not an “initial acquisition” of a high-risk activity (e.g., software application development). If states wish to sole source, they will need to submit justification for contracts of more than $1 million. If states do not opt for exemption from prior approval, then noncompetitive contracts greater than $1 million, competitive software application development contracts greater than $6 million and competitive hardware and COTS software contracts greater than $20 million must be submitted to CMS for prior approval.

189 Fed Reg 20455.

2October 28, 2014 letter to APHSA and NAMD communicating extension of waiver on OMB Circular A-87 cost allocation through December 2018. The cost allocation waiver allows states to develop shared services for integrated Medicaid and human services program eligibility systems (e.g., SNAP and TANF) without having to allocate costs to the human services program.

375 Fed.Reg.21949.

4FY 2016 President’s Budget, HHS Budget in Brief. Available at:

554 Fed Reg 41966.

6Enhanced Funding Requirements: Seven Conditions and Standards, Medicaid IT Supplement (MITS-11-01-v1.0). Available at:

7For states to demonstrate operational readiness of modernized Medicaid and CHIP eligibility systems, CMS-specified states must have the ability to (1) accept a streamlined application; (2) convert existing income standards to MAGI standards; (3) convey state-specific eligibility rules to the FFM, as applicable; (4) process applications based on MAGI; (5) accept and send application files (accounts) to and from the Marketplace; (6) respond to inquiries from the Marketplace on current Medicaid or CHIP coverage; and (7) verify eligibility based on electronic data sources (the Federal Data Services Hub or an approved alternative). Referenced in: 80 Fed Reg 20457.

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