(a) Meaning of terms. For purposes of this section, except where the context clearly indicates otherwise, the following terms have the meanings indicated:

Aggregate lifetime dollar limit means a dollar limitation on the total amount of specified benefits that may be paid under an ABP.

Alternative Benefit Plans (ABPs) mean benefit packages in one or more of the benchmark coverage packages described in §§440.330(a) through (c) and 440.335. Benefits may be delivered through managed care and non-managed care delivery systems. Consistent with the requirements of §440.385, States must comply with the managed care provisions at section 1932 of the Act and part 438 of this chapter, if benchmark and benchmark-equivalent benefits are provided through a managed care entity.

Annual dollar limit means a dollar limitation on the total amount of specified benefits that may be paid in a 12-month period under an ABP.

Cumulative financial requirements are financial requirements that determine whether or to what extent benefits are provided based on accumulated amounts and include deductibles and out-of-pocket maximums. (However, cumulative financial requirements do not include aggregate lifetime or annual dollar limits because these two terms are excluded from the meaning of financial requirements.)

EPSDT means benefits defined in section 1905(r) of the Act.

Financial requirements include deductibles, copayments, coinsurance, or out-of-pocket maximums. Financial requirements do not include aggregate lifetime or annual dollar limits.

Medical/surgical benefits means benefits for items or services for medical conditions or surgical procedures, as defined by the State under the terms of the ABP and in accordance with applicable Federal and State law, but does not include mental health or substance use disorder benefits. Any condition defined by the state as being or as not being a medical/surgical condition must be defined to be consistent with generally recognized independent standards of current medical practice (for example, the most current version of the International Classification of Diseases (ICD) or State guidelines). Medical/surgical benefits include long term services.

Mental health benefits means benefits for items or services for mental health conditions, as defined by the State under the terms of the ABP and in accordance with applicable Federal and State law. Any condition defined by the State as being or as not being a mental health condition must be defined to be consistent with generally recognized independent standards of current medical practice (for example, the most current version of the Diagnostic and Statistical Manual of Mental Disorders (DSM), the most current version of the ICD, or State guidelines. Mental health benefits include long term care services.

Substance use disorder benefits means benefits for items or services for substance use disorder, as defined by the State under the terms of the ABP and in accordance with applicable Federal and State law. Any disorder defined by the State as being or as not being a substance use disorder must be defined to be consistent with generally recognized independent standards of current medical practice (for example, the most current version of the DSM, the most current version of the ICD, or State guidelines). Substance use disorder benefits include long term care services.

Treatment limitations include limits on benefits based on the frequency of treatment, number of visits, days of coverage, days in a waiting period, or other similar limits on the scope or duration of treatment. Treatment limitations include both quantitative treatment limitations, which are expressed numerically (such as 50 outpatient visits per year), and nonquantitative treatment limitations, which otherwise limit the scope or duration of benefits for treatment under an ABP. (See paragraph (b)(4)(ii) of this section for an illustrative list of nonquantitative treatment limitations.) A permanent exclusion of all benefits for a particular condition or disorder, however, is not a treatment limitation for purposes of this definition.

(b) Parity requirements for financial requirements and treatment limitations—(1) Clarification of terms—(i) Classification of benefits. When reference is made in this paragraph (b) to a classification of benefits, the term “classification” means a classification as described in paragraph (b)(2)(ii) of this section.

(ii) Type of financial requirement or treatment limitation. When reference is made in this paragraph (b) to a type of financial requirement or treatment limitation, the reference to type means its nature. Different types of financial requirements include deductibles, copayments, coinsurance, and out-of-pocket maximums. Different types of quantitative treatment limitations include annual, episode, and lifetime day and visit limits. See paragraph (b)(4)(ii) of this section for an illustrative list of nonquantitative treatment limitations.

(iii) Level of a type of financial requirement or treatment limitation. When reference is made in this paragraph (b) to a level of a type of financial requirement or treatment limitation, level refers to the magnitude of the type of financial requirement or treatment limitation.

(2) General parity requirement—(i) General rule. A State may not apply within an ABP any financial requirement or treatment limitation to mental health or substance use disorder benefits in any classification that is more restrictive than the predominant financial requirement or treatment limitation of that type applied to substantially all medical/surgical benefits in the same classification. Whether a financial requirement or treatment limitation is a predominant financial requirement or treatment limitation that applies to substantially all medical/surgical benefits in a classification is determined separately for each type of financial requirement or treatment limitation. The application of the rules of this paragraph (b)(2) to financial requirements and quantitative treatment limitations is addressed in paragraph (b)(3) of this section; the application of the rules of this paragraph (b)(2) to nonquantitative treatment limitations is addressed in paragraph (b)(4) of this section.

(ii) Classifications of benefits used for applying rules. ABPs must include mental health or substance use disorder benefits in every classification of benefits described in this paragraph (b)(2)(ii) in which medical/surgical benefits are provided. In determining the classification in which a particular benefit belongs, the State must apply the same reasonable standards to medical/surgical benefits and to mental health or substance use disorder benefits. To the extent that a State provides ABP benefits in a classification and imposes any separate financial requirement or treatment limitation (or separate level of a financial requirement or treatment limitation) for benefits in the classification, the rules of this paragraph (b) apply separately for that classification for all financial requirements or treatment limitations. The following classifications of benefits are the only classifications used in applying the rules of this paragraph (b):

(A) Inpatient. Benefits furnished on an inpatient basis.

(B) Outpatient. Benefits furnished on an outpatient basis. See special rules for office visits in paragraph (b)(3)(ii)(B)(1) of this section.

(C) Emergency care. Benefits for emergency care.

(D) Prescription drugs. Benefits for prescription drugs. See special rules for multi-tiered prescription drug benefits in paragraph (b)(3)(ii) of this section.

(3) Financial requirements and quantitative treatment limitations—(i) Determining “substantially all” and “predominant”—(A) Substantially all. For purposes of this paragraph (b), a type of financial requirement or quantitative treatment limitation is considered to apply to substantially all medical/surgical benefits in a classification of benefits if it applies to at least two-thirds of all medical/surgical benefits in that classification. If a type of financial requirement or quantitative treatment limitation does not apply to at least two-thirds of all medical/surgical benefits in a classification, then that type cannot be applied to mental health or substance use disorder benefits in that classification.

(B) Predominant—(1) If a type of financial requirement or quantitative treatment limitation applies to at least two-thirds of all medical/surgical benefits in a classification as determined under paragraph (b)(3)(i)(A) of this section, the level of the financial requirement or quantitative treatment limitation that is considered the predominant level of that type in a classification of benefits is the level that applies to more than one-half of medical/surgical benefits in that classification subject to the financial requirement or quantitative treatment limitation.

(2) If, for a type of financial requirement or quantitative treatment limitation that applies to at least two-thirds of all medical/surgical benefits in a classification, there is no single level that applies to more than one-half of medical/surgical benefits in the classification subject to the financial requirement or quantitative treatment limitation, the State may combine levels until the combination of levels applies to more than one-half of medical/surgical benefits subject to the financial requirement or quantitative treatment limitation in the classification. The least restrictive level within the combination is considered the predominant level of that type in the classification. (For this purpose, a State may combine the most restrictive levels first, with each less restrictive level added to the combination until the combination applies to more than one-half of the benefits subject to the financial requirement or treatment limitation.)

(C) Portion based on ABP payments. For purposes of this paragraph (b), the determination of the portion of medical/surgical benefits in a classification of benefits subject to a financial requirement or quantitative treatment limitation (or subject to any level of a financial requirement or quantitative treatment limitation) is based on the dollar amount of all ABP payments for medical/surgical benefits in the classification expected to be paid under the ABP for the plan year (or for the portion of the plan year after a change in ABP benefits that affects the applicability of the financial requirement or quantitative treatment limitation).

(D) Clarifications for certain threshold requirements. For any deductible, the dollar amount of ABP payments includes all payments for claims that would be subject to the deductible if it had not been satisfied. For any out-of-pocket maximum, the dollar amount of ABP payments includes all payments associated with out-of-pocket payments that are taken into account towards the out-of-pocket maximum as well as all payments associated with out-of-pocket payments that would have been made towards the out-of-pocket maximum if it had not been satisfied. Similar rules apply for any other thresholds at which the rate of payment changes.

(E) Determining the dollar amount of ABP payments. Subject to paragraph (b)(3)(i)(D) of this section, any reasonable method may be used to determine the dollar amount expected to be paid for medical/surgical benefits subject to a financial requirement or quantitative treatment limitation (or subject to any level of a financial requirement or quantitative treatment limitation).

(ii) Special rules—(A) Multi-tiered prescription drug benefits. If a State or plan administrator applies different levels of financial requirements to different tiers of prescription drug benefits based on reasonable factors determined in accordance with the rules in paragraph (b)(4)(i) of this section (relating to requirements for nonquantitative treatment limitations) and without regard to whether a drug is generally prescribed for medical/surgical benefits or for mental health or substance use disorder benefits, the ABP satisfies the parity requirements of this paragraph (b) for prescription drug benefits. Reasonable factors include cost, efficacy, generic versus brand name, and mail order versus pharmacy pick-up/delivery.

(B) Sub-classifications permitted for office visits, separate from other outpatient services. For purposes of applying the financial requirement and treatment limitation rules of this paragraph (b), a State may divide its benefits furnished on an outpatient basis into the two sub-classifications described in this paragraph (b)(3)(ii)(B). After the sub-classifications are established, the State may not impose any financial requirement or quantitative treatment limitation on mental health or substance use disorder benefits in any sub-classification that is more restrictive than the predominant financial requirement or quantitative treatment limitation that applies to substantially all medical/surgical benefits in the sub-classification using the methodology set forth in paragraph (b)(3)(i) of this section. Sub-classifications other than these special rules, such as separate sub-classifications for generalists and specialists, are not permitted. The two sub-classifications permitted under this paragraph (b)(3)(ii)(B) are:

(1) Office visits (such as physician visits); and

(2) All other outpatient items and services (such as outpatient surgery, laboratory services, or other medical items).

(iii) No separate cumulative financial requirements. A State may not apply any cumulative financial requirement for mental health or substance use disorder benefits in a classification that accumulates separately from any established for medical/surgical benefits in the same classification.

(iv) Compliance with other cost-sharing rules. States must meet the requirements of §§447.50 through 447.57 of this chapter when applying Medicaid cost-sharing.

(4) Nonquantitative treatment limitations—(i) General rule. A State may not impose a nonquantitative treatment limitation for mental health or substance use disorder benefits in any classification unless, under the terms of the ABP as written and in operation, any processes, strategies, evidentiary standards, or other factors used in applying the nonquantitative treatment limitation to mental health or substance use disorder benefits in the classification are comparable to, and are applied no more stringently than, the processes, strategies, evidentiary standards, or other factors used in applying the limitation for medical/surgical benefits in the classification.

(ii) Illustrative list of nonquantitative treatment limitations. Nonquantitative treatment limitations include—

(A) Medical management standards limiting or excluding benefits based on medical necessity or medical appropriateness, or based on whether the treatment is experimental or investigative;

(B) Formulary design for prescription drugs;

(C) Standards for provider admission to participate in a network, including reimbursement rates;

(D) Methods for determining usual, customary, and reasonable charges;

(E) Refusal to pay for higher-cost therapies until it can be shown that a lower-cost therapy is not effective (also known as fail-first policies or step therapy protocols);

(F) Exclusions based on failure to complete a course of treatment; and

(G) Restrictions based on geographic location, facility type, provider specialty, and other criteria that limit the scope or duration of benefits or services provided under the ABP.

(c) ABP providing EPSDT benefits. An ABP that provides EPSDT benefits is deemed to be compliant with the parity requirements for financial requirements and treatment limitations with respect to individuals entitled to such benefits. Annual or lifetime limits are not permissible in EPSDT benefits.

(d) Availability of information—(1) Criteria for medical necessity determinations. The criteria for medical necessity determinations made by the State for beneficiaries served through the ABP for mental health or substance use disorder benefits must be made available by the State to any beneficiary or Medicaid provider upon request.

(2) Reason for any denial. The reason for any denial made by the State in the case of a beneficiary served through an ABP of reimbursement or payment for services for mental health or substance use disorder benefits must be made available by the State to the beneficiary.

(3) Provisions of other law. Compliance with the disclosure requirements in paragraphs (d)(1) and (2) of this section is not determinative of compliance with any other provision of applicable Federal or State law.

(e) Applicability—(1) ABPs. The requirements of this section apply to States providing benefits through ABPs. For those States providing ABPs through an MCO, PIHP, or PAHP, the rules of 42 CFR part 438, subpart K also apply, and approved contracts will be viewed as evidence of compliance with the requirements of this section.

(2) Scope. This section does not—

(i) Require a State to provide any specific mental health benefits or substance use disorder benefits; however, in providing coverage through an ABP, the State must include EHBs, including the ten EHBs as required in §440.347, which include mental health and substance use disorder benefits; or

(ii) Affect the terms and conditions relating to the amount, duration, or scope of mental health or substance use disorder benefits under the ABP except as specifically provided in paragraph (b) of this section.

(3) State plan requirement. If a State plan provides for an ABP, the State must provide sufficient information in ABP State plan amendment requests to assure compliance with the requirements of this subpart.

(4) Compliance dates—(i) In general. ABP coverage offered by States must comply with the requirements of this section no later than October 2, 2017.

(ii) [Reserved]

[81 FR 18439, Mar. 30, 2016]