Using in lieu of services to address health-related social needs: Upshots from the recent federal rule

Over the past decade, Medicaid managed care organizations (MCOs) have increasingly chosen to provide services that address their members’ health-related social needs (HRSN), such as medically tailored meals, home remediation to reduce asthma triggers, and housing navigation services. However, because MCO capitation rates have not traditionally reflected these HRSN services, many MCO activities to address HRSN have remained in pilot phases.

New Centers for Medicare & Medicaid Services (CMS) guidance on in lieu of services (ILOS) is changing this dynamic. ILOS are defined as medically appropriate and cost-effective substitutes for state Medicaid benefits, with special treatment in managed care rates (discussed below). ILOS authority is particularly valuable for states aiming to avoid a Section 1115 demonstration, which involves lengthier planning and negotiation, and may face delays in federal review and approval. States with 1115 demonstrations that address HRSN may also use ILOS as part of their overall HRSN strategy — for example, California, New York, North Carolina, Oregon, and Washington State.

CMS’ May 2024 final rule builds on the agency’s prior guidance on using ILOS to address HRSN. Below are five upshots from the recent rule and guidance. The takeaways also reflect questions and concerns we have heard from state Medicaid agencies, MCOs, providers, and community-based organizations about ILOS.