Allow for the deferral or disallowance of portions of payments for certain managed care violations under Medicaid.

Section 1903(m)(2) of the Social Security Act (42 U.S.C. 1396(m)(2)) is amended—

(1) in subparagraph (A), by striking and (G) and inserting (G), and (I); and

(2) by adding at the end the following new subparagraph:

(i) In lieu of applying the payment prohibition under subparagraph (A) for a violation of any requirement described in such subparagraph, the Secretary may defer or disallow a portion of a payment to a State described in such subparagraph (as determined appropriate by the Secretary) if the Secretary finds that such a deferral or disallowance more appropriately reflects the scope of such violation than application of such prohibition.

(ii) If the Secretary determines subsequent to a deferral or disallowance of a portion of a payment under clause (i) for a violation by an entity of any requirement described in subparagraph (A) that such deferral or disallowance was insufficient to bring such entity into compliance with such requirement, the Secretary may apply the payment prohibition under subparagraph (A).

Section 1902(a) of the Social Security Act (42 U.S.C. 1396a(a)) is amended—

(1) in paragraph (86), by striking and at the end;

(2) in paragraph (87)(D), by striking the period and inserting; and; and

(3) by inserting after paragraph (87) the following new paragraph:

(88) in the case the State elects the option to use managed care under section 1932, provide for compliance with the requirements of such section.