Title 42—Public Health--Volume 1
PART 417—HEALTH MAINTENANCE ORGANIZATIONS, COMPETITIVE MEDICAL PLANS, AND HEALTH CARE PREPAYMENT PLANS
§ 417.481   Maintenance of records: Risk HMOs and CMPs.
A risk contract must provide that the HMO or CMP agrees to maintain and make available to CMS upon request, books, records, documents, and other evidence of acounting procedures and practices that—
(a) Are sufficient to—
(1) Establish component rates of the ACR for determining additional and supplementary benefits; and
(2) Determine the rates utilized in setting premiums for State insurance agency purposes; and
(b) Include at least any records or financial reports filed with other Federal agencies or State authorities.
§ 417.482   Access to facilities and records.
The contract must provide that the HMO or CMP agrees to the following:
(a) HHS may evaluate, through inspection or other means, the quality, appropriateness, and timeliness of services furnished under the contract to its Medicare enrollees.
(b) HHS may evaluate, through inspection or other means, the facilities of the HMO or CMP when there is reasonable evidence of some need for that inspection.
(c) HHS, the Comptroller General, or their designees may audit or inspect any books and records of the HMO or CMP or its transferee that pertain to any aspect of services performed, reconciliation of benefit liabilities, and determination of amounts payable under the contract.
(d) HHS may evaluate, through inspection or other means, the enrollment and disenrollment records for the current contract period and three prior periods, when there is reasonable evidence of some need for that inspection.
(e) In the case of a reasonable cost HMO or CMP to make available for the purposes specified in paragraphs (a), (b), (c), and (d) of this section, its premises, physical facilities, and equipment, its records relating to its Medicare enrollees, the records specified in § 417.480 and any additional relevant information that CMS may require.
(f) That the right to inspect, evaluate, and audit, will extend through three years from the date of the final settlement for any contract period unless—
(1) CMS determines there is a special need to retain a particular record or group of records for a longer period and notifies the HMO or CMP at least 30 days before the normal disposition date;
(2) There has been a termination, dispute, fraud, or similar fault by the HMO or CMP, in which case the retention may be extended to three years from the date of any resulting final settlement; or
(3) CMS determines that there is a reasonable possibility of fraud, in which case it may reopen a final settlement at any time.
§ 417.484   Requirement applicable to related entities.
(a) Definition. As used in this section, related entity means any entity that is related to the HMO or CMP by common ownership or control and—
(1) Performs some of the HMO's or CMP's management functions under contract or delegation;
(2) Furnishes services to Medicare enrollees under an oral or written agreement; or
(3) Leases real property or sells materials to the HMO or CMP at a cost of more than $2,500 during a contract period.
(b) Requirement. The contract must provide that the HMO or CMP agrees to require all related entities to agree that—
(1) HHS, the Comptroller General, or their designees have the right to inspect, evaluate, and audit any pertinent books, documents, papers, and records of the subcontractor involving transactions related to the subcontract; and
(2) The right under paragraph (b)(1) of this section to information for any particular contract period will exist for a period equivalent to that specified in § 417.482(f).
(3) That payments must not be made to individuals and entities included on the preclusion list, defined in § 422.2 of this chapter.
§ 417.486   Disclosure of information and confidentiality.
The contract must provide that the HMO or CMP agrees to the following:
(a) To submit to CMS—
(1) All financial information required under subpart O of this part and for final settlement;
(2) Any other information necessary for the administration or evaluation of the Medicare program; and
(3) Risk adjustment data as specified in § 422.310 of this chapter for the purposes of determining an individual's health status. In applying this paragraph (a)(3), references to Medicare Advantage (MA) organizations in § 422.310 must be read to mean HMOs and CMPs.
(b) To comply with the requirements set forth in part 420, subpart C, of this chapter pertaining to the disclosure of ownership and control information.
(c) To comply with the requirements of the Privacy Act, as implemented by 45 CFR part 5b and subpart B of part 401 of this chapter, with respect to any system of records developed in performing carrier or intermediary functions under §§ 417.532 and 417.533.
(d) To meet the confidentiality requirements of § 482.24(b)(3) of this chapter for medical records and for all other enrollee information that is—
(1) Contained in its records or obtained from CMS or other sources; and
(2) Not covered under paragraph (c) of this section.
§ 417.488   Notice of termination and of available alternatives: Risk contract.
A risk contract must provide that the HMO or CMP agrees to give notice as follows if the contract is terminated:
(a) At least 60 days before the effective date of termination, to give its Medicare enrollees a written notice that—
(1) Specifies the termination date; and
(2) Describes the alternatives available for obtaining Medicare services after termination.
(b) To pay the cost of the written notices.
§ 417.490   Renewal of contract.
A contract with an HMO or CMP is renewed automatically for the next 12-month period unless CMS or the HMO or CMP decides not to renew, in accordance with § 417.492.
§ 417.492   Nonrenewal of contract.
(a) Nonrenewal by the HMO or CMP. (1) If an HMO or CMP does not intend to renew its contract, it must—
(i) Give written notice to CMS at least 90 days before the end of the current contract period; and
(ii) Notify each Medicare enrollee by mail at least 60 days before the end of the contract period.
(2) CMS may accept a nonrenewal notice submitted less than 90 days before the end of a contract period if—
(i) The HMO or CMP notifies its Medicare enrollees and the public in accordance with paragraph (a)(1) of this section; and
(ii) Acceptance would not otherwise jeopardize the effective and efficient administration of the Medicare program.
(b) Nonrenewal by CMS —(1) Notice of nonrenewal. If CMS decides not to renew a contract, it gives written notice of nonrenewal as follows:
(i) To the HMO or CMP at least 90 days before the end of the contract period.
(ii) To the HMO's or CMP's Medicare enrollees at least 60 days before the end of the contract period.
(2) Notice of appeal rights. CMS gives the HMO or CMP written notice of its right to appeal the nonrenewal decision, in accordance with part 422 subpart N of this chapter, if CMS's decision was based on any of the reasons specified in § 417.494(b).
§ 417.494   Modification or termination of contract.
(a) Modification or termination by mutual consent. (1) CMS and an HMO or CMP may modify or terminate a contract at any time by written mutual consent.
(2) If the contract is modified, the HMO or CMP must notify its Medicare enrollees of any changes that CMS determines are appropriate for notification.
(3) If the contract is terminated, the HMO or CMP must notify its Medicare enrollees, and CMS notifies the general public, at least 30 days before the termination date.
(b) Termination by CMS. (1) CMS may terminate a contract for any of the following reasons:
(i) The HMO or CMP has failed substantially to carry out the terms of the contract.
(ii) The HMO or CMP is carrying out the contract in a manner that is inconsistent with the effective and efficient implementation of section 1876 of the Act.
(iii) The HMO or CMP has failed substantially to comply with the composition of enrollment requirements specified in § 417.413(d).
(iv) CMS determines that the HMO or CMP no longer meets the requirements of section 1876 of the Act and this subpart for being an HMO or CMP.
(2) If CMS decides to terminate a contract, it sends a written notice informing the HMO or CMP of its right to appeal the termination in accordance with part 422 subpart N of this chapter.
(3) An HMO or CMP with a risk contract must notify its Medicare enrollees of the termination as described in § 417.488.
(4) CMS notifies the HMO's or CMP's Medicare enrollees and the general public of the termination at least 30 days before the effective date of termination.
(c) Termination by the HMO or CMP. The HMO or CMP may terminate the contract if CMS has failed substantially to carry out the terms of the contract.
(1) The HMO or CMP must notify CMS at least 90 days before the effective date of the termination and must include in its notice the reasons for the termination.
(2) The HMO or CMP must notify its Medicare enrollees of the termination at least 60 days before the termination date. Risk HMOs or CMPs must also provide a written description of alternatives available for obtaining Medicare services after termination of the contract. The HMO or CMP is responsible for the cost of these notices.
(3) The HMO or CMP must notify the general public of the termination at least 30 days before the termination date.
(4) The contract is terminated effective 60 days after the HMO or CMP mails the notice to Medicare enrollees as required in paragraph (c)(2) of this section.
(5) CMS's liability for payment ends as of the first day of the month after the last month for which the contract is in effect.
§ 417.496   Cost plan crosswalk.
(a) General rules —(1) Definition. Crosswalk means the movement of enrollees from one plan (or plan benefit package (PBP)) to another plan (or PBP) under a cost plan contract between the CMP or HMO and CMS. To crosswalk enrollees from one PBP to another is to change the enrollment from the first PBP to the second.
(2) Prohibition. (i) Crosswalks are prohibited between different contracts.
(ii) Crosswalks are prohibited between different plan IDs unless the crosswalk to a different plan ID meets the requirements in paragraph (c)(1)(i) of this section.
(3) Compliance with renewal/nonrenewal rules. The cost plan must comply with renewal and nonrenewal rules in §§ 417.490 and 417.492 in order to complete plan crosswalks.
(b) Allowable crosswalk types. All cost plans may perform a crosswalk in the following circumstances:
(1) Renewal. A plan in the following contract year that links to a current contract year plan and retains the entire service area from the current contract year. The following contract year plan must retain the same plan ID as the current contract year plan.
(2) Consolidated renewal. A plan in the following contract year that combines 2 or more PBPs. The plan ID for the following contract year must retain one of the current contract year plan IDs.
(3) Renewal with a service area expansion (SAE). A plan in the following contract year plan that links to a current contract year plan and retains all of its plan service area from the current contract year, but also adds one or more new counties. The following year contract plan must retain the same plan ID as the current contract year plan.
(4) Renewal with a service area reduction (SAR). A plan in the following contract year that links to a current contract year plan and only retains a portion of its plan service area. The following contract year plan must retain the same plan ID as the current contract year plan. The crosswalk is limited to the enrollees in the remaining service area.
(c) Exception. (1) In order to perform a crosswalk that is not specified in paragraph (b) of this section, a cost organization must request an exception. CMS reviews requests and may permit a crosswalk exception in the following circumstance:
(i) Except as specified in paragraph (c)(1)(ii) of this section, terminating cost plans offering optional benefits may transfer enrollees from one of the PBPs under its contract to another PBP under its contract, including new PBPs that have no optional benefits or optional benefits different than those in the terminating PBP.
(ii) A terminating cost plan cannot move an enrollee from a PBP that does not include Part D to a PBP that does include Part D.
(iii) If the terminated supplemental benefit includes Part D and the new PBP does not, enrollees must receive written notification about the following:
(A) That they are losing Part D coverage;
(B) The options for obtaining Part D; and
(C) The implications of not getting Part D through some other means.
(2) [Reserved]
§ 417.500   Intermediate sanctions for and civil monetary penalties against HMOs and CMPs.
(a) Except as provided in paragraph (c) of this section, the rights, procedures, and requirements related to intermediate sanctions and civil money penalties set forth in part 422 subparts O and T of this chapter also apply to Medicare contracts with HMOs or CMPs under sections 1876 of the Act.
(b) In applying paragraph (a) of this section, references to part 422 of this chapter must be read as references to this part and references to MA organizations must be read as references to HMOs or CMPs.
(c) In applying paragraph (a) of this section, the amounts of civil money penalties that can be imposed are governed by section 1876(i)(6)(B) and (C) of the Act, not by the provisions in part 422 of this chapter.
§ 417.520   Effect on HMO and CMP contracts.
(a) The provisions set forth in subpart L of part 422 of this chapter also apply to Medicare contracts with HMOs and CMPs under section 1876 of the Act.
(b) In applying these provisions, references to “M + C organizations” must be read as references to “HMOs and CMPs”.
(c) In § 422.550, reference to “subpart K of this part” must be read as reference to “subpart L of part 417 of this chapter”.
(d) In § 422.553, reference to “subpart K of this part” must be read as reference to “subpart J of part 417 of this chapter”.
§ 417.524   Payment to HMOs or CMPs: General.
(a) Basic rule. The payments that CMS makes to an HMO or CMP under this subpart and subparts O and P of this part for furnishing covered Medicare services are in place of any payment that CMS would otherwise make to a beneficiary or the HMO or CMP under sections 1814(b) and 1833(a) of the Act.
(b) Basis of payment. (1) CMS pays the HMOs or CMPs on either a reasonable cost basis or a risk basis depending on the type of contract the HMO or CMP has with CMS.
(2) In certain cases a risk HMO or CMP also receives payments on a reasonable cost basis for certain Medicare enrollees who retain nonrisk status, as provided in § 417.444, after the HMO or CMP enters into a risk contract.
§ 417.526   Payment for covered services.
Subpart O of this part set forth the principles that CMS follows in determining Medicare payment to an HMO or CMP that has a reasonable cost contract. Subpart P of this part describes the per capita method of Medicare payment to HMOs or CMPs that contract on a risk basis.
§ 417.528   Payment when Medicare is not primary payer.
(a) Limits on payments and charges. (1) CMS may not pay for services to the extent that Medicare is not the primary payer under section 1862(b) of the Act and part 411 of this chapter.
(2) The circumstances under which an HMO or CMP may charge, or authorize a provider to charge, for covered Medicare services for which Medicare is not the primary payer are stated in paragraphs (b) and (c) of this section.
(b) Charge to other insurers or the enrollee. If a Medicare enrollee receives from an HMO or CMP covered services that are also covered under State or Federal worker's compensation, automobile medical, or any no-fault insurance, or any liability insurance policy or plan, including a self-insured plan, the HMO or CMP may charge, or authorize a provider that furnished the service to charge—
(1) The insurance carrier, employer, or other entity that is liable to pay for these services; or
(2) The Medicare enrollee, to the extent that he or she has been paid by the carrier, employer, or other entity.
(c) Charge to group health plans (GHPs) or large group health plans (LGHPs). An HMO or CMP may charge a GHP or LGHP for covered services it furnished to a Medicare enrollee and may charge the Medicare enrollee to the extent that he or she has been paid by the GHP or LGHP for these covered services if—
(1) The Medicare enrollee is covered under the plan; and
(2) Under section 1862(b) of the Act, CMS is precluded from paying for the covered services .
(d) Responsibilities of HMO or CMP. An HMO or CMP must—
(1) Identify payers that are primary to Medicare under section 1862(b) of the Act;
(2) Determine the amounts payable by these payers; and
(3) Coordinate the benefits of its Medicare enrollees with these payers.
§ 417.530   Basis and scope.
This subpart sets forth the principles that CMS follows to determine the amount it pays for services furnished by a cost HMO or CMP to its Medicare enrollees. These principles are based on sections 1861(v) and 1876 of the Act and are, for the most part, the same as those set forth—
(a) In part 412 of this chapter, for paying the costs of inpatient hospital services which, for cost HMOs and CMPs, are considered “reasonable” only if they do not exceed the amounts allowed under the prospective payment system; and
(b) In part 413 of this chapter, for the costs of all other covered services.
§ 417.531   Hospice care services.
(a) If a Medicare enrollee of an HMO or CMP with a reasonable cost contract makes an election under § 418.24 of this chapter to receive hospice care services, payment for these services is made to the hospice that furnishes the services in accordance with part 418 of this chapter.
(b) While the enrollee's hospice election is in effect, CMS pays the HMO or CMP on a reasonable cost basis for only the following covered Medicare services furnished to the Medicare enrollee:
(1) Services of the enrollee's attending physician if the physician is an employee or contractor of the HMO or CMP and is not employed by or under contract to the enrollee's hospice.
(2) Services not related to the treatment of the terminal condition for which hospice care was elected or a condition related to the terminal condition.
§ 417.532   General considerations.
(a) Conditions and criteria for payment. (1) The costs incurred by the HMO or CMP to furnish services covered by Medicare are reimbursable if they are—
(i) Proper and necessary;
(ii) Reasonable in amount; and
(iii) Except as provided in § 417.550, appropriately apportioned among the HMO's or CMP's Medicare enrollees, other enrollees, and nonenrolled patients.
(2) In determining fair and equitable payment for the HMOs or CMPs, CMS generally applies the cost payment principles set forth in § 413.5 of this chapter.
(3) In judging whether costs are reasonable, CMS applies the weighted average of the AAPCCs of each class of the HMO's or CMP's Medicare enrollees (as defined in § 417.582) for the HMO's or CMP's geographic area as an absolute limitation on the total amount payable.
(b) Method and amount of payment to the HMO or CMP. (1) CMS makes interim per capita payments each month for each Medicare enrollee, equivalent to the interim per capita cost rate determined in accordance with § 417.570.
(2) CMS adjusts the interim per capita rate as necessary during the contract period and makes final adjustments at the end of the contract period.
(3) In determining the amount due the HMO or CMP, CMS deducts from the reasonable cost actually incurred by the HMO or CMP for covered services furnished to its Medicare enrollees, an amount equal to the actuarial value of the applicable Medicare Part A and Part B deductible and coinsurance amounts that would have applied to the covered services for which payment is being made if these enrollees had not enrolled in the HMO or CMP or another HMO or CMP.
(c) Election by HMO or CMP. An HMO or CMP must elect, on an individual provider basis, one of the following methods for payment for hospital and SNF services it furnishes to Medicare enrollees:
(1) Direct payment by CMS.
(2) Direct payment by the HMO or CMP.
(d) Notice of election. The election must be made in writing before the beginning of the contract period and is binding for that period.
(e) Payment by HMO or CMP. If the HMO or CMP elects to pay providers directly, as provided in paragraph (c) of this section, it must—
(1) Determine the eligibility of its Medicare enrollees to receive covered services through the HMO or CMP;
(2) Make proper coverage decisions and appropriate payments, in accordance with §§ 421.100 and 421.200 of this chapter, for the services furnished to its Medicare enrollees;
(3) Ensure that providers maintain and furnish appropriate documentation of physician certification and recertification, to the extent required under subpart B of part 424 of this chapter; and
(4) Carry out any other procedures required by CMS.
(f) Review of HMO's or CMP's bill processing capabilities. If the HMO or CMP elects to pay providers directly, CMS determines whether the HMO or CMP has the experience and capability to carry out the responsibilities specified in paragraph (e) of this section in an efficient and effective manner.
(g) Direct payment by CMS. (1) If the HMO or CMP elects to have CMS pay for provider services, CMS pays each provider on a reasonable cost basis or under the PPS system, whichever is appropriate for the particular provider under part 412 or part 413 of this chapter.
(2) In computing the Medicare payment to the HMO or CMP, CMS deducts these payments and any other payments made by the Medicare intermediary or carrier on behalf of the HMO or CMP (such as payment for emergency or urgently needed services under § 417.558).
(h) Payment for services furnished to Medicare beneficiaries not enrolled in the HMO or CMP. CMS pays the HMO or CMP for services it furnishes to Medicare beneficiaries who are not its enrollees through the HMO's or CMP's Medicare intermediary or carrier, as appropriate.
§ 417.533   Part B carrier responsibilities.
In paying for Part B services furnished to its enrollees by suppliers, the HMO or CMP must—
(a) Determine the eligibility of individuals to receive those services through the HMO or CMP;
(b) Make proper coverage decisions and appropriate payment as authorized under § 421.200 of this chapter for the services for which its Medicare enrollees are eligible; and
(c) Carry out any other procedures that CMS may require.
§ 417.534   Allowable costs.
(a) Definition—Allowable costs means the direct and indirect costs, including normal standby costs incurred by the HMO or CMP, that are proper and necessary for efficient delivery of needed health care services. They include the costs of furnishing services to the HMO's or CMP's Medicare enrollees, other enrollees, and nonenrolled patients, which are typical “provider” costs, and costs (such as marketing, enrollment, membership, and operation of the HMO or CMP) that are peculiar to health care prepayment organizations.
(b) Basic rules. (1) The allowability of an HMO's or CMP's costs for furnishing services is generally determined in accordance with principles applicable to provider costs, as set forth in § 417.536.
(2) The allowability of other costs is determined in accordance with principles set forth in §§ 417.538 through 417.550.
(3) Costs for covered services for which Medicare is not the primary payor, as described in § 417.528, are not allowable.
(c) Medicare Part D program costs. To the extent that an HMO or CMP provides qualified prescription drug coverage to enrollees under Part D, no costs related to the offering or provision of Part D benefits are reimbursed under this part. These costs are reimbursed solely under the applicable provisions of part 423 of this chapter.
§ 417.536   Cost payment principles.
(a) Applicability. Unless otherwise specified in this subpart, the principles set forth in parts 412 and 413 of this chapter are applicable to the costs incurred by an HMO or CMP or by providers and other facilities owned or operated by the HMO or CMP or related to it by common ownership or control. The most common examples of these costs are set forth in this section.
(b) Depreciation. An appropriate allowance for depreciation on buildings and equipment is an allowable cost, in accordance with §§ 413.134, 413.144, and 413.149 of this chapter.
(c) Interest expense. Necessary and proper interest on both current and capital indebtedness is an allowable cost, in accordance with § 413.153 of this chapter.
(d) Cost of educational activities. An appropriate part of the net cost of approved educational activities of a provider or other health care facility owned or operated by an HMO or CMP is an allowable cost in accordance with § 413.85 of this chapter.
(e) Compensation of owners. An appropriate amount of compensation for services of owners is an allowable cost, if the services are actually performed and are necessary, as specified in § 413.102 of this chapter.
(f) Bad debts. (1) Bad debts attributable to Medicare deductible and coinsurance amounts are allowable only if the requirements of § 413.89 of this chapter are met, subject to the limitations described under § 413.89(h) and the exceptions for services described under § 413.89(i).
(2) If all or part of the deductible and coinsurance amounts is payable through a monthly premium or other periodic payment, the amount allowed as a bad debt may not exceed three times the monthly rate for the actuarial value of the deductible and coinsurance amounts, or its equivalent, if the periodic payment is on other than a monthly basis.
(3) Any bad debt related to a service furnished to a Medicare enrollee of the HMO or CMP, and claimed on a cost report submitted for payment by a provider or other facility reimbursed on a cost basis, may not be claimed as a bad debt by the HMO or CMP.
(g) Charity and courtesy allowances. As specified in § 413.89 of this chapter, charity and courtesy allowances are deductions from revenue and may not be included as allowable costs.
(h) Research costs. As specified in § 413.90 of this chapter, costs incurred for research purposes, over and above patient care, are not allowable costs.
(i) Value of services of nonpaid workers. The value of services of nonpaid workers of an organization is not an allowable cost, except as provided in § 413.94 of this chapter.
(j) Purchase discounts and allowances and refund of expenses. Discounts and allowances that an HMO or CMP receives on purchases of goods and services and refunds of previous expense payments must be deducted from the costs to which they relate, in accordance with § 413.98 of this chapter.
(k) Cost to related entities. (1) The costs of services, facilities, or supplies furnished to an HMO or CMP by a related entity are allowable at the cost to the related entity in accordance with § 413.17 of this chapter.
(2) An entity is not considered related to the HMO or CMP merely because—
(i) It has a risk or incentive agreement under which the HMO or CMP reimburses or compensates the entity for services it furnishes to the HMOs' or CMPs' enrollees; or
(ii) Substantially all the services the entity furnishes are furnished to the HMO's or CMP's enrollees.
(3) However, an entity described in paragraph (k)(2) of this section and an HMO or CMP are considered related if either of them is in a position to exercise significant management or ownership influence or control over the other.
(l) Return on equity capital of proprietary providers owned by the HMO or CMP. An allowance for a reasonable return on equity capital invested and used in providing services is allowable in addition to the reasonable cost of services furnished by a proprietary provider owned by the HMO or CMP. The amount of the allowance is determined in accordance with § 413.157 of this chapter.
(m) Limitations on payment. Medicare payment for covered services furnished by entities owned by or operated by, or related to, an HMO or CMP paid on a reasonable cost basis is subject to certain provisions of parts 412 and 413 of this chapter that pertain to reasonable cost and reasonable charge. Those provisions include, but are not necessarily limited to, the following:
(1) For ESRD treatment, the limitations authorized under § 413.170 of this chapter.
(2) For services of physical, occupational, and speech therapists and other therapists and nonphysician health specialists, the limitations set forth in § 413.106 of this chapter.
(3) For drugs, the allowable cost as determined under §§ 405.517 and 410.29 of this chapter.
(4) The overall cost limits established in accordance with § 413.30 of this chapter.
(5) The limitation to the lesser of reasonable cost or customary charges, as set forth in § 413.13 of this chapter.
§ 417.538   Enrollment and marketing costs.
(a) Principle. Costs incurred by an HMO or CMP in performing the enrollment and marketing activities described in subpart k of this part are allowable.
(b) Included costs. Allowable enrollment and marketing costs are those necessary and proper costs incurred in offering the HMO's or CMP's plan to potential enrollees in accordance with this part. Those costs include selling, advertising, promotional, and other marketing costs and may not exceed an amount that would be incurred by a prudent and cost-conscious management.
(c) Application. Enrollment and marketing costs are allowable, whether incurred directly by HMO or CMP staff or under contract with marketing specialists or other outside consultants.
(d) Limitation on payment. The relatively higher costs that an HMO or CMP is likely to incur in initially offering its plan to Medicare beneficiaries are taken into account in determining whether enrollment and marketing costs are reasonable in amount. However, if those costs exceed amounts that would be paid by prudent management, the excess is not allowable.
§ 417.540   Enrollment costs.
(a) Principle. Enrollment costs are allowable if incurred in maintaining and servicing subscriber contracts for prepayment enrollees.
(b) Kind of costs included. Enrollment costs include, but are not limited to, reasonable costs incurred in connection with maintaining statistical, financial, and other data on enrollees.
§ 417.542   Reinsurance costs.
Reinsurance costs are not allowable.
§ 417.544   Physicians' services furnished directly by the HMO or CMP.
(a) Principles. (1) Compensation paid by an HMO or CMP to physicians is an allowable cost to the extent that it is commensurate with the compensation paid for similar services performed by similar physicians practicing in the same or a similar locality.
(2) Physician compensation may take various forms, but the aggregate compensation allowable must be reasonable in relation to the services personally furnished.
(3) If aggregate physician compensation costs exceed what is normally incurred, the excess is not a reasonable cost.
(b) Application. (1) In determining the allowability of the costs of physicians' services, the cost of personal services (for example, expenses attributable to salaries, wages, incentive payments, fringe benefits) must be distinguished from the cost of nonpersonal services (for example, expenses attributable to facilities, equipment, support personnel, supplies).
(2) To be allowable, compensation must be reasonable in relation to the personal services furnished.
§ 417.546   Physicians' services and other Part B supplier services furnished under arrangements.
General principle. The amount paid by an HMO or CMP for physicians' services and other Part B supplier services furnished under arrangements is an allowable cost to the extent it is reasonable. Costs are considered reasonable if they—
(a) Do not exceed those that a prudent and cost-conscious buyer would incur to purchase those services; and
(b) Are comparable to costs incurred for similar services furnished by similar physicians or other suppliers in the same or a similar geographic area.
§ 417.548   Provider services through arrangements.
(a) Principle. The cost incurred by an HMO or CMP for covered services furnished under arrangement with a provider is allowable to the extent that it would be allowable and payable under parts 412 and 413 of this chapter, unless the HMO or CMP petitions CMS and demonstrates to HFCA's satisfaction that payment in excess of the amount authorized under parts 412 and 413 of this chapter is justified on the basis of advantages gained by the HMO or CMP.
(b) Application. An advantage gained must represent a real and tangible benefit received by the HMO or CMP for the excess cost incurred, and any excess payment is subject to other applicable requirements of parts 405, 412 and 413 of this chapter, including tests of reasonableness.
(c) Example. In the case of an arrangement an HMO or CMP has with a provider that is located outside the HMO's or CMP's geographic area and that is not related to the HMO or CMP by common ownership or control, payment of the provider's charges to the HMO or CMP (rather than the payment amounts determined under part 412 or part 413 of this chapter) may be justified in exchange for the advantages of not having to incur the administrative costs of determining the provider's reasonable cost and of making a more timely final settlement with the HMO or CMP. However, repayment of the provider's charges would be acceptable only if—
(1) The provider furnishes services to the HMO's or CMP's enrollees infrequently;
(2) The charges represent an insignificant portion of total Medicare reimbursement to the HMO or CMP; and
(3) The charges do not exceed the customary charges by the provider to its other patients for similar services.
§ 417.550   Special Medicare program requirements.
(a) Principle. CMS pays the full reasonable cost incurred by an HMO or CMP for activities that are solely for Medicare purposes and unique to Medicare contracts under section 1876 of the Act.
(b) Application. CMS pays the full reasonable cost of the following activities:
(1) Reporting increases and decreases in the number of Medicare enrollees.
(2) Obtaining independent certification of the HMO's or CMP's cost report to the extent that it is for Medicare purposes.
(3) Reporting special data that CMS requires solely for program planning and evaluation.
(c) Prior approval requirement. The costs specified in paragraph (b) of this section must be separately budgeted and approved by CMS before the contract period begins.
(d) Limit on full payment. Full payment is limited to the costs specified in paragraph (b) of this section. All other administrative costs must be apportioned in accordance with § 417.552.
§ 417.552   Cost apportionment: General provisions.
(a) Basic rule. The HMO or CMP must apportion its total allowable direct and indirect costs among its Medicare enrollees, its other enrollees, and its nonenrolled patients—
(1) In accordance with this subpart; and
(2) Using methods approved by CMS.
(b) Purpose of apportionment. The purpose of apportionment is to ensure that—
(1) The cost of services furnished to Medicare enrollees is not borne by other enrollees and nonenrolled patients; and
(2) The cost of the services furnished to other enrollees and nonenrolled patients is not borne by Medicare.
§ 417.554   Apportionment: Provider services furnished directly by the HMO or CMP.
The Medicare share of the cost of covered services furnished to Medicare enrollees by providers that are owned or operated by the HMO or CMP or are related to the HMO or CMP by common ownership or control must be determined in accordance with the apportionment methods set forth in part 412, §§ 413.24, 413.55, and 415.55 of this chapter.
§ 417.556   Apportionment: Provider services furnished by the HMO or CMP through arrangements with others.
The Medicare share of the cost of covered services furnished to Medicare enrollees through arrangements with providers other than those specified in § 417.554 must be determined as follows:
(a) The Medicare share must be based on the cost the HMO or CMP pays the provider under their arrangement, to the extent that cost is reasonable and within the limits established by §§ 417.534 through 417.548.
(b) Except as specified in paragraph (c) of this section, apportionment must be on the same approved basis that is used by the provider for Medicare beneficiaries who are not Medicare enrollees of the HMO or CMP, subject to the conditions and limitations set forth in § 417.548.
(c) If, because of the special nature or terms of the HMO's or CMP's arrangement with the provider, apportionment on the basis specified in paragraph (b) of this section would result in Medicare's bearing the costs of furnishing services to individuals other than the HMO's or CMP's Medicare enrollees, apportionment must be on another basis that is approved by CMS and that will ensure that Medicare does not pay any of the cost of furnishing services to individuals who are not Medicare enrollees of the HMO or CMP.
(d) If the HMO or CMP elects to have providers reimbursed by the HMO's or CMP's Medicare intermediary, the Medicare share is the amount the intermediary paid the provider.
§ 417.558   Emergency, urgently needed, and out-of-area services for which the HMO or CMP accepts responsibility.
(a) Source of payment. Either CMS or the HMO or CMP may pay a provider for emergency or urgently needed services or other covered out-of-area services for which the HMO or CMP accepts responsibility.
(b) Limits on payment. If the HMO or CMP pays, the payment amount may not exceed the amount that is allowable under part 412 or part 413 of this chapter.
(c) Exception to limit on payment. Payment in excess of the limit imposed by paragraph (b) of this section is allowable only if the HMO or CMP demonstrates to CMS's satisfaction that it is justified on the basis of advantages gained by the HMO or CMP, as set forth in § 417.548.
§ 417.560   Apportionment: Part B physician and supplier services.
(a) Medical services furnished directly by the HMO or CMP. The total allowable cost of Part B physician and supplier services furnished by employees or partners of the HMO or CMP or by a related entity of the HMO or CMP must be apportioned on the basis of the ratio of covered Part B services furnished to Medicare enrollees to total services furnished to all the HMO's or CMP's enrollees and nonenrolled patients. The HMO or CMP must use a method for reporting costs that is approved by CMS. CMS bases its approval on a finding that the method—
(1) Results in an accurate and equitable allocation of allowable costs; and
(2) Is justifiable from an administrative and cost efficiency standpoint.
(b) Medical services furnished under arrangements made by the HMO or CMP. When the HMO or CMP pays for Part B physician and supplier services on some basis other than fee-for-service, the reasonable cost the HMO or CMP pays under its financial arrangement with the physician or supplier must be apportioned between Medicare enrollees and others based on the ratio of covered services furnished to Medicare enrollees to the total services furnished to all enrollees and nonenrolled patients. If apportionment on this basis would result in Medicare bearing the cost of furnishing services to individuals who are not Medicare enrollees, the Medicare share must be determined on another basis (approved by CMS) to ensure that Medicare pays only for services furnished to Medicare enrollees.
(c) Medical services furnished under an arrangement that provides for the HMO or CMP to pay on a fee-for-service basis. The Medicare share of the cost of Part B physician and supplier services furnished to Medicare enrollees under arrangements, and paid for by the HMO or CMP on a fee-for-service basis, is determined by multiplying the total amount for all such services by the ratio of charges for covered services furnished to Medicare enrollees to the total charges for all such services.
(d) Emergency services, urgently needed services, and other covered medical services for which the HMO or CMP assumes financial responsibility. The Medicare share of the cost of Part B emergency or urgently needed services or other Part B services that are not furnished by a provider and for which the HMO or CMP accepts financial responsibility is determined in accordance with paragraphs (b) and (c) of this section.
§ 417.564   Apportionment and allocation of administrative and general costs.
(a) Costs not directly associated with providing medical care. Enrollment, marketing, and other administrative and general costs that benefit the total enrollment of the HMO or CMP and are not directly associated with furnishing medical care must be apportioned on the basis of a ratio of Medicare enrollees to the total HMO or CMP enrollment.
(b) Costs significantly related to providing medical services. (1) The following administrative and general costs, which bear a significant relationship to the services furnished, are not apportioned to Medicare directly; they must be allocated or distributed to the HMO or CMP components and then apportioned to Medicare in accordance with §§ 417.552 through 417.560:
(i) Facility costs.
(ii) Interest expense.
(iii) Medical record costs.
(iv) Centralized purchasing costs.
(v) Accounting and data processing costs.
(vi) Other administrative and general costs that are not included in paragraph (a) of this section.
(2) The allocation or distribution process must be as follows:
(i) If a separate entity or department of an HMO or CMP performs administrative functions the benefit of which can be quantitatively measured (such as centralized purchasing and data processing), the total allowable costs of this entity or department must be allocated or distributed to the components of the HMO or CMP in reasonable proportion to the benefits received by these components.
(ii) If a separate entity or department of an HMO or CMP performs administrative functions the benefit of which cannot be quantitatively measured (such as facility costs), the total allowable costs of this entity or department must be allocated or distributed to the components of the HMO or CMP on the basis of a ratio of total incurred and distributed costs per component to the total incurred and distributed costs for all components.
(iii) For the costs incurred under paragraphs (b)(1)(i) through (iv) of this section that include personnel costs, the organization must be able to identify the person hours expended for each administrative task and the rate of pay for those persons performing the tasks. Administrative tasks performed and rate of pay for the persons performing those tasks must match in terms of the skill level needed to accomplish those tasks. This information must be made available to CMS upon request.
(c) Costs excluded from administrative costs. In accordance with section 1861(v) of the Act, the following costs must be excluded from administrative costs:
(1) Donations.
(2) Fines and penalties.
(3) Political and lobbying activities.
(4) Charity or courtesy allowances.
(5) Spousal education.
(6) Entertainment.
(7) Return on equity.
§ 417.566   Other methods of allocation and apportionment.
(a) Justification. A method of apportionment or allocation of costs, other than the methods prescribed in this subpart may be used if it results in a more accurate and equitable apportionment of allowable costs and is justifiable from an administrative and cost standpoint.
(b) Required approval. (1) An HMO or CMP that desires to use an alternative method must submit a written request for CMS approval at least 90 days before the beginning of the period for which the different method is to be used.
(2) If CMS approves use of a different method, the HMO or CMP may not revert to another method without first obtaining CMS's approval.
§ 417.568   Adequate financial records, statistical data, and cost finding.
(a) Maintenance of records. (1) An HMO or CMP must maintain sufficient financial records and statistical data for proper determination of costs payable by CMS for covered services the HMO or CMP furnished to its Medicare enrollees either directly or under arrangements with others. These include accurate and sufficient detail of incurred costs and enrollment data.
(2) Unless otherwise provided for in this subpart, the HMO or CMP must follow standardized definitions and accounting, statistics, and reporting practices that are widely accepted in the health care industry.
(b) Provision of data. (1) The HMO or CMP must provide adequate cost and statistical data, based on its financial and statistical records, that can be verified by qualified auditors.
(2) The cost data must be based on an approved method of cost finding and, except as provided in paragraph (b)(3) of this section, on the accrual method of accounting.
(3) For governmental institutions that use a cash basis of accounting, cost data developed on this basis is acceptable. However, only depreciation on capital assets, rather than the expenditure for the capital asset, is allowable.
(c) Provider services furnished directly by the HMO or CMP. If the HMO or CMP furnishes provider services directly, the provider is subject to the cost-finding and cost-reporting requirements set forth in parts 412 and 413 of this chapter. The provider must use an approved cost-finding method described in § 413.24 of this chapter to determine the actual cost of these covered services.
(d) Supplier services furnished directly by the HMO or CMP. If the HMO or CMP furnishes Part B physician and supplier services directly, it must furnish statistics that indicate the frequency and type of service provided, in the form and detail prescribed by CMS.
(e) Part B physician and supplier services furnished through arrangement. If the HMO or CMP furnishes Part B physician and supplier services under arrangements with others, it must furnish to CMS statistical, financial, and other information with respect to those services in the form and detail prescribed by CMS.
§ 417.570   Interim per capita payments.
(a) Principle of payment. (1) CMS makes monthly advance payments equivalent to the HMO's or CMP's interim per capita rate for each beneficiary who is registered in CMS records as a Medicare enrollee of the HMO or CMP.
(2) Additional lump-sum payments may be made at other times during the contract period, at CMS's discretion, to adjust the total amounts paid during the contract period to the level of incurred costs.
(b) Determination of rate. The interim per capita rate of payment is equal to the estimated per capita cost of providing covered services to the HMO's or CMP's Medicare enrollees, based upon the types and components of costs that are reimbursable under this part. The interim per capita rate is determined annually by CMS on the basis of the HMO's or CMP's annual operating and enrollment forecast (as set forth in § 417.572) and may be revised during the contract period as explained in paragraphs (c) and (d) of this section.
(c) Adjustments of payments. In order to maintain the interim payments at the level of current reasonable costs, CMS will adjust the interim per capita rate, to the extent necessary, on the basis of adequate data supplied by the HMO or CMP in its interim estimated cost and enrollment reports or on other evidence showing that the rate based on actual costs is more or less than the current rate. Adjustments may also be made if there is—
(1) A change in the number of Medicare enrollees that affects the per capita rate;
(2) A material variation from the costs estimated when the annual operating budget was prepared; or
(3) A significant change in the use of covered services by the HMO's or CMP's Medicare enrollees.
(d) Reduction of interim payments. If the HMO or CMP does not submit, on time, the reports and other data required to determine the proper amount of payment, CMS may reduce interim payments to the extent appropriate, or may take any other action authorized under this part. An interim payment reduction remains in effect until CMS can make a reasonable estimate of per capita costs.
§ 417.572   Budget and enrollment forecast and interim reports.
(a) Annual submittal. The HMO or CMP must submit an annual operating budget and enrollment forecast, in the form and detail required by CMS, at least 90 days before the beginning of each contract period. The forecast must be based on financial and statistical data and records that can be verified if CMS requires a detailed review of supporting records. The data and records include, but are not limited to, all ledgers, books, records, and original evidence of costs, and statistical data used in the determination of reasonable cost.
(b) Effect of failure to submit on time. If the HMO or CMP does not submit the budget and enrollment forecast on time, CMS may—
(1) Establish an interim per capita rate of payment on the basis of the best available data and adjust payments on the basis of that rate until the required reports are submitted and a new interim per capita rate can be established; or
(2) If there is not enough data on which to base an interim per capita rate, inform the HMO or CMP that interim payments will not be made until the required reports are submitted.
(c) Interim cost reports. (1) An HMO or CMP must submit interim cost reports on a quarterly basis in the form and detail prescribed by CMS. These interim cost reports must be submitted no later than 60 days after the close of each quarter of the contract period.
(2) CMS may reduce the frequency of the reports required under paragraph (c)(1) of this section if CMS determines that, on the basis of the HMO's or CMP's reporting experience, there is good cause to do so.
§ 417.574   Interim settlement.
(a) Determination. Within 30 days following the receipt of the HMO's or CMP's final interim cost and enrollment reports, CMS will make an interim determination of the estimated amount payable to the HMO or CMP for the reasonable cost of covered services furnished to its Medicare enrollees during the contract period. CMS will base the determination on the interim cost report and enrollment data submitted by the HMO or CMP, and any other relevant data CMS finds appropriate. For this purpose, CMS will accept costs as reported, subject to later review or audit, unless there are obvious errors or inconsistencies.
(b) Payment. Any difference between the total amount of interim payments and the amount found payable on the basis of the interim determination under paragraph (a) of this section, must be paid by the HMO or CMP or will be paid by CMS, whichever is appropriate, no later than 30 days after CMS's determination.
§ 417.576   Final settlement.
(a) General rule. Final settlement and payment of amounts due the HMO or CMP or the appropriate Medicare trust funds are made following the HMO's or CMP's submission and CMS's review of an independently certified cost report and supporting documents as described in paragraph (b) of this section.
(b) Certified cost report as basis for final settlement —(1) Timing of cost report. The HMO or CMP must submit to CMS an independently certified cost report and supporting documents, in the form and detail required by CMS, no later than 180 days after the end of each contract period, unless CMS extends the period for good cause shown by the HMO or CMP.
(2) Content of cost report. The cost report and supporting documents must include the following:
(i) The per capita costs incurred in furnishing covered services to its Medicare enrollees, determined in accordance with subpart O of this part and including—
(A) The costs incurred by entities related to the HMO or CMP by common ownership or control; and
(B) For reports for cost-reporting periods that begin on or after January 1, 1996, the costs of hospital and SNF services paid by Medicare's intermediaries under the option provided by § 417.532(d).
(ii) The HMO's or CMP's methods of apportioning cost among Medicare enrollees, and nonenrolled patients, in accordance with the payment procedures specified in this subpart (as, applicable, in parts 412 and 413 of this chapter); and
(iii) Any other information required by CMS.
(3) Failure to report required financial information. If the HMO or CMP fails to submit the required cost report and supporting documents within 180 days (or an extended period approved by CMS under paragraph (b)(1) of this section), CMS may—
(i) Consider the failure to report as evidence of likely overpayment; and
(ii) Initiate recovery of amounts previously paid, or reduce interim payments, or both.
(c) Final determination and adjustment. (1) After receipt of acceptable reports as specified in paragraph (b) of this section, CMS determines the total payment due the HMO or CMP for furnishing covered services to its Medicare enrollees (which is subject to the audit provisions of this subpart) and makes a retroactive adjustment to bring interim payments into agreement with the payable amount due the HMO or CMP.
(2) A final settlement may be made with the HMO or CMP even though a provider that is not owned or operated by the HMO or CMP or related to the HMO or CMP by common ownership or control and that provides services to the HMO's or CMP's Medicare enrollees has not had a final settlement with CMS under parts 412 and 413 of this chapter for services furnished by the provider to Medicare beneficiaries who are not enrolled in the HMO or CMP. In this situation—
(i) CMS must be satisfied that the costs of covered services furnished to the HMO's or CMP's Medicare enrollees, as shown in the reports specified in paragraph (b) of this section, are reasonable and that the interest of the Medicare program would best be served by not delaying final settlement with the HMO or CMP until there is a final settlement with the provider for services furnished to Medicare beneficiaries not enrolled in the HMO or CMP; and
(ii) Prompt settlement with the HMO or CMP would be in the best interest of the Medicare program if, for instance, the provider's costs represent an insignificant portion of total payment due to the HMO or CMP; or if CMS is satisfied that the provider's costs, as shown in the reports specified in paragraph (b) of this section, will not be modified, to any significant extent, by the final settlement with the provider under parts 412 and 413 of this chapter.
(d) Notice of amount of payment. The notice of amount of Medicare payment—
(1) Explains CMS's determination regarding total Medicare payment due the HMO or CMP for the contract period covered by the financial information specified in paragraph (b) of this section;
(2) Relates this determination to the HMO's or CMP's claimed total payable cost for that period;
(3) Explains the amounts and reasons, by appropriate reference to law, regulations, and Medicare program policy and procedures, if the determined amounts differ from the HMO's or CMP's claim; and
(4) Informs the HMO or CMP of its right to a hearing in accordance with the requirements specified in § 405.1801(b)(2) of this chapter
(e) Basis for retroactive adjustment. (1) CMS's determination (as contained in the notice of amount of Medicare payment) constitutes the basis for making retroactive adjustments to any Medicare payment made to the HMO or CMP during the period to which the determination applies.
(2) Further payments to the HMO or CMP may be withheld or offset in order to recover, or to aid in the recovery of, any overpayment identified in the determination as having been made to the HMO or CMP, even if the HMO or CMP requests a hearing in accordance with the requirements specified in § 405.1801(b)(2) of this chapter.
(3) Any withholding continues until the earliest of the following occurs:
(i) The overpayment is liquidated.
(ii) The HMO or CMP enters into an agreement with CMS to refund the overpaid amount.
(iii) CMS, on the basis of subsequently acquired information, determines that there was no overpayment.
(iv) The decision of a hearing specified in paragraph (d)(4) of this section is that there was no overpayment.
§ 417.580   Basis and scope.
(a) Basis. This subpart implements those portions of section 1876 (a), (e), and (g) of the Act that pertain to the amount CMS pays an organization for its Medicare enrollees who are enrolled on a risk basis.
(b) Scope. This subpart sets forth—
(1) Method of payment;
(2) Procedures for determining the HMO's or CMP's payment rate; and
(3) Procedures for determining the additional benefits (and their value) the HMO or CMP must provide to its Medicare enrollees.
§ 417.582   Definitions.
As used in this subpart—
AAPCC stands for adjusted average per capita cost.
ACR stands for adjusted community rate.
Actuarial factors means factors such as the age, sex, and disability level distribution of the population and any other relevant factors that CMS determines have a significant effect on the level of utilization and cost of health services.
APCRP stands for average of per capita rates of payment.
Class of Medicare enrollees means a group of Medicare enrollees of an HMO or CMP that CMS constructs on the basis of actuarial factors.
Similar area means an area similar to the HMO's or CMP's geographic area but free from special characteristics that would distort the determination of the AAPCC.
U.S. per capita incurred cost means the average per capita cost, including intermediary or carrier administrative costs, incurred by Medicare, as determined on an accrual basis, for covered services furnished to Medicare beneficiaries nationwide during the most recent period for which CMS has complete data.
§ 417.584   Payment to HMOs or CMPs with risk contracts.
Except in the circumstances specified in § 417.440(d) for inpatient hospital care, and as provided in § 417.585 for hospice care, CMS makes payment for covered services only to the HMO or CMP.
(a) Principle of payment. CMS makes monthly advance payments equivalent to the HMO's or CMP's per capita rate of payment for each beneficiary who is registered in CMS records as a Medicare enrollee of the HMO or CMP.
(b) Determination of rate. (1) The annual per capita rate of payment for each class of Medicare enrollees is equal to 95 percent of the AAPCC (as determined under the provisions of § 417.588) for that class of Medicare enrollees.
(2) CMS furnishes each HMO or CMP with its per capita rate of payment for each class of Medicare enrollees not later than 90 days before the beginning of the HMO's or CMP's contract period.
(c) Adjustments to payments. If the actual number of Medicare enrollees differs from the estimated number on which the amount of advance monthly payment was based, CMS adjusts subsequent monthly payments to take account of the difference.
(d) Reduction of payments. If an HMO or CMP requests a reduction in its monthly payment in accordance with § 417.592(b)(2), CMS reduces the amount of payment by the appropriate amount.
(e) Determination of rate for calendar year 1998. For calendar year 1998, HMOs or CMPs with risk contracts will be paid in accordance with principles contained in subpart F of part 422 of this chapter.
§ 417.585   Special rules: Hospice care.
(a) No payment is made to an HMO or CMP on behalf of a Medicare enrollee who has elected hospice care under § 418.24 of this chapter except for the portion of the payment applicable to the additional benefits described in § 417.592. This no-payment rule is effective from the first day of the month following the month of election to receive hospice care, until the first day of the month following the month in which the enrollee resumes normal Medicare coverage.
(b) During the time the election is in effect, the HMO or CMP may bill CMS on a fee-for-service basis (subject to the usual Medicare rules of payment) but only for the following covered Medicare services:
(1) Services of the enrollee's attending physician if the physician is an employee or contractor of the HMO or CMP and is not employed by or under contract to the enrollee's hospice.
(2) Services not related to the treatment of the terminal condition for which the enrollee elected hospice care or a condition related to the terminal condition.
(3) Services furnished after the revocation or expiration of the enrollee's hospice election until the full monthly capitation payments begin again.
(c) Payment for hospice care services furnished to Medicare enrollees of an HMO or CMP is made to the Medicare-participating hospice elected by the enrollee.
§ 417.588   Computation of adjusted average per capita cost (AAPCC).
(a) Basic data. In computing the AAPCC, CMS uses the U.S. per capita incurred cost and adjusts it by the factors specified in paragraph (c) of this section to establish an AAPCC for each class of Medicare enrollees.
(b) Advance notice to the HMO or CMP. Before the beginning of a contract period, CMS informs the HMO or CMP of the specific adjustment factors it will use in computing the AAPCC.
(c) Adjustment factors —(1) Geographic. CMS makes an adjustment to reflect the relative level of Medicare expenditures for beneficiaries who reside in the HMO's or CMP's geographic area (or a similar area). This adjustment is based on reimbursement for Medicare covered services and uses the most accurate and timely data that pertain to the HMO's or CMP's geographic area and that is available to CMS when it makes the determination.
(2) Enrollment. CMS makes a further adjustment to remove the cost effect of all area Medicare beneficiaries who are enrolled in the HMO or CMP or another HMO or CMP.
(3) Age, sex, and disability status. CMS makes adjustments to reflect the age and sex distribution and the disability status of the HMO's or CMP's enrollees based on Medicare program experience and available data that indicate cost differences that result from those factors.
(4) Other relevant factors. If accurate data are available and appropriate, CMS makes adjustments to reflect welfare and institutional status and other relevant factors.
§ 417.590   Computation of the average of the per capita rates of payment.
(a) Computation by the HMO or CMP. As indicated in § 417.584(b), before an HMO's or CMP's contract period begins, CMS determines a per capita rate of payment for each class of the HMO's or CMP's Medicare enrollees. In order to determine the additional benefits required under § 417.592, weighted averages of those per capita rates must be computed separately for enrollees entitled to Part A and Part B, and for enrollees entitled only to Part B. Except as provided in paragraph (b) of this section, the HMO or CMP must make the computations.
(b) Computation by CMS. If the HMO or CMP claims to have insufficient enrollment experience to make the computations required by paragraph (a) of this section, and CMS agrees with the claim, CMS makes the computations, using the best available information, which may include the enrollment experience of other risk HMOs and CMPs.
§ 417.592   Additional benefits requirement.
(a) General rules. (1) An HMO or CMP that has an APCRP (as determined under § 417.590) greater than its ACR (as determined under § 417.594) must elect one of the options specified in paragraph (b) of this section.
(2) The dollar value of the elected option must, over the course of a contract period, be at least equal to the difference between the APCRP and the proposed ACR.
(b) Options —(1) Additional benefits. Provide its Medicare enrollees with additional benefits in accordance with paragraph (c) of this section.
(2) Payment reduction. Request CMS to reduce its monthly payments.
(3) Combination of additional benefits and payment reduction. Provide fewer than the additional benefits required under paragraph (b)(1) of this section and request CMS to reduce the monthly payments by the remaining difference between the APCRP and the ACR.
(4) Combination of additional benefits and withholding in a stabilization fund. Provide fewer than the additional benefits required under paragraph (b)(1) of this section, and request CMS to withhold in a stabilization fund (as provided in § 417.596) the remaining difference between the APCRP and the ACR.
(c) Special rules: Additional benefits option. (1) The HMO or CMP must determine additional benefits separately for enrollees entitled to both Part A and Part B benefits and those entitled only to Part B.
(2) The HMO or CMP may elect to provide additional benefits in any of the following forms—
(i) A reduction in the HMO's or CMP's premium or in other charges it imposes in the form of deductibles or coinsurance.
(ii) Health benefits in addition to the required Part A and Part B covered services.
(iii) A combination of reduced charges and additional benefits.
(d) Notification to CMS. (1) The HMO or CMP must give CMS notice of its ACR and its weighted APCRP at least 45 days before its contract period begins.
(2) An HMO or CMP that elects the option of providing additional benefits must include in its submittal—
(i) A description of the additional benefits it will provide to its Medicare enrollees; and
(ii) Supporting evidence to show that the selected benefits meet the requirements of paragraph (a)(2) of this section with respect to dollar value equivalence.
§ 417.594   Computation of adjusted community rate (ACR).
(a) Basic rule. Each HMO or CMP must compute its basic rate as follows:
(1) Compute an initial rate in accordance with paragraph (b) of this section.
(2) Adjust and reduce the initial rate in accordance with paragraphs (c) and (d) of this section.
(b) Computation of initial rates. (1) The HMO or CMP must compute its initial rate using either of the following systems:
(i) A community rating system as defined in § 417.104(b); or
(ii) A system, approved by CMS, under which the HMO or CMP develops an aggregate premium for all its enrollees and weights the aggregate by the size of the various enrolled groups that compose its enrollment.
(2) Regardless of which method the HMO or CMP uses—
(i) The initial rate must be equal to the premium it would charge its non-Medicare enrollees for the Medicare-covered services;
(ii) The HMO or CMP must compute the rates separately for enrollees entitled to Medicare Part A and Part B and for those entitled only to Part B; and
(iii) The HMO or CMP must identify and take into account anticipated revenue from health insurance payers for those services for which Medicare is not the primary payer as provided in § 417.528.
(3) Except as provided in paragraph (b)(4) of this section, the HMO or CMP must identify in its initial rate calculation, the following components whose rates must be consistent with rates used by the HMO or CMP in calculating premiums for non-Medicare enrollees:
(i) Hospital services (services covered under Medicare Part A and Part B shown separately).
(ii) Physicians' services.
(iii) Other medical services (for example, X-ray and laboratory services).
(iv) Home health services.
(v) Out-of-plan claims for emergency services.
(vi) Skilled nursing care services.
(vii) Ambulance services.
(viii) Other Medicare covered services.
(ix) General and administrative.
(x) Noncovered Medicare services (for example, eyeglasses).
(xi) Services for which Medicare is the secondary payer.
(xii) Enrollee liabilities (for example, deductibles, coinsurance, or copayments) for covered services.
(4) An HMO or CMP that does not usually separate its premium components as described in paragraph (b)(3) of this section may calculate its initial rate with the methods it uses for its other enrolled groups if the HMO or CMP provides CMS with the documentation necessary to support any adjustments the HMO or CMP makes to the initial rate in accordance with paragraph (e) of this section.
(5) The initial rate calculation must not carry forward any losses experienced by the HMO or CMP during prior contract periods. The HMO or CMP must submit supporting documentation to assure CMS that rates do not include past losses but only premiums for the price of additional benefits and services of the upcoming contract period.
(c) Adjustment of initial rates —(1) Purpose of adjustment. The purpose of adjustment is to reflect the utilization characteristics of Medicare enrollees.
(2) Adjustment by the HMO or CMP. The HMO or CMP may adjust the rate for a particular service using more than one of the following factors if they do not duplicate each other:
(i) Unit of service. If the HMO or CMP purchases or identifies services on a unit of service basis and the unit of service is defined the same for all enrollees, the HMO or CMP may make an adjustment in its initial rate to reflect the number of units of services furnished to its Medicare enrollees in comparison to those furnished to other enrollees.
(ii) Complexity or intensity of services. The HMO or CMP may make an adjustment to reflect the differences in the complexity or intensity of services furnished to its Medicare enrollees if the calculation of its initial rate includes the elements of this adjustment.
(3) Support documentation. All adjustments made by the HMO or CMP must be accompanied by adequate supporting data. If an HMO or CMP does not have sufficient enrollment experience to develop this data, it may, during its initial contract period, use documented statistics from a nationally recognized statistical source.
(4) Adjustment by CMS. If the HMO or CMP does not have adequate data to adjust the initial rate calculated under paragraph (b) of this section to reflect the utilization characteristics of its Medicare enrollees, CMS will, at the HMO's or CMP's request, adjust the initial rate. CMS adjusts the rate on the basis of differences in the utilization characteristics of—
(i) Medicare and non-Medicare enrollees in other HMOs or CMPs; or
(ii) Medicare beneficiaries (in the HMO's or CMP's area, or State, or the United States) who are eligible to enroll in an HMO or CMP and other individuals in that same area, or State, or the United States.
(d) Reduction of adjusted rates. The HMO or CMP or CMS further reduces the adjusted rates by the actuarial value of applicable Medicare deductibles and coinsurance.
(e) CMS review —(1) Submission of data. The HMO or CMP must submit its ACR and the methodology used to compute it for CMS review and approval, and must include adequate supporting data.
(2) Appeals procedures. (i) If CMS determines that an HMO's or CMP's ACR computation is not acceptable, the HMO or CMP may, within 30 days after receipt of notice of the determination, file with CMS a request for a hearing.
(ii) The request must state why the HMO or CMP believes the determination is incorrect, and include any supporting evidence the HMO or CMP considers pertinent.
(iii) A hearing officer designated by CMS conducts the hearing in accordance with the hearing procedures set forth in §§ 405.1819 through 405.1833 of this chapter.
§ 417.596   Establishment of a benefit stabilization fund.
(a) General. If an HMO or CMP is required to provide its Medicare enrollees with additional benefits as described in § 417.592, the organization may request that CMS withhold a part of its monthly per capita payment in a benefit stabilization fund. The fund will be used to prevent excessive fluctuation in the provision of those additional benefits in subsequent contract periods.
(b) Notification to CMS. An HMO's or CMP's request to have monies withheld in a benefit stabilization fund must be made when the HMO or CMP notifies CMS under § 417.592(d) of its ACR and its APCRP in preparation for its next contract period.
(c) Limitations on the amounts withheld —(1) Limit per contract period. Except as provided in paragraph (c)(3) of this section, CMS does not withhold in a benefit stabilization fund more than 15 percent of the difference between an HMO's or CMP's ACR and its ACPRP for a given contract period.
(2) Cumulative limit. If CMS has established a benefit stabilization fund for an HMO or CMP, it does not approve a request for withholding made by that HMO or CMP for a subsequent contract period that would cause the total value of the benefit stabilization fund to exceed 25 percent of the difference between the HMO's or CMP's ACR and the average of its per capita rates of payment for that subsequent contract period.
(3) Exception. CMS may grant an exception to the limit described in paragraph (c)(1) of this section if an HMO or CMP can demonstrate to CMS's satisfaction that the value of the additional benefits it provides to its Medicare enrollees fluctuates substantially in excess of 15 percent from one contract period to another.
(d) Financial management of benefit stabilization funds. (1) The amounts withheld by CMS to establish and maintain a benefit stabilization fund are in the custody of the Federal Health Insurance Trust Fund and the Federal Supplementary Medical Insurance Trust Fund.
(2) The amounts withheld in a benefit stabilization fund are accounted for by CMS in accounts in which interest does not accrue to the HMO or CMP.
§ 417.597   Withdrawal from a benefit stabilization fund.
(a) Notification to CMS. An HMO's or CMP's request to make a withdrawal from its benefit stabilization fund for use during a contract period must be made when the HMO or CMP notifies CMS of its ACR and its ACPRP for that contract period. In making its request, the HMO or CMP must—
(1) Indicate how it intends to use the withdrawn amounts;
(2) Justify the need for the withdrawal in terms of stabilizing the additional benefits it provides to Medicare enrollees;
(3) Document the HMO's or CMP's experience with fluctuations of revenue requirements relative to the additional benefits it provides to Medicare enrollees; and
(4) Document its experience during the contract period previous to the one for which it requests withdrawal to ensure that the HMO or CMP will not be using the withdrawn amounts to refinance losses suffered during that previous contract period.
(b) Criteria for CMS approval. CMS approves a request for a withdrawal from a benefit stabilization fund for use during the next contract period only if—
(1) The HMO's or CMP's average of its per capita rates of payment for the next contract period is less than that of the previous contract period;
(2) The HMO's or CMP's ACR for the next contract period is significantly higher than that of the previous contract period; or
(3) The HMO's or CMP's revenue requirements for the next contract period for providing the additional benefits it provided during the previous contract period is significantly higher than the requirements for that previous period and the ACR for the next contract period results in an additional benefits package that is less in total value than that of the previous contract period.
(c) Basis for denial. CMS does not approve a request for a withdrawal from a benefit stabilization fund if the withdrawal would allow the HMO or CMP to—
(1) Offer without charge the supplemental services it provides to its Medicare enrollees under the provisions of § 417.440 (b)(2) or (b)(3); or
(2) Refinance prior contract period losses or to avoid losses in the upcoming contract period.
(d) Form of payment. Payment of monies withdrawn from a benefit stabilization fund is made, in equal parts, as an additional amount to the monthly advance payment made to the HMO or CMP under § 417.584 during the period of the contract.
§ 417.598   Annual enrollment reconciliation.
CMS's payment to an HMO or CMP may be subject to an enrollment reconciliation at least annually. CMS conducts this reconciliation as necessary to ensure that the payments made do not exceed or fall short of the appropriate per capita rate of payment for each Medicare enrollee of the HMO or CMP during the contract period. The HMO or CMP must submit any information or reports required by CMS to conduct the reconciliation.
§ 417.600   Basis and scope.
(a) Statutory basis. (1) Section 1869 of the Act provides the right to a redetermination, reconsideration, hearing, and judicial review for individuals dissatisfied with a determination regarding their Medicare benefits.
(2) Section 1876 of the Act provides for Medicare payments to HMOs and CMPs that contract with CMS to enroll Medicare beneficiaries and furnish Medicare-covered health care services to them.
(3) Section 234 of the MMA requires section 1876 contractors to operate under the same provisions as MA plans where two plans of the same type enter the cost plan contract's service area.
(b) Applicability. (1) The rights, procedures, and requirements relating to beneficiary appeals and grievances set forth in subpart M of part 422 of this chapter also apply to Medicare contracts with HMOs and CMPs under section 1876 of the Act.
(2) In applying those provisions, references to section 1852 of the Act must be read as references to section 1876 of the Act, and references to MA organizations as references to HMOs and CMPs.
§ 417.640   Applicability.
(a) The rights, procedures, and requirements relating to contract determinations and appeals set forth in part 422 subpart N of this chapter also apply to Medicare contracts with HMOs or CMPs under section 1876 of the Act.
(b) In applying paragraph (a) of this section, references to part 422 of this chapter must be read as references to this part and references to MA organizations must be read as references to HMOs or CMPs.
§ 417.800   Payment to HCPPs: Definitions and basic rules.
(a) Definitions. As used in this subpart, unless the context indicates otherwise—
Covered Part B services means physicians' services, diagnostic X-ray tests, laboratory, other diagnostic tests, and any additional medical and other health services, that the HCPP furnishes to its Medicare enrollees.
Health care prepayment plan (HCPP) means an organization that meets the following conditions:
(1) Effective January 1, 1999, (or on the effective date of the HCPP agreement in the case of a 1998 applicant) either—
(A) Is union or employer sponsored; or
(B) Does not provide, or arrange for the provision of, any inpatient hospital services.
(2) Is responsible for the organization, financing, and delivery of covered Part B services to a defined population on a prepayment basis.
(3) Meets the conditions specified in paragraph (b) of this section.
(4) Elects to be reimbursed on a reasonable cost basis.
Medicare enrollee means a beneficiary under Part B of Medicare who has been identified on CMS records as an enrollee of the HCPP. Reporting period means the period specified by CMS for which an HCPP must report its costs and utilization.
(b) Qualifying conditions. (1) Except as provided in paragraph (b)(2) of this section, an organization wishing to participate as an HCPP must—
(i) Enter into a written agreement with CMS as specified in § 417.801;
(ii) Furnish physicians' services through its employees or under a formal arrangement with a medical group, independent practice association or individual physicians; and
(iii) Furnish covered Part B services to its Medicare enrollees through institutions, entities, and persons that have qualified under the applicable requirements of title XVIII of the Social Security Act and section 353 of the PHS Act.
(2) An organization that, as of January 31, 1983, was being reimbursed on a reasonable cost basis under section 1833(a)(1)(A) of the Act, and that would not otherwise meet the conditions specified in paragraph (b)(1) of this section, may receive reimbursement on a reasonable cost basis as an HCPP, provided it files an agreement with CMS as required by § 417.801.
(c) Payment of reasonable cost. (1) Except as otherwise provided in this subpart, CMS pays an HCPP on the basis of the reasonable cost it incurs, as specified in subpart O of this part, for the covered Part B services furnished to its Medicare enrollees.
(2) Payment for Part B services: Basic rules —(i) Cost basis payment. Except as provided in paragraph (d) of this section, CMS pays an HCPP on the basis of the reasonable costs it incurs, as specified in subpart O of this part, for the covered Part B services furnished to its Medicare enrollees.
(ii) Deductions. In determining the amount due an HCPP for covered Part B services furnished to its Medicare enrollees, CMS deducts, from the reasonable cost actually incurred by the HCPP, the following:
(A) The actuarial value of the Part B deductible.
(B) An amount equal to 20 percent of the cost incurred for any service that is subject to the Medicare coinsurance.
(d) Covered services not reimbursed to an HCPP. (1) Services reimbursed under Part A are not reimbursable to an HCPP. CMS makes payment for these services directly to the hospital, or other provider of services, on a reasonable cost basis through the provider's Medicare fiscal intermediary (for more details, see parts 412 and 413 of this chapter).
(2) Covered Part B services furnished by a provider of services to an HCPP's Medicare enrollees are not payable to the HCPP. CMS makes payment for these services to the provider on behalf of the Medicare enrollee through the provider's Medicare fiscal intermediary. This requirement does not affect Medicare payment to the HCPP for physicians' services furnished to its Medicare enrollees for which the physicians are compensated by the HCPP.
(e) Payment for services to nonenrollees. CMS makes payment to an HCPP for covered Part B services furnished by the HCPP to a Medicare beneficiary who is not enrolled in the HCPP if the beneficiary assigns his rights to payment in accordance with § 424.55 of this chapter. Payment is made on a reasonable charge basis through the HCPP's Medicare carrier.
§ 417.801   Agreements between CMS and health care prepayment plans.
(a) General requirement. (1) In order to participate and receive payment under the Medicare program as an HCPP as defined in § 417.800, an organization must enter into a written agreement with CMS.
(2) An existing group practice prepayment plan (GPPP) that continues as an HCPP under this subpart U must have entered into a written agreement with CMS within 60 days of January 31, 1983.
(b) Terms. The agreement must provide that the HCPP agrees to—
(1) Maintain compliance with the requirements for participation and reimbursement on a reasonable cost basis of HCPPs as specified in § 417.800;
(2) Not charge the Medicare enrollee or any other person for items or services for which that enrollee is entitled to have payment made under the provisions of this part, except for any deductible or coinsurance amounts for which the enrollee is liable;
(3) Refund, as promptly as possible, any money incorrectly collected as charges or premiums, or in any other way from Medicare enrollees in the HCPP in accordance with the requirements specified in § 417.456;
(4) Not impose any limitations on the acceptance of Medicare enrollees or beneficiaries for care and treatment that it does not impose on all other individuals;
(5) Meet the advance directives requirements specified in § 417.436(d) of this part;
(6) Establish administrative review procedures in accordance with §§ 417.830 through 417.840 for Medicare enrollees who are dissatisfied with denied services or claims; and
(7) Consider any additional requirements that CMS finds necessary or desirable for efficient and effective program administration.
(c) Duration of agreement. Except for the term of the initial agreement, the agreement is for a term of one year and may be renewed annually by mutual consent. The term of the initial agreement is set by CMS.
(d) Termination or nonrenewal of agreement by CMS. (1) CMS may terminate or not renew an agreement if it determines that—
(i) The HCPP no longer meets the requirements for participation and reimbursement as an HCPP as specified in § 417.800;
(ii) The HCPP is not in substantial compliance with the provisions of the agreement, applicable CMS regulations, or applicable provisions of the Medicare law. This includes, but is not limited to, the following:
(A) Failure to provide for and document adequate access to providers.
(B) Failure to comply with CMS requirements concerning provision of data and maintenance of records.
(C) Failure to comply with financial requirements specified at § 417.806; or
(iii) The HCPP undergoes a change in ownership as specified in subpart M of this part.
(2) CMS will give notice of termination or nonrenewal to the HCPP at least 90 days before the effective date stated in the notice.
(e) Termination or nonrenewal of agreement by HCPP. (1) If an HCPP does not wish to renew its agreement at the end of the term, it must give written notice to CMS at least 90 days before the end of the term of the agreement. If an HCPP wishes to terminate its agreement before the end of the term, it must file a written notice with CMS stating the intended effective date of termination.
(2) CMS may approve the termination date proposed by the HCPP, or set a different date no later than 6 months after that date. CMS makes this decision based on a finding that termination on a specific date would not—
(i) Unduly disrupt the furnishing of services to the community serviced by the HCPP; or
(ii) Otherwise interfere with the efficient administration of the Medicare program.
§ 417.802   Allowable costs.
(a) General rule. The costs that are considered allowable for HCPP reimbursement are the same as those for reasonable cost HMOs and CMPs specified in subpart O of this part, except those in §§ 417.531, 417.532 (a)(3) and (c) through (g), 417.536 (l) and (m), 417.546, 417.548, and 417.550(b)(2).
(b) Physicians' services and other Part B supplier services furnished under arrangements —(1) Principle. The amount paid by an HCPP for physicians' services and other Part B supplier services furnished under arrangements is an allowable cost to the extent it is reasonable.
(2) Application: Payment on other than a fee-for-service basis. If the HCPP pays for physicians' services and other Part B supplier services on other than a fee-for-service basis—
(i) Except as specified in paragraph (b)(2)(ii) of this section, the costs incurred by the HCPP may be considered reasonable if they—
(A) Do not exceed those that a prudent and cost-conscious buyer would incur to purchase those services; and
(B) Are comparable to costs incurred for similar services furnished by similar physicians and other suppliers in the same or a similar locality.
(ii)(A) If a physician group to whom the HCPP makes payment compensates its physicians on a fee-for-service basis, the HCPP's payment to the group may not exceed the reasonable charges for those services, as defined in subpart E of part 405 of this chapter.
(B) Payment in excess of the limits specified in paragraph (b)(2)(ii)(A) of this section is allowable if the group has procedures under which members of the group accept effective incentives, such as risk-sharing, designed to avoid unnecessary or unduly costly utilization of health services. In such cases, the amount paid by the HCPP is considered reasonable if it meets the conditions specified in paragraph (b)(2)(i) of this section.
(3) Application: Payment on a fee-for-service basis. If the HCPP pays for physicians' services and other Part B supplier services on a fee-for-service basis—
(i) Except as specified in paragraph (b)(3)(ii) of this section, the costs incurred by the HCPP are considered reasonable if they do not exceed—
(A) The reasonable charges for those services, as defined in subpart E of part 405 of this chapter; and
(B) The amount that CMS would pay for those services if they were furnished to beneficiaries who are not enrolled in the HCPP and who receive the services from sources other than providers of services or other entities that are reimbursed on a reasonable cost basis.
(ii) Payment to a physician group organized on an individual-practice basis is not subject to the paragraph (b)(3)(i) of this section if the group pays its physicians on a fee-for-service basis and has procedures under which the members of the group accept effective incentives, such as risk-sharing, designed to avoid unnecessary or unduly costly utilization of health services. In these cases, the amount paid by an HCPP is considered reasonable if it meets the conditions specified in paragraph (b)(2)(i) of this section.
§ 417.804   Cost apportionment.
(a) The HCPP follows the cost apportionment principles specified in §§ 417.552 through 417.566, except for provisions on provider costs and provisions on departmental apportionment.
(b) The HCPP may use a method for reporting costs that is approved by CMS. CMS bases its approval on a finding that the method—
(1) Results in an accurate and equitable allocation of allowable costs; and
(2) Is justifiable from an administrative and cost efficiency standpoint.
§ 417.806   Financial records, statistical data, and cost finding.
(a) The principles specified in § 417.568 apply to HCPPs, except those in paragraph (c) of that section.
(b) The HCPP may use a method for reporting costs that is approved by CMS. CMS bases its approval on a finding that the method—
(1) Results in an accurate and equitable allocation of allowable costs; and
(2) Is justifiable from an administrative and cost efficiency standpoint.
(c) An HCPP must permit the Department and the Comptroller General to audit or inspect any books and records of the HCPP and of any related organization that pertain to the determination of amounts payable for covered Part B services furnished its Medicare enrollees. For purposes of this requirement, the principles specified in § 417.486 apply to HCPPs.
§ 417.808   Interim per capita payments.
The HCPP follows the principles specified in §§ 417.570 and 417.572 on interim per capita payments, except for the following:
(a) When applying these principles to HCPPs, the term “reporting period” should be used instead of the term “contract period” contained in that section.
(b) An HCPP must submit to CMS an annual operating budget and enrollment forecast, in the form and detail specified by CMS, at least 60 days before the beginning of each reporting period. A reporting period must be 12 consecutive months, except that the HCPP's initial reporting period for participating in Medicare may be as short as 6 months or as long as 18 months.
(c) An HCPP must submit to CMS an interim cost report and enrollment data applicable to the first 6-month period of the HCPP's reporting period in the form and detail specified by CMS. The interim cost report must be submitted not later than 45 days after the close of the first 6-month period of the HCPP's reporting period.
(d) In lieu of an interim payment based on the actual monthly enrollment in an HCPP, CMS and the HCPP may agree to a uniform monthly interim reimbursement rate for a reporting period. This interim rate is based on the HCPP's budget and enrollment forecast, if CMS is satisfied that the rate is consistent with efficiency and economy, and will not result in excessive adjustment at the end of the reporting period.
§ 417.810   Final settlement.
(a) General requirement. CMS and an HCPP must make a final settlement, and payment of amounts due either to the HCPP or to CMS, following the submission and review of the HCPP's annual cost report and the supporting documents specified in paragraph (b) of this section.
(b) Annual cost report as basis for final settlement —(1) Form and due date. An HCPP must submit to CMS a cost report and supporting documents in the form and detail specified by CMS, no later than 120 days following the close of a reporting period.
(2) Contents. The report must include—
(i) The HCPP's per capita incurred costs of providing covered Part B services to its Medicare enrollees during the reporting period, including any costs incurred by another organization related to the HCPP by common ownership or control;
(ii) The HCPP's methods of apportioning costs among its Medicare enrollees, enrollees who are not Medicare beneficiaries, and other nonenrollees, including Medicare beneficiaries receiving health care services on a fee-for-service or other basis; and
(iii) Information on enrollment and other data as specified by CMS.
(3) Extension of time to submit cost report. CMS may grant an HCPP an extension of time to submit a cost report for good cause shown.
(4) Failure to report required financial information. If an HCPP does not submit the required cost report and supporting documents within the time specified in paragraph (b)(1) of this section, and has not requested and received an extension of time for good cause shown, CMS may—
(i) Regard the failure to report this information as evidence of likely overpayment and reduce or suspend interim payments to the HCPP; and
(ii) Determine that amounts previously paid are overpayments, and make appropriate recovery.
(c) Determination of final settlement. Following the HCPP's submission of the reports specified in paragraph (b) of this section in acceptable form, CMS makes a determination of the total reimbursement due the HCPP for the reporting period and the difference, if any, between this amount and the total interim payments made to the HCPP. CMS sends to the HCPP a notice of the amount of reimbursement by the Medicare program. This notice—
(1) Explains CMS's determination of total reimbursement due the HCPP for the reporting period; and
(2) Informs the HCPP of its right to have the determination reviewed at a hearing in accordance with the requirements specified in § 405.1801(b)(2) of this chapter.
(d) Payment of amounts due. (1) Within 30 days of CMS's determination, CMS or the HCPP, as appropriate, will make payment of any difference between the total amount due and the total interim payments made to the HCPP by CMS.
(2) If the HCPP does not pay CMS within 30 days of CMS's determination of any amounts the HCPP owes CMS, CMS may offset further payments to the HCPP to recover, or to aid in the recovery of, any overpayment identified in its determination.
(3) Any offset of payments CMS makes under paragraph (d)(2) of this section will remain in effect even if the HCPP has requested a hearing in accordance with the requirements specified in § 405.1801(b)(2) of this chapter.
(e) Tentative settlement. (1) If a final settlement cannot be made within 90 days after the HCPP submits the report specified in paragraph (b) of this section, CMS will make an interim settlement by estimating the amount payable to the HCPP.
(2) CMS or the HCPP will make payment within 30 days of CMS's determination under the tentative settlement of any estimated amounts due.
(3) The tentative settlement is subject to adjustment at the time of a final settlement.
§ 417.830   Scope of regulations on beneficiary appeals.
Sections 417.832 through 417.840 establish procedures for the presentation and resolution of organization determinations, reconsiderations, hearings, Departmental Appeals Board review, court reviews, and finality of decisions that are applicable to Medicare enrollees of an HCPP.
§ 417.832   Applicability of requirements and procedures.
(a) The administrative review rights and procedures specified in §§ 417.834 through 417.840 pertain to disputes involving an organization determination, as defined in § 417.838, with which the enrollee is dissatisfied.
(b) Physicians and other individuals who furnish items or services under arrangements with an HCPP have no right of administrative review under §§ 417.834 through 417.840.
(c) The provisions of part 405 dealing with the representation of parties apply to organization determinations and appeals.
(d) The provisions of part 405 dealing with administrative law judge hearings, Medicare Appeals Council review, and judicial review are applicable, unless otherwise provided.
§ 417.834   Responsibility for establishing administrative review procedures.
The HCPP is responsible for establishing and maintaining the administrative review procedures that are specified in §§ 417.830 through 417.840.
§ 417.836   Written description of administrative review procedures.
Each HCPP is responsible for ensuring that all Medicare enrollees are informed in writing of the administrative review procedures that are available to them.
§ 417.838   Organization determinations.
(a) Actions that are organization determinations. For purposes of §§ 417.830 through 417.840, an organization determination is a refusal to furnish or arrange for services, or reimburse the party for services provided to the beneficiary, on the grounds that the services are not covered by Medicare.
(b) Actions that are not organization determinations. The following are not organization determinations for purposes of §§ 417.830 through 417.840:
(1) A determination regarding services that were furnished by the HCPP, either directly or under arrangement, for which the enrollee has no further obligation for payment.
(2) A determination regarding services that are not covered under the HCPP's agreement with CMS.
§ 417.840   Administrative review procedures.
The HCPP must apply § 422.568 through § 422.626 of this chapter to—
(a) Organization determinations and fast-track appeals that affect its Medicare enrollees; and
(b) Reconsiderations, hearings, Medicare Appeals Council review, and judicial review of the organization determinations and fast-track appeals specified in paragraph (a) of this section.
§ 417.910   Applicability.
The regulations in this subpart apply, as appropriate, to public and private entities that have loans or loan guarantees that—
(a) Were awarded to them before October 1986 under section 1304 or section 1305 of the PHS Act; and
(b) Are still outstanding.
§ 417.911   Definitions.
As used in this subpart—
Any 12-month period means the 12-month period beginning on the first day of any month.
Expansion of services means—
(1) The addition of any health service not previously provided by or through the HMO, that requires an increase in the facilities, equipment, or health professionals of the HMO; or
(2) The improvement or upgrading of existing facilities or equipment, or an increase in the number of categories of health professionals, of the HMO so that the HMO could provide directly services that it previously provided through contract or referral or which it could not previously provide with its existing facilities or equipment.
First 60 months of operation or expansion means the 60-month period beginning on the first day of the month during which the HMO first provided services to enrollees, or in the case of significant expansion, first provided services in accordance with its expansion plan.
Health system agency means an entity that has been designated in accordance with section 1515 of the PHS Act; and the term State health planning and development agency means an agency that has been designated in accordance with section 1521 of the PHS Act.
Initial costs of operation means any cost incurred in the first 60 months of an operation or expansion that met any of the following requirements:
(1) Under generally accepted accounting principles or under accounting practices prescribed or permitted by State regulatory authority, was not a capital cost.
(2) Was required by State regulatory authority to meet reserves or tangible net equity requirements.
(3) Was for a payment made to reduce balance sheet liabilities existing at the beginning of the 60-month period, but only if—
(i) The payment had been approved in writing by the Secretary; and
(ii) The total of these payments did not exceed 20 percent of the amount of the loan.
(4) Was for a small capital expenditure, but only if—
(i) The cost had been approved in writing by the Secretary; and
(ii) The total of these costs did not exceed $200,000 in any 12-month period, and $400,000 during the first 60 months of operation or expansion.
Nonprofit as applied to a private entity, means a private agency, institution, or organization, no part of the net earnings of which inures, or may lawfully inure, to the benefit of any private shareholder or individual.
Significant expansion means—
(1) A planned substantial increase in the enrollment of the HMO, that requires an increase in the number of health professionals serving enrollees of the HMO or an expansion of the physical capacity of the HMO's total health facilities; or
(2) A planned expansion of the service area beyond the current service area, that would be made possible by the addition of health service delivery facilities and health professionals to serve enrollees at a new site or sites in areas previously without service sites.
Small capital expenditure means expenditures for—
(1) Equipment as defined in 45 CFR 75.2; or
(2) Alterations and renovations required to change the interior arrangements or other physical characteristics of an existing facility or installed equipment, so that it may be more effectively used for its currently designated purpose, or adapted to a changed use.
§ 417.920   Planning and initial development.
(a) Under section 1304 of the PHS Act, grants and loan guarantees were awarded for projects for planning and initial development of HMOs.
(b) Planning projects included projects for any of the following:
(1) Establishment of an HMO.
(2) Significant expansion of the HMO's enrollment or geographic area.
(c) Initial development projects included projects for any of the following:
(1) Establishment of an HMO.
(2) Significant expansion of the HMO's enrollment or geographic area.
(3) Expansion of the range or amount of services furnished by the HMO.
§ 417.930   Initial costs of operation.
Under section 1305 of the PHS, loans and loan guarantees were awarded for initial costs of operation of HMOs.
§ 417.931   [Reserved]
§ 417.934   Reserve requirement.
(a) Timing. Unless the Secretary approved a longer period, an entity that received a loan or loan guarantee under section 1305 of the PHS Act was required to establish a restricted reserve account on the earlier of the following:
(1) When the HMO's revenues and costs of operation reached the break-even point.
(2) At the end of the 60-month period following the Secretary's endorsement of the loan or loan guarantee.
(b) Purpose and amount of reserve. The reserve had to be constituted so as to accumulate, no later than 12 years after endorsement of the loan or loan guarantee, an amount equal to 1 year's principal and interest.
§ 417.937   Loan and loan guarantee provisions.
(a) Disbursement of loan proceeds. The principal amount of any loan made or guaranteed by the Secretary under this subpart was disbursed to the entity in accordance with an agreement entered into between the parties to the loan and approved by the Secretary.
(b) Length and maturity of loans. The principal amount of each loan or loan guarantee, together with interest thereon, is repayable over a period of 22 years, beginning on the date of endorsement of the loan, or loan guarantee by the Secretary. The Secretary could approve a shorter repayment period if he or she determined that a repayment period of less than 22 years is more appropriate to an entity's total financial plan.
(c) Repayment. The principal amount of each loan or loan guarantee, together with interest thereon is repayable in accordance with a repayment schedule that is agreed upon by the parties to the loan or loan guarantee and approved by the Secretary before or at the time of endorsement of the loan. Unless otherwise specifically authorized by the Secretary, each loan made or guaranteed by the Secretary is repayable in substantially level combined installments of principal and interest to be paid at intervals not less frequently than annually, sufficient in amount to amortize the loan through the final year of the life of the loan. Principal repayment during the first 60 months of operation could be deferred with payment of interest only during that period. The Secretary could set rates of interest for each disbursement at a rate comparable to the rate of interest prevailing on the date of disbursement for marketable obligations of the United States of comparable maturities, adjusted to provide for appropriate administrative charges.
§ 417.940   Civil action to enforce compliance with assurances.
The provisions of § 417.163(g) apply to entities that have outstanding loans or loan guarantees administered under this subpart.