21432 Federal Register / Vol. 76, No. 73 / Friday, April 15, 2011 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 417, 422, and 423 

[CMS–4144–F] 

RIN 0938–AQ00 

Medicare Program; Changes to the 

Medicare Advantage and the Medicare 

Prescription Drug Benefit Programs for 

Contract Year 2012 and Other Changes 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule makes 

revisions to the Medicare Advantage 

(MA) program (Part C) and Prescription 

Drug Benefit Program (Part D) to 

implement provisions specified in the 

Patient Protection and Affordable Care 

Act and the Health Care and Education 

Reconciliation Act of 2010 (collectively 

referred to as the Affordable Care Act) 

(ACA) and make other changes to the 

regulations based on our experience in 

the administration of the Part C and Part 

D programs. These latter revisions 

clarify various program participation 

requirements; make changes to 

strengthen beneficiary protections; 

strengthen our ability to identify strong 

applicants for Part C and Part D program 

participation and remove consistently 

poor performers; and make other 

clarifications and technical changes. 

DATES: Effective Dates: These 

regulations are effective on June 6, 2011, 

unless otherwise specified in this final 

rule. Amendments to 42 CFR 422.564, 

422.624, and 422.626 published April 4, 

2003 at 68 FR 16652 are effective June 

6, 2011. 

Applicability Date: In section II.A. of 

the preamble of this final rule, we 

provide a table (Table 1) which lists key 

changes in this final rule that have an 

applicability date other than the 

effective 60 days after the date of 

display of this final rule. 

FOR FURTHER INFORMATION CONTACT: 

Vanessa Duran, (410) 786–8697, 

Christopher McClintick, (410) 786– 

4682, and Sabrina Ahmed, (410) 786– 

7499, General information. 

Heather Rudo, (410) 786–7627 and 

Christopher McClintick, (410) 786– 

4682, Part C issues. 

Deborah Larwood, (410) 786–9500, 

Part D issues. 

Kristy Nishimoto, (410) 786–8517, 

Part C and Part D enrollment and 

appeals issues. 

Deondra Moseley, (410) 786–4577, 

Part C payment issues. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

II. Provisions of the Final Regulations and 

Analysis of and Responses to Public 

Comments 

A. Overview of the Final Changes and 

Public Comments Received 

1. Overview of the Final Changes 

2. Public Comments Received on the 

Proposed Rule 

B. Changes to Implement the Provisions of 

the Affordable Care Act 

1. Cost Sharing for Specified Services at 

Original Medicare Levels (§ 417.454 and 

§ 422.100) 

2. Simplification of Beneficiary Election 

Periods (§ 422.62, § 422.68, § 423.38, and 

§ 423.40) 

3. Special Needs Plan (SNP) Provisions 

(§ 422.2, § 422.4, § 422.101, § 422.107, 

and § 422.152) 

a. Adding a Definition of Fully Integrated 

Dual Eligible SNP (§ 422.2) 

b. Extending SNP Authority 

c. Dual-Eligible SNP Contracts With State 

Medicaid Agencies (§ 422.107) 

d. Approval of Special Needs Plans by the 

National Committee for Quality 

Assurance (§§ 422.4, 422.101, and 

422.152) 

4. Section 1876 Cost Contractor 

Competition Requirements (§ 417.402) 

5. Making Senior Housing Facility 

Demonstration Plans Permanent (§ 422.2 

and § 422.53) 

6. Authority to Deny Bids (§ 422.254, 

§ 422.256, § 423.265, and § 423.272) 

7. Determination of Part D Low-Income 

Benchmark Premium (§ 423.780) 

8. Voluntary De Minimis Policy for 

Subsidy Eligible Individuals (§ 423.34 

and § 423.780) 

a. Reassigning LIS Individuals (§ 423.34) 

b. Enrollment of LIS-Eligible Individuals 

(§ 423.34) 

c. Premium Subsidy (§ 423.780) 

9. Increase In Part D Premiums Due to the 

Income Related Monthly Adjustment 

Amount (D–IRMAA) (§ 423.44, 

§ 423.286, and § 423.293) 

a. Rules Regarding Premiums (§ 423.286) 

b. Collection of Monthly Beneficiary 

Premium (§ 423.293) 

c. Involuntary Disenrollment by CMS 

(§ 423.44) 

10. Elimination of Medicare Part D CostSharing for Individuals Receiving Home 

and Community-Based Services 

(§ 423.772 and § 423.782) 

11. Appropriate Dispensing of Prescription 

Drugs in Long-Term Care Facilities 

Under PDPs and MA–PD Plans 

(§ 423.154) 

12. Complaint System for Medicare 

Advantage Organizations and PDPs 

(§ 422.504 and § 423.505) 

13. Uniform Exceptions and Appeals 

Process for Prescription Drug Plans and 

MA–PD Plans (§ 423.128 and § 423.562) 

14. Including Costs Incurred by AIDS Drug 

Assistance Programs and the Indian 

Health Service Toward the Annual Part 

D Out-of-Pocket Threshold (§ 423.100 

and § 423.464) 

15. Cost Sharing for Medicare-Covered 

Preventive Services (§ 417.454 and 

§ 422.100) 

16. Elimination of the Stabilization Fund 

(§ 422.458) 

17. Improvements to Medication Therapy 

Management Programs (§ 423.153) 

18. Changes to Close the Part D Coverage 

Gap (§ 423.104 and § 423.884) 

19. Payments to Medicare Advantage 

Organizations (§ 422.308) 

a. Authority to Apply Frailty Adjustment 

Under PACE Payment Rules for Certain 

Specialized MA Plans for Special Needs 

Individuals (§ 422.308) 

b. Application of Coding Adjustment 

(§ 422.308) 

c. Improvements to Risk Adjustment for 

Special Needs Individuals With Chronic 

Health Conditions (§ 422.308) 

20. Medicare Advantage Benchmark, 

Quality Bonus Payments, and Rebate 

(§ 422.252, § 422.258, and § 422.266) 

a. Terminology (§ 422.252) 

b. Calculation of Benchmarks (§ 422.258) 

c. Increases to the Applicable Percentage 

for Quality (§ 422.258(d)) 

d. Beneficiary Rebates (§ 422.266) 

21. Quality Bonus Payment and Rebate 

Retention Appeals (§ 422.260) 

C. Clarify Various Program Participation 

Requirements 

1. Clarify Payment Rules for Non-Contract 

Providers (§ 422.214) 

2. Pharmacist Definition (§ 423.4) 

3. Prohibition on Part C and Part D 

Program Participation by Organizations 

Whose Owners, Directors, or 

Management Employees Served in a 

Similar Capacity With Another 

Organization That Terminated its 

Medicare Contract Within the Previous 2 

Years (§ 422.506, § 422.508, § 422.512, 

§ 423.507, § 423.508, and § 423.510) 

4. Timely Transfer of Data and Files When 

CMS Terminates a Contract With a Part 

D Sponsor (§ 423.509) 

5. Review of Medical Necessity Decisions 

by a Physician or Other Health Care 

Professional and the Employment of a 

Medical Director (§ 422.562, § 422.566, 

§ 423.562, and § 423.566) 

6. Compliance Officer Training (§ 422.503 

and § 423.504) 

7. Removing Quality Improvement Projects 

and Chronic Care Improvement Programs 

from CMS Deeming Process (§ 422.156) 

8. Definitions of Employment-Based 

Retiree Health Coverage and Group 

Health Plan for MA Employer/UnionOnly Group Waiver Plans (§ 422.106) 

D. Strengthening Beneficiary Protections 

1. Agent and Broker Training Requirements 

(§ 422.2274 and § 423.2274) 

a. CMS-Approved or Endorsed Agent and 

Broker Training and Testing (§ 422.2274 

and § 423.2274) 

b. Extending Annual Training 

Requirements to All Agents and Brokers 

(§ 422.2274 and § 423.2274) 

2. Call Center and Internet Web site 

Requirements (§ 422.111 and § 423.128) 

a. Extension of Customer Call Center and 

Internet Web site Requirements to MA 

Organizations (§ 422.111) 

b. Call Center Interpreter Requirements 

(§ 422.111 and § 423.128) 


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3. Require Plan Sponsors to Contact 

Beneficiaries to Explain Enrollment by 

an Unqualified Agent/Broker (§ 422.2272 

and § 423.2272) 

4. Customized Enrollee Data (§ 422.111 and 

§ 423.128) 

5. Extending the Mandatory Maximum 

Out-of-Pocket (MOOP) Amount 

Requirements to Regional PPOs 

(§ 422.100 and § 422.101) 

6. Prohibition on Use of Tiered Cost 

Sharing by MA Organizations (§ 422.262) 

7. Delivery of Adverse Coverage 

Determinations (§ 423.568) 

8. Extension of Grace Period for Good 

Cause and Reinstatement (§ 422.74 and 

§ 423.44) 

9. Translated Marketing Materials 

(§ 422.2264 and § 423.2264) 

E. Strengthening Our Ability to Distinguish 

for Approval Stronger Applicants for 

Part C and Part D Program Participation 

and to Remove Consistently Poor 

Performers 

1. Expand Network Adequacy 

Requirements to All MA Plan Types 

(§ 422.112) 

2. Maintaining a Fiscally Sound Operation 

(§ 422.2, § 422.504, § 423.4, and 

§ 423.505) 

3. Release of Part C and Part D Payment 

Data (§ 422.504, § 423.505, and 

§ 423.884) 

4. Required Use of Electronic Transaction 

Standards for Multi-Ingredient Drug 

Compounds; Payment for MultiIngredient Drug Compounds (§ 423.120) 

5. Denial of Applications Submitted by 

Part C and Part D Sponsors With Less 

Than 14 Months Experience Operating 

Their Medicare Contracts (§ 422.502 and 

§ 423.503) 

F. Other Clarifications and Technical 

Changes 

1. Clarification of the Expiration of the 

Authority To Waive the State Licensure 

Requirement for Provider-Sponsored 

Organizations (§ 422.4) 

2. Cost Plan Enrollment Mechanisms 

(§ 417.430) 

3. Fast-track Appeals of Service 

Terminations to Independent Review 

Entities (IREs) (§ 422.626) 

4. Part D Transition Requirements 

(§ 423.120) 

5. Revision to Limitation on Charges to 

Enrollees for Emergency Department 

Services (§ 422.113) 

6. Clarify Language Related to Submission 

of a Valid Application (§ 422.502 and 

§ 423.503) 

7. Modifying the Definition of Dispensing 

Fees (§ 423.100) 

III. Collection of Information Requirements 

A. ICRs Regarding Cost Sharing for 

Specified Services at Original Medicare 

Levels (§ 417.454 and § 422.100) 

B. ICRs Regarding SNP Provisions 

(§ 422.101, § 422.107, and § 422.152) 

1. Dual-Eligible SNP Contracts with State 

Medicaid Agencies (§ 422.107) 

2. ICRs Regarding NCQA Approval of SNPs 

(§ 422.101 and § 422.152) 

C. ICRs Regarding Voluntary De Minimis 

Policy for Subsidy Eligible Individuals 

(§ 423.34 and § 423.780) 

D. ICRs Regarding Increase In Part D 

Premiums Due to the Income Related 

Monthly Adjustment Amount (D– 

IRMAA) (§ 423.44) 

E. ICRs Regarding Elimination of Medicare 

Part D Cost-Sharing for Individuals 

Receiving Home and Community-Based 

Services (§ 423.772 and § 423.782) 

F. ICRs Regarding Appropriate Dispensing 

of Prescription Drugs in Long-Term Care 

Facilities Under PDPs and MA–PD plans 

(§ 423.154) and Dispensing Fees 

(§ 423.100) 

G. ICRs Regarding Complaint System for 

Medicare Advantage Organizations and 

PDPs (§ 422.504 and § 423.505) 

H. ICRs Regarding Uniform Exceptions and 

Appeals Process for Prescription Drug 

Plans and MA–PD Plans (§ 423.128 and 

§ 423.562) 

I. ICRs Regarding Including Costs Incurred 

by AIDS Drug Assistance Programs and 

the Indian Health Service Toward the 

Annual Part D Out-of-Pocket Threshold 

(§ 423.100 and § 423.464) 

J. ICRs Regarding Improvements to 

Medication Therapy Management 

Programs (§ 423.153) 

K. ICRs Regarding Changes to Close the 

Part D Coverage Gap (§ 423.104 and 

§ 423.884) 

L. ICRs Regarding Medicare Advantage 

Benchmark, Quality Bonus Payments, 

and Rebate (§ 422.252, § 422.258 and 

§ 422.266) 

M. ICRs Regarding Quality Bonus Appeals 

(§ 422.260) 

N. ICRs Regarding Timely Transfer of Data 

and Files When CMS Terminates a 

Contract With a Part D Sponsor 

(§ 423.509) 

O. ICRs Regarding Agent and Broker 

Training Requirements (§ 422.2274 and 

§ 423.2274) 

P. ICRs Regarding Call Center and Internet 

Web site Requirements (§ 422.111 and 

§ 423.128) 

Q. ICRs Regarding Requiring Plan Sponsors 

to Contact Beneficiaries to Explain 

Enrollment by an Unqualified Agent/ 

Broker (§ 422.2272 and § 423.2272) 

R. ICRs Regarding Customized Enrollee 

Data (§ 422.111 and § 423.128) 

S. ICRs Regarding Extending the 

Mandatory Maximum Out-of-Pocket 

(MOOP) Amount Requirements to 

Regional PPOs (§ 422.100(f) and 

§ 422.101(d)) 

T. ICRs Regarding Prohibition on Use of 

Tiered Cost Sharing by MA 

Organizations (§ 422.100 and § 422.262) 

U. ICRs Regarding Translated Marketing 

Materials (§ 422.2264 and § 423.2264) 

V. ICRs Regarding Expanding Network 

Adequacy Requirements to Additional 

MA Plan Types (§ 422.112) 

W. ICRs Regarding Maintaining a Fiscally 

Sound Operation (§ 422.2, § 422.504, 

§ 423.4, and § 423.505) 

X. ICRs Regarding Release of Part C and 

Part D Payment Data (Parts 422 and 423, 

Subpart K) 

Y. ICRs Regarding Revision to Limitation 

on Charges to Enrollees for Emergency 

Department Services (§ 422.113) 

IV. Regulatory Impact Analysis 

Regulations Text 

Acronyms 

ACA The Affordable Care Act of 2010 

(which is the collective term for the Patient 

Protection and Affordable Care Act (Pub. L. 

111–148) and the Health Care and 

Education Reconciliation Act (Pub. L. 111– 

152)) 

AO Accrediting Organization 

ADS Automatic Dispensing System 

AEP Annual Enrollment Period 

AHFS American Hospital Formulary 

Service 

AHFS–DI American Hospital Formulary 

Service-Drug Information 

AHRQ Agency for Health Care Research 

and Quality 

ALJ Administrative Law Judge 

ANOC Annual Notice of Change 

BBA Balanced Budget Act of 1997 (Pub. L. 

105–33) 

BBRA [Medicare, Medicaid and State Child 

Health Insurance Program] Balanced 

Budget Refinement Act of 1999 (Pub. L. 

106–113) 

BIPA Medicare, Medicaid, and SCHIP 

Benefits Improvement Protection Act of 

2000 (Pub. L. 106–554) 

CAHPS Consumer Assessment Health 

Providers Survey 

CAP Corrective Action Plan 

CCIP Chronic Care Improvement Program 

CCS Certified Coding Specialist 

CHIP Children’s Health Insurance Programs 

CMP Civil Money Penalties or Competitive 

Medical Plan 

CMR Comprehensive Medical Review 

CMS Centers for Medicare & Medicaid 

Services 

CMS–HCC CMS Hierarchal Condition 

Category 

CTM Complaints Tracking Module 

COB Coordination of Benefits 

CORF Comprehensive Outpatient 

Rehabilitation Facility 

CPC Certified Professional Coder 

CY Calendar year 

DOL U.S. Department of Labor 

DRA Deficit Reduction Act of 2005 (Pub. L. 

109–171) 

DUM Drug Utilization Management 

EGWP Employer Group/Union-Sponsored 

Waiver Plan 

EOB Explanation of Benefits 

EOC Evidence of Coverage 

ESRD End-Stage Renal Disease 

FACA Federal Advisory Committee Act 

FDA Food and Drug Administration (HHS) 

FEHBP Federal Employees Health Benefits 

Plan 

FFS Fee-For-Service 

FY Fiscal year 

GAO Government Accountability Office 

HCPP Health Care Prepayment Plans 

HEDIS HealthCare Effectiveness Data and 

Information Set 

HHS [U.S. Department of] Health and 

Human Services 

HIPAA Health Insurance Portability and 

Accountability Act of 1996 (Pub. L. 104– 

191) 

HMO Health Maintenance Organization 

HOS Health Outcome Survey 

HPMS Health Plan Management System 


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ICD–9–CM Internal Classification of 

Disease, 9th, Clinical Modification 

Guidelines 

ICEP Initial Coverage Enrollment Period 

ICL Initial Coverage Limit 

ICR Information Collection Requirement 

IRMAA Income-Related Monthly 

Adjustment Amount 

IVC Initial Validation Contractor 

LEP Late Enrollment Penalty 

LIS Low Income Subsidy 

LTC Long Term Care 

MA Medicare Advantage 

MAAA Member of the American Academy 

of Actuaries 

MA–PD Medicare Advantage—Prescription 

Drug Plans 

M+C Medicare +Choice program 

MOC Medicare Options Compare 

MPDPF Medicare Prescription Drug Plan 

Finder 

MIPPA Medicare Improvements for Patients 

and Providers Act of 2008 

MMA Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (Pub. L. 108–173) 

MSA Metropolitan Statistical Area 

MSAs Medical Savings Accounts 

MSP Medicare Secondary Payer 

MTM Medication Therapy Management 

MTMP Medication Therapy Management 

Program 

NAIC National Association Insurance 

Commissioners 

NCPDP National Council for Prescription 

Drug Programs 

NCQA National Committee for Quality 

Assurance 

NGC National Guideline Clearinghouse 

NIH National Institutes of Health 

NOMNC Notice of Medicare Non-coverage 

OEP Open Enrollment Period 

OIG Office of Inspector General 

OMB Office of Management and Budget 

OPM Office of Personnel Management 

OTC Over the Counter 

PART C Medicare Advantage 

PART D Medicare Prescription Drug Benefit 

Programs 

PBM Pharmacy Benefit Manager 

PDE Prescription Drug Event 

PDP Prescription Drug Plan 

PFFS Private Fee For Service Plan 

POS Point of service 

PPO Preferred Provider Organization 

PPS Prospective Payment System 

P&T Pharmacy & Therapeutics 

QIO Quality Improvement Organization 

QRS Quality Review Study 

PACE Programs of All Inclusive Care for the 

Elderly 

RADV Risk Adjustment Data Validation 

RAPS Risk Adjustment Payment System 

RHIA Registered Health Information 

Administrator 

RHIT Registered Health Information 

Technician 

SEP Special Enrollment Periods 

SHIP State Health Insurance Assistance 

Programs 

SNF Skilled Nursing Facility 

SNP Special Needs Plan 

SPAP State Pharmaceutical Assistance 

Programs 

SSA Social Security Administration 

SSI Supplemental Security Income 

TMR Targeted Medication Review 

TrOOP True Out-Of-Pocket 

U&C Usual and Customary 

USP U.S. Pharmacopoeia 

I. Background 

The Balanced Budget Act of 1997 

(BBA) (Pub. L. 105–33) established a 

new ‘‘Part C’’ in the Medicare statute 

(sections 1851 through 1859 of the 

Social Security Act (the Act) which 

established the current MA program 

(known as Medicare+Choice under the 

BBA). The Medicare Prescription Drug, 

Improvement, and Modernization Act of 

2003 (MMA) (Pub. L. 108–173) 

established the Part D program and 

made significant revisions to Part C 

provisions governing the Medicare 

Advantage (MA) program. The MMA 

directed that important aspects of the 

Part D program be similar to, and 

coordinated with, regulations for the 

MA program. Generally, the provisions 

enacted in the MMA took effect January 

1, 2006. The final rules implementing 

the MMA for the MA and Part D 

prescription drug programs appeared in 

the Federal Register on January 28, 

2005 (70 FR 4588 through 4741 and 70 

FR 4194 through 4585, respectively). 

As we have gained experience with 

the MA program and the prescription 

drug benefit program, we periodically 

have revised the Part C and Part D 

regulations to continue to improve or 

clarify existing policies and/or codify 

current guidance for both programs. In 

December 2007, we published a final 

rule with comment on contract 

determinations involving Medicare 

Advantage (MA) organizations and 

Medicare Part D prescription drug plan 

sponsors (72 FR 68700). In April 2008, 

we published a final rule to address 

policy and technical changes to the Part 

D program (73 FR 20486). In September 

2008 and January 2009, we finalized 

revisions to both the Medicare 

Advantage and Medicare prescription 

drug benefit programs (73 FR 54226 and 

74 FR 1494, respectively) to implement 

provisions in the Medicare 

Improvement for Patients and Providers 

Act (MIPPA) (Pub. L. 110–275), which 

contained provisions affecting both the 

Medicare Part C and Part D programs, 

and to make other policy changes and 

clarifications based on experience with 

both programs (73 FR 54208, 73 FR 

54226, and 74 FR 2881). We also 

clarified the MIPPA marketing 

provisions in a November 2008 interim 

final rule (73 FR 67407). 

Proposed and final rules addressing 

additional policy clarifications under 

the Part C and Part D programs appeared 

in the October 22, 2009 (74 FR 54634) 

and April 15, 2010 Federal Register (75 

FR 19678 through 19826), respectively. 

(These rules are hereinafter referred to 

as the October 2009 proposed rule and 

the April 2010 final rule, respectively.) 

As noted when issuing these rules, we 

believed that additional programmatic 

and operational changes were needed in 

order to further improve our oversight 

and management of the Part C and Part 

D programs, and to further improve a 

beneficiary’s experience under MA or 

Part D plans. 

Indeed, one of the primary reasons set 

forth in support of issuing our April 

2010 final rule was to address 

beneficiary concerns associated with the 

annual task of selecting a Part C or Part 

D plan from so many options. We noted 

that while it was clear that the Medicare 

Part C and Part D programs have been 

successful in providing additional 

health care options for beneficiaries, a 

significant number of beneficiaries have 

been confused by the array of choices 

provided and have found it difficult to 

make enrollment decisions that are best 

for them. Moreover, experience had 

shown that organizations submitting 

multiple bids under Part C and Part D 

had not consistently submitted benefit 

designs significantly different from each 

other, which we believed added to 

beneficiary confusion. For this reason, 

the April 2010 rule required that 

multiple plan submissions in the same 

area have significant differences from 

each other. Other changes set forth in 

the April 2010 final rule were aimed at 

strengthening existing beneficiary 

protections, improving payment rules 

and processes, enhancing our ability to 

pursue data collection for oversight and 

quality assessment, strengthening 

formulary policy, and finalizing a 

number of clarifications and technical 

corrections to existing policy. 

On November 22, 2010, a proposed 

rule (hereinafter referred to as the 

November 2010 proposed rule) 

appeared in the Federal Register (75 FR 

224), in which we proposed to continue 

our process of implementing 

improvements in policy consistent with 

those included in the April 2010 final 

rule, while also implementing changes 

to the Part C and Part D programs made 

by recent legislative changes. The 

Patient Protection and Affordable Care 

Act (Pub. L. 111–148) was enacted on 

March 23, 2010, as passed by the Senate 

on December 24, 2009, and the House 

on March 21, 2010. The Health Care and 

Education Reconciliation Act (Pub. L. 

111–152), which was enacted on March 

30, 2010, modified a number of 

Medicare provisions in Pub. L. 111–148 

and added several new provisions. The 

Patient Protection and Affordable Care 

Act (Pub. L. 111–148) and the Health 


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Care and Education Reconciliation Act 

(Pub. L. 111–152) are collectively 

referred to as the Affordable Care Act 

(ACA). The ACA includes significant 

reforms to both the private health 

insurance industry and the Medicare 

and Medicaid programs. Provisions in 

the ACA concerning the Part C and Part 

D programs largely focus on beneficiary 

protections, MA payments, and 

simplification of MA and Part D 

program processes. These provisions 

affect the way we implement our 

policies concerning beneficiary costsharing, assessing bids for meaningful 

differences, and ensuring that costsharing structures in a plan are 

transparent to beneficiaries and not 

excessive. Some of the other provisions 

for which we proposed revisions to the 

MA and Part D programs, based on the 

ACA and our experiences in 

administering the MA and Part D 

programs, concern MA and Part D 

marketing, including agent/broker 

training; payments to MA organizations 

based on quality ratings; standards for 

determining if organizations are fiscally 

sound; low income subsidy policy 

under the Part D program; payment 

rules for non-contract health care 

providers; extending current network 

adequacy standards to Medicare 

medical savings account (MSA) plans 

that employ a network of providers; 

establishing limits on out-of-pocket 

expenses for MA enrollees; and several 

revisions to the special needs plan 

requirements, including changes 

concerning SNP approvals and deeming. 

In general, the proposed rule was 

intended to strengthen the way we 

administer the Part C and Part D 

programs, and to aid beneficiaries in 

making the best plan choices for their 

health care needs. 

II. Provisions of the Final Regulations 

and Analysis of and Responses to 

Public Comments 

A. Overview of the Final Changes and 

Public Comments Received 

1. Overview of the Final Changes 

In the sections that follow, we discuss 

the changes made in the final rule to 

regulations in 42 CFR parts 417, 422, 

and 423 governing the MA and 

prescription drug benefit programs. To 

better frame the discussion of the 

specific regulatory provisions, we have 

structured the preamble narrative by 

topic area rather than in subpart order. 

Accordingly, we address the following 

five specific goals: 

• Implementing the provisions of the 

ACA. 

• Clarifying various program 

participation requirements. 

• Strengthening beneficiary 

protections. 

• Strengthening our ability to 

distinguish stronger applicants for Part 

C and Part D program participation and 

to remove consistently poor performers. 

• Implementing other clarifications 

and technical changes. 

A number of the revisions and 

clarifications in this final rule affect 

both the MA and prescription drug 

programs, and some affect section 1876 

cost contracts. Within each section, we 

have provided a chart listing all subject 

areas containing provisions affecting the 

Part C, Part D, and section 1876 cost 

contract programs, and the associated 

regulatory citations that are being 

revised. 

We note that these regulations are 

effective 60 days after the date of 

display of the final rule. Table 1 lists 

key changes that have an applicability 

date other than 60 days after the date of 

display of this final rule. The 

applicability dates are discussed in the 

preamble for each of these items. 

We are implementing several changes 

to the regulations to reflect provisions in 

the ACA which are already in effect. 

Table 2 lists the key changes. While 

these ACA provisions became effective 

on the statutory effective date, the 

regulations implementing these 

provisions will be effective 60 days after 

the date of display of the final rule. 

BILLING CODE 4120–01–P 


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2. Public Comments Received on the 

Proposed Rule 

We received approximately 261 

timely public comments on the 

November 2010 proposed rule. These 

public comments addressed issues on 

multiple topics. Commenters included 

health and drug plan organizations, 

insurance industry trade groups, 

pharmacy associations, pharmaceutical 

benefit manager (PBM) organizations, 

provider associations, representatives of 

hospital and long term care institutions, 

drug manufacturers, mental health and 

disease specific advocacy groups, 

beneficiary advocacy groups, 

researchers, and others. 

In this final rule, we address all 

comments and concerns on the policies 

included in the proposed rule. We also 

reference comments that were outside 

the scope of the proposals set forth in 

the proposed rule, in the comment and 

response sections of this final rule. 

We present a summary of the public 

comments and our responses to them in 

the applicable subject-matter sections of 

this final rule. 

Comment: A commenter stated that 

CMS revised the date for the closing of 

the comment period from January 21, 

2011 to January 11, 2011 and requested 

that CMS provide a rationale for 

shortening the comment period for the 

proposed rule. 

Response: Our proposed rule was 

placed on display at the Office of the 

Federal Register and made available on 

the CMS Web site on November 10, 

2010. Section 1871(b)(1) of the Act 

requires ‘‘notice’’ of the proposed rule, 

and a period of 60 days for public 

comment thereon. Because notice of the 

provisions of the proposed rule was 

provided on November 10, 2010 the 

comment period closed on January 11, 

2011, which is 60 days after the date of 

display of the proposed rule at the 

Office of the Federal Register and on the 

CMS Web site. 

B. Changes To Implement the Provisions 

of the Affordable Care Act 

The ACA includes significant reforms 

of both the private health insurance 

industry and the Medicare and 

Medicaid programs. Provisions in the 

ACA that concern the Part C and Part D 

programs largely focus on beneficiary 

protections, MA payments, and 

simplification of MA and Part D 

program processes. The changes based 

on provisions in the ACA are detailed 

in Table 3. 


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BILLING CODE 4120–01–C 

1. Cost Sharing for Specified Services at 

Original Medicare Levels (§ 417.454 and 

§ 422.100) 

Section 3202 of the ACA amended 

section 1852 of the Act to establish new 

standards for MA plans’ cost sharing. 

Specifically, section 1852(a)(1)(B) of the 

Act was amended by the addition of a 

new clause (iii) that limits cost sharing 

under MA plans so that it cannot exceed 

the cost sharing imposed under Original 

Medicare for specific services identified 

in a new clause (iv). New section 

1852(a)(1)(B)(iv) of the Act lists the 

three service categories for which cost 

sharing in MA plans may not exceed 

that required in Original Medicare 

(chemotherapy administration services, 

renal dialysis services, skilled nursing 

care) and section 1852(a)(1)(B)(iv)(IV) of 

the Act specifies that this limit on cost 

sharing also applies to such other 

services that the Secretary determines 

appropriate, including services that the 

Secretary determines require a high 

level of predictability and transparency 

for beneficiaries. The limits on cost 

sharing in clause (iii) are ‘‘subject to’’ an 

exception in clause (v) which provides 

that, ‘‘[i]n the case of services described 

in clause (iv) for which there is no cost 

sharing required under Parts A and B, 

cost sharing may be required for those 

services’’ under the clause (i) standard 

in place prior to the amendments made 

by section 3202 of the ACA. This 

section requires that overall cost sharing 

for Medicare Part A and B services be 

actuarially equivalent to that imposed 

under Original Medicare. As noted in 

the April 2010 final rule (75 FR 19712) 

and clarified in our April 16, 2010 

policy guidance, the provisions of 

section 3202 of the ACA apply to MA 

plans offered in CY 2011. To codify 

these provisions, we proposed to amend 

§ 422.100 by adding new paragraph (j). 

In addition, under our authority in 

section 1876(i)(3)(D) of the Act to 

impose ‘‘other terms and conditions’’ 

deemed ‘‘necessary and appropriate,’’ we 

proposed to add new paragraph (e) in 

§ 417.101 to extend the requirements in 

section 3202 of the ACA to section 1876 

cost contracts. In this rule we explain 

that our proposed addition to § 417.101 

was technically incorrect and have 

corrected the regulation citation so that 

our proposed addition is new paragraph 

(e) to § 417.454 to extend the 

requirements in section 3202 of the 

ACA to section 1876 cost contracts. We 

believe that this extension is necessary 

in order to ensure that all Medicare 

beneficiaries have the benefit of the cost 

sharing protections enacted in the ACA, 

regardless of whether they receive their 

Part A and B benefits through Original 

Medicare, an MA plan, or under a 

section 1876 cost contract. 

In our April 16, 2010 guidance issued 

via the Health Plan Management System 

(HPMS) (‘‘Benefits Policy and 

Operations Guidance Regarding Bid 

Submissions; Duplicative and Low 


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Enrollment Plans; Cost Sharing 

Standards; General Benefits Policy 

Issues; and Plan Benefits Package (PBP) 

Reminders for Contract Year (CY) 

2011’’), we included clarifying 

information related to implementation 

of the required cost sharing for 

chemotherapy administration services, 

renal dialysis services, and skilled 

nursing care for CY 2011 and we 

defined chemotherapy administration 

services to include chemotherapy drugs, 

radiation therapy services and other 

related chemotherapeutic agents, as well 

as administration, and skilled nursing 

care to mean skilled nursing facility 

services. We also clarified that, since 

there is no cost sharing under Original 

Medicare for the first 20 days of skilled 

nursing services, under section 

1852(a)(1)(B)(v) of the Act, the new 

restrictions in section 3202 of the ACA 

do not apply to such services during 

this period. 

In our proposed additions to 

§ 417.454 and § 422.100, we proposed to 

incorporate these definitions for the two 

service categories. We welcomed 

comments on these proposed cost 

sharing standards. 

We also proposed to limit cost sharing 

for home health services under MA 

plans to that charged under Original 

Medicare and noted that, although we 

can generally rely on our authority at 

1852(a)(1)(B)(iv)(IV) of the Act to apply 

Original Medicare cost sharing limits to 

other services that the Secretary 

determines appropriate, because there is 

no cost sharing under Original Medicare 

for home health services, as in the case 

of the first 20 days of skilled nursing 

facility services, the exception in clause 

(v) of section 1852(a)(1)(B) of the Act 

would apply, and the limit on cost 

sharing under section 1852(a)(1)(B)(iii) 

of the Act would not apply. Thus, in 

proposing to apply Original Medicare 

cost sharing amounts to home health 

services or any other service with zero 

cost sharing, we instead indicated that 

we would rely on our authority in 

section 1856(b)(1) of the Act to establish 

MA standards by regulation, and in 

section 1857(e)(1) of the Act to impose 

additional ‘‘terms and conditions’’ found 

‘‘necessary and appropriate’’ to require 

that cost sharing for these services 

under MA plans conform to that under 

Original Medicare, meaning that no cost 

sharing could be imposed for these 

services. 

We solicited public comment on our 

proposal to limit cost sharing for home 

health services to that charged for those 

services under Original Medicare. 

Comment: There were many 

commenters who opposed our proposal 

to limit cost sharing for home health 

services under MA and cost plans at 

Original Medicare levels. The 

commenters expressed concern that 

limiting cost sharing for home health 

decreases their flexibility in their plan 

design and limits the plans’ tools to 

ensure appropriate utilization of home 

health care. 

MedPAC strongly opposed our 

proposal to limit home health cost 

sharing to $0 for several reasons 

including: Home health is a less welldefined benefit in Medicare and its 

appropriate use is more difficult to 

monitor and the proposed prohibition 

on cost sharing for home health is 

unduly restrictive. They also argued that 

CMS’ proposal is based on weak 

rationale. The comment included a 

statement of MedPAC’s belief that cost 

sharing should be one of the tools that 

plans can use at their discretion as a 

means of ensuring appropriate 

utilization. The comment informed us 

that MedPAC was currently considering 

these kinds of issues as a part of their 

deliberations on whether or not to 

recommend that traditional FFS 

Medicare should have cost sharing for 

home health services, along with the 

level of such cost sharing and the 

circumstances in which the cost sharing 

would apply. 

Response: We find MedPAC’s 

concerns about our proposal, in 

addition to those expressed by many 

other commenters to be persuasive and 

believe we should not finalize, at this 

time, our proposal to prohibit cost 

sharing for in-network home health 

services. MedPAC has recommended to 

Congress that it should direct the 

Secretary to establish a per episode 

copayment for home health episodes of 

care that are not preceded by a 

hospitalization or post-acute care use. 

We believe it is reasonable for us to take 

time to perform additional analyses of 

home health service utilization by 

beneficiaries enrolled in MA plans. 

Comment: We received several 

comments that supported our proposal 

to limit cost sharing for home health 

services at Original Medicare levels. 

Those commenters believe that it will 

provide beneficiaries with a benefit 

package that is transparent and easily 

predictable for out-of-pocket expenses. 

Response: We thank the commenters 

for their support but, as previously 

discussed at length, we believe that it 

would be more appropriate not to 

finalize our proposal. We will continue 

to evaluate the effectiveness of our 

current policies to protect beneficiaries 

from unfair or discriminatory cost 

sharing, confusing plan choices, and 

unaffordable care before implementing 

any additional policy change. 

Furthermore, under current policy only 

plans that provide extra beneficiary 

protection from high cost sharing by 

adopting a voluntary MOOP are 

permitted to charge cost sharing for 

home health services. We will continue 

to find the most appropriate balance 

between protecting beneficiaries from 

excessive out-of-pocket cost sharing and 

ensuring the financial viability of the 

MA program. 

Comment: One commenter stated that 

prohibiting cost sharing for home health 

could lead to further pricing challenges 

and another stated there are a number 

of provisions in the ACA that limit a 

plan’s ability to charge cost sharing for 

specified services and that these 

provisions are being implemented at the 

same time that CMS is implementing 

payment cuts and medical costs are 

continuing to increase. The commenter 

stated all plans would be in jeopardy of 

financial insolvency if they are 

prohibited from balancing costs, 

benefits, and payment cuts. 

Response: As stated in our proposed 

rule, we estimated that the cost to the 

Medicare program of our proposal 

would not be significant. We also stated 

that we did not expect a significant 

financial impact on the relatively few 

plans that charge cost sharing for home 

health services. However, given our 

decision not to move forward with this 

proposal for other reasons, this issue is 

moot. 

Comment: We received one comment 

that expressed concern that our 

proposed codification section 3202 of 

the ACA could be interpreted and 

implemented in a manner so as to 

mandate the cost sharing obligation to 

be charged, rather than permitting plans 

to set cost sharing levels at or below that 

cost sharing limit amount. 

Response: We thank the commenter 

for sharing this concern. We thought we 

were clear in our proposal that plans 

would be able to set cost sharing levels 

at or below those charged under 

Original Medicare but will make every 

effort to be clear and consistent in our 

guidance related to these limits. 

Comment: We received two comments 

that requested that we add Durable 

Medical Equipment (DME) to the list of 

service categories for which cost sharing 

may not exceed the levels required 

under Original Medicare. 

Response: We thank the commenters 

for their suggestion and we will 

consider proposing that addition in 

future rulemaking. 

Comment: We received several 

comments that challenged CMS’ 

decision to allow plans to charge cost 

sharing during the first 20 days of 

skilled nursing care. One commenter 


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stated that charging cost sharing in the 

first part of the SNF stay makes sense 

for the plans but does not make sense 

for the beneficiaries. They stated that 

they understand CMS’ actuarial 

equivalency rationale and that the law 

allows MA cost sharing for the services, 

but believe CMS’ policy is contrary to 

the intent of health care reform. Another 

commenter stated that prohibiting cost 

sharing for the first 20 days of skilled 

nursing care would increase 

transparency for beneficiaries and could 

offer better opportunities for frail 

beneficiaries. 

Response: Prior to the ACA, we 

allowed plans to charge cost sharing 

during the first 20 days of skilled 

nursing care so long as the plan’s SNF 

benefit satisfied the actuarial 

equivalence test. In subregulatory 

guidance subsequent to enactment of 

the ACA, we clarified that because there 

is not cost sharing under Original 

Medicare for the first 20 days of SNF 

care, under section 1852(a)(1)(B)(v) of 

the Act, the new restrictions in section 

3202 of the ACA do not apply to such 

services during this period and that we 

would continue our policy to allow cost 

sharing during the first 20 days of SNF 

care. We do not believe that enrolled 

beneficiaries are disadvantaged by this 

policy for at least two reasons. First, 

plans’ cost sharing for SNF care is 

transparent to beneficiaries as it is 

reflected in the Summary of Benefits 

and the Medicare Plan Finder and 

second, because of the beneficiary 

protections from unexpected, 

unmanageable out-of-pocket costs that 

Medicare requires all MA plans to 

provide. 

CMS limits the cost sharing that may 

be charged for SNF care so that it does 

not exceed what the beneficiary would 

pay under Original Medicare, including 

the minimal cost sharing we allow 

during the first 20 days in a covered 

SNF stay. We believe that minimal cost 

sharing is more than offset by other 

savings and protections offered under 

plans’ benefit packages. One very 

important protection that all plans are 

required to offer is the maximum out-ofpocket (MOOP) limit on enrolled 

beneficiaries’ out-of-pocket costs for 

covered in-network services. The 

maximum amount an enrolled 

beneficiary can be required to pay for 

those services is $6,700. In addition, 

most plans that charge cost sharing in 

the first 20 days of SNF care, waive the 

Original Medicare requirement for a 3- 

day qualifying inpatient hospital stay 

which saves beneficiaries enrolled in 

those plans from having to pay the costs 

for an inpatient stay. 

Comment: One commenter requested 

that CMS establish an employer group 

waiver excepting MA plans offered 

through employer/union group health 

plans from the proposed cost sharing 

standards. 

Response: We thank the commenter 

for this suggestion but we believe that 

employer group plans must be subject to 

the same cost sharing as other MA plans 

in order to provide the beneficiaries 

enrolled in those plans the same 

protections as beneficiaries enrolled in 

other MA and cost plans. 

Comment: Several commenters 

supported our proposed codification of 

section 3202 of the ACA to limit cost 

sharing for chemotherapy 

administration services, renal dialysis 

services, skilled nursing care, and such 

other services as the Secretary 

determines appropriate to levels not to 

exceed that charged under Original 

Medicare and stated that it was 

welcome news for beneficiaries. One 

commenter specifically expressed 

support for the extension of the cost 

sharing limits to section 1876 cost 

contracts. Some of the commenters also 

requested that CMS provide greater 

clarity that the limits on cost sharing 

apply only to in-network services. 

Response: We thank the commenters 

for their support and in response to the 

these comments we will revise our 

proposed regulation text to clarify in 

§ 422.100 that the cost sharing charged 

for chemotherapy administration 

services, renal dialysis services and 

skilled nursing care provided innetwork may not exceed the amount of 

cost sharing required for those services 

under Original Medicare. Thus, in part, 

the final regulation text will be revised 

to read: ‘‘On an annual basis, CMS 

would evaluate whether there are 

service categories for which MA plans’ 

in-network cost sharing may not exceed 

that required under Original Medicare 

and specify in regulation which services 

are subject to that cost sharing limit.’’ 

Comment: A few commenters 

objected to our codification in the 

proposed rule of our proposal to extend 

the cost sharing limits of section 3202 

of the ACA to section 1876 cost plans 

because we proposed to set forth this 

requirement in a new paragraph (g) to 

§ 417.101, which otherwise does not 

govern cost plans. The commenters 

suggested that we instead add a new 

paragraph to § 417.454, Charges to 

Medicare enrollees. One commenter 

also recommended that we change our 

reference to ‘‘MA plans’’ in the proposed 

regulation language to ‘‘HMO’’ or ‘‘CMP’’ 

to be consistent with the standard 

terminology used in the regulations to 

refer to the section 1876 contracting 

entity. 

Response: We thank the commenters 

for their suggestions. Accordingly, in 

this final rule, we will not include the 

cost-sharing requirements in § 417.101, 

but will instead add new paragraph (e) 

to § 417.454 to require cost sharing 

charged by section 1876 cost plans for 

chemotherapy, renal dialysis and skilled 

nursing care to be limited to that 

charged under Original Medicare. We 

also will remove reference to ‘‘MA 

plans’’ in the new regulatory text 

language and replace it with ‘‘HMO or 

CMP.’’ 

We have considered all of the 

comments on this proposal and will 

finalize, as revised, the addition of a 

new paragraph and (j) to § 422.100 to 

implement section 3202 of the ACA 

requiring that MA plans’ in-network 

cost sharing charges for chemotherapy, 

SNF care and dialysis will be no greater 

than that charged under Original 

Medicare, and a new paragraph (e) to 

§ 417.454 to extend these protections to 

section 1876 cost contracts. However, 

we will not finalize our proposal to add 

new paragraph (4) to § 417.454(e) or 

new paragraph (4) to § 422.100(j) to 

prohibit plans from charging cost 

sharing for home health services. 

2. Simplification of Beneficiary Election 

Periods (§ 422.62, § 422.68, § 423.38, 

and § 423.40) 

Section 3204 of the ACA modified 

section 1851(e)(3)(B) of the Act such 

that, beginning with plan year 2012, the 

annual coordinated election period 

(AEP) under Parts C and D will be held 

from October 15 to December 7. We 

proposed to amend 0§ 422.62(a)(2) and 

§ 423.38(b) to codify this change. 

Section 3204 of the ACA also revised 

section 1851(e)(2)(C) of the Act to 

establish, beginning in 2011, a 45-day 

period at the beginning of the year 

(January 1 through February 14) that 

allows beneficiaries enrolled in MA 

plans the opportunity to disenroll and 

join Original Medicare, with the option 

to enroll in a Medicare prescription 

drug plan. This 45-day period, also 

referred to as the Medicare Advantage 

Disenrollment Period (MADP), replaces 

the open enrollment period (OEP) that 

previously occurred annually from 

January 1st through March 31st. To 

codify this provision, we proposed the 

following changes: 

• § 422.62(a) was amended to provide 

for this new disenrollment opportunity 

and clarify that the OEP ended after 

2010; 

• § 422.68(f) was amended to specify 

the effective date for disenrollment 


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requests submitted during the new 45- 

day disenrollment period; 

• § 423.38(d) was amended to allow 

individuals who disenrolled from an 

MA plan between January 1 through 

February 14th to enroll in a standalone 

PDP; and 

• § 423.40(d) was amended to specify 

the enrollment effective dates for 

individuals who enroll in a standalone 

Medicare prescription drug plan after 

disenrolling from MA during the 45-day 

period. 

Comment: Commenters requested that 

CMS conduct beneficiary education on 

the new AEP timeframe. 

Response: We are strongly committed 

to using all available means for ensuring 

that beneficiaries are made aware of the 

new AEP timeframes. Thus, we expect 

to conduct specific outreach and 

education on this topic and highlight 

the change in Medicare & You 2012 

which will be mailed to all 

beneficiaries. 

Comment: Commenters recommended 

that CMS adjust the timing of plan bids 

and make other important information, 

such as model notices, available earlier 

for plan preparation of the AEP. In 

addition, commenters requested that 

plan marketing be allowed to start 

earlier than October 1 for the AEP. 

Response: We are considering the 

timing of our processes and will be 

making appropriate adjustments as we 

prepare for a successful implementation 

of the new AEP timeframe, but we do 

not plan to change the bid submission 

or plan marketing dates. The plan bid 

submission date is set by statute and 

remains the first week in June, leaving 

only a narrow timeframe for review and 

approval of bids and benefits and to 

ensure that marketing materials align 

with approved benefits. Accurate 

marketing materials are key to enabling 

beneficiaries to make appropriate 

determinations regarding their health 

care and prescription drug coverage. 

Also, we do not believe it is appropriate 

or necessary to allow plans to market 

earlier than October 1 given that a 

beneficiary may not enroll in a plan 

until October 15th. 

Comment: Commenters recommended 

that CMS create an open enrollment 

period that would allow beneficiaries to 

enroll in Medigap products without 

regard to health status or pre-existing 

conditions. Another commenter 

recommended that CMS clarify that 

beneficiaries who disenroll from an MA 

plan using the 45-day disenrollment 

period do not have guaranteed issue 

rights to prevent underwriting the plan 

premium if they choose to purchase a 

Medigap policy. 

Response: Section 1882 of the Act 

does not provide for a Federal annual 

open enrollment period for Medigap. 

Further the commenter is correct that 

using the MADP does not give the 

beneficiary guaranteed issue rights 

under Federal law to prevent healthbased underwriting of the Medigap 

policy premium. In some cases, State 

Medigap laws may offer additional 

guaranteed issue rights to beneficiaries 

who are affected by the MADP. 

Comment: Some commenters 

recommended that CMS establish a 

special election period (SEP) for the first 

year of the new AEP timeframe to allow 

individuals to make plan elections 

through December 31. Additionally, one 

commenter suggesting allowing plan 

sponsors to accept and process 

enrollment requests received from 

December 8 through December 31. 

Response: Again, we will take a 

number of steps to ensure that 

beneficiaries are made aware of the new 

AEP timeframes, and that they have the 

tools they need to make informed 

decisions during the new AEP 

timeframe. We believe that through 

planned outreach and education efforts 

directly to beneficiaries and with 

stakeholders and plans, beneficiaries 

will have sufficient notification to make 

their health plan elections by December 

7. We believe that the establishment of 

the suggested SEP would directly 

conflict with the clear intent of the 

statute. 

Comment: A commenter 

recommended that individuals using the 

opportunity afforded by the MADP be 

allowed to enroll in an MA plan offered 

by the same parent organization instead 

of defaulting to Original Medicare. 

Another commenter recommended CMS 

find a less expensive alternative to the 

MADP such as reinstating the open 

enrollment period or eliminating lockin. 

Response: Again, the new 45-day 

disenrollment period, as established in 

the ACA, is clearly designed to permit 

only moves from MA to Original 

Medicare. Eliminating or broadening the 

scope of this election period would 

contradict the intent of the statute. 

Similarly, ‘‘lock-in’’ is mandated by the 

statute and cannot be eliminated by 

CMS. 

Comment: A commenter addressed 

CMS’ plans to establish an SEP to allow 

beneficiaries in an MA plan with less 

than five stars to enroll in a plan with 

five stars outside of the normal 

enrollment periods. The commenter 

recommended that, in regions where 

there are no plans with five stars, 

individuals be allowed to enroll in 

plans with 4.5 stars outside of the 

normal enrollment periods. 

Response: We appreciate the 

suggestion; however the SEP for 

individuals to enroll in 5-star plans is 

outside the scope of this regulation. We 

will consider this suggestion as we 

finalize guidance concerning the scope 

of the SEP associated with Plan Ratings 

later this year. We appreciate the 

comments that were submitted and will 

be finalizing these proposals without 

modification. 

3. Special Needs Plan (SNP) Provisions 

(§ 422.2, § 422.4, § 422.101, § 422.107, 

and § 422.152) 

In our proposed rule, we defined a 

fully integrated dual eligible special 

needs plan (SNP) as specified by the 

ACA, and set forth proposed regulations 

implementing changes made by the 

ACA. These changes would extend the 

authority to offer SNPs, extend 

provisions permitting existing D–SNPs 

that are not expanding their service 

areas to continue operating without 

contracts with State Medicaid agencies 

through 2012, and establish a required 

NCQA quality approval process for 

SNPs. 

a. Adding a Definition of Fully 

Integrated Dual Eligible SNP (§ 422.2) 

Section 3205 of the ACA revised 

section 1853(a)(1)(B) of the Act to 

provide authority to apply a frailty 

payment under PACE payment rules for 

certain individuals enrolled in fully 

integrated dual eligible special needs 

plans described in section 3205(b) of the 

ACA. In order to implement this 

provision, we proposed a definition of 

fully integrated dual eligible special 

needs plan to § 422.2 that will apply for 

these purposes. Under our proposed 

definition, the D–SNP must meet the 

following criteria in order to be 

considered a fully integrated dual 

eligible special needs plan: 

• Enroll special needs individuals 

entitled to medical assistance under a 

Medicaid State plan, as defined in 

section 1859(b)(6)(B)(ii) of the Act and 

§ 422.2. 

• Provide dual eligible beneficiaries 

access to Medicare and Medicaid 

benefits under a single managed care 

organization (MCO). 

• Have a capitated contract with a 

State Medicaid agency that includes 

coverage of specified primary, acute and 

long-term care benefits and services, 

consistent with State policy. 

• Coordinate the delivery of covered 

Medicare and Medicaid health and longterm care services, using aligned care 

management and specialty care network 

methods for high-risk beneficiaries. 


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• Employ policies and procedures 

approved by CMS and the State to 

coordinate or integrate member 

materials, including enrollment, 

communications, grievance and appeals, 

and quality assurance. 

In this final rule, we adopt our 

proposed definition of a fully integrated 

dual eligible special needs plan with 

some modification. For reasons 

discussed below, we have in this final 

rule revised the definition by removing 

the word ‘‘including’’ and have replaced 

the word ‘‘assurance’’ with 

‘‘improvement.’’ 

Comment: The majority of 

commenters supported our proposed 

definition of a fully integrated dual 

eligible special needs plan. However, 

three commenters raised concerns about 

two potential ambiguities in the part of 

the proposed definition which requires 

that a fully integrated dual eligible 

special needs plan ‘‘[e]mploy policies 

and procedures approved by CMS and 

the State to coordinate or integrate 

member materials, including 

enrollment, communications, grievance 

and appeals, and quality assurance.’’ 

Specifically, these commenters 

recommended that we eliminate the 

word ‘‘including’’ after member 

materials, because the functions that 

follow the word ‘‘including’’ in the 

proposed definition are not all related to 

member materials. Further, these same 

commenters suggested that we use the 

terms ‘‘performance measurement’’ in 

place of ‘‘quality assurance’’ in the 

proposed definition, because, as 

suggested by the commenters, the term 

‘‘performance measurement’’ is more 

consistent with current regulatory 

language. 

Response: We appreciate the 

commenters’ support for the definition 

we proposed for a fully integrated dual 

eligible special needs plan. We agree 

with the commenters that, as written, 

the final prong of the proposed 

definition is not sufficiently clear about 

what policies and procedures must be 

approved by CMS and the State to 

ensure integration and coordination. 

Accordingly, in response to these 

comments, we have revised this part of 

the proposed definition in § 422.2 of the 

MA program regulations by eliminating 

the word ‘‘including’’ after member 

materials because, as the commenters 

suggest, the functions that follow the 

word ‘‘including’’ are not all related to 

member materials. We believe this word 

deletion makes this prong of the 

definition more clear, and also more 

accurately reflects our intention that a 

fully integrated dual eligible special 

needs plan coordinate or integrate 

Medicaid and Medicare member 

materials, enrollment, communications, 

grievance and appeals, and quality 

improvement. In addition, we revised 

this part of the proposed definition by 

substituting the terms ‘‘quality 

improvement’’ for ‘‘quality assurance’’ 

(or ‘‘performance measurement’’ as 

suggested by three commenters). 

‘‘Quality improvement’’ is most 

consistent with existing MA 

terminology. We believe the term 

‘‘performance measurement’’ does not 

sufficiently specify our intention to 

ensure that this portion of the definition 

requires coordinated or integrated 

policies regarding quality. Further, the 

use of the term ‘‘quality improvement’’ 

intentionally demonstrates our intention 

that a fully integrated dual eligible 

special needs plan integrate or 

coordinate the full spectrum of 

programs and tools utilized to ensure 

quality. 

Comment: Several commenters 

suggested that we broadly or flexibly 

interpret the definition of a fully 

integrated dual eligible special needs 

plan to allow for the broad variety of 

dual eligible special needs plan 

contracting arrangements in place in 

different States. Additionally, one 

commenter that submitted a comment 

with this suggestion also requested that 

under the third prong of the definition, 

we allow for some combination of 

specified primary, acute and long-term 

care benefits and services because States 

need flexibility to design the details of 

their programs in response to their 

stakeholders’ needs and concerns. In 

contrast, another commenter urged us to 

use caution when approving plans as 

fully integrated dual eligible special 

needs plans, and recommended that we 

specify that any fully integrated dual 

eligible special needs plan purporting to 

offer long-term supports and services 

must offer the full range available in a 

given State. 

Response: We believe that there is a 

great deal of flexibility in our proposed 

definition of a fully integrated dual 

eligible special needs plan, as written in 

the proposed rule and this final rule, to 

account for the variability in State 

integration efforts. For example, the 

terms ‘‘consistent with State policy’’ in 

the definition recognizes the variability 

in the degree and extent to which 

Medicaid services are covered from one 

State to the next. Additionally, as 

highlighted by another commenter, use 

of the word ‘‘specified’’ in the definition 

(‘‘coverage of specified primary, acute, 

and long term care benefits and services, 

consistent with State policy’’) also 

acknowledges that States vary in the 

degree to which Medicaid services are 

covered by the State by only requiring 

the plan to cover those services 

specified by the State Medicaid Agency. 

Moreover, fully integrated dual eligible 

special needs plans and States have the 

flexibility to choose to contract to serve 

certain subsets of the sState’s overall 

dual eligible population, provided that 

the MIPPA compliant State contract 

between the State and the fully 

integrated dual eligible special needs 

plan supports this arrangement. 

Therefore, in order to meet this 

definition a plan will be required to 

provide all covered Medicaid primary, 

acute and long-term care services and 

benefits to beneficiaries, and not some 

combination thereof. 

Comment: One commenter 

recommended that we include in the 

definition of a fully integrated dual 

eligible special needs plan the reference 

to PACE frailty levels from the statutory 

definition of a fully integrated dual 

eligible special needs plan found in 

section 3205 of the ACA. This 

commenter suggested that this reference 

to PACE frailty levels should be 

included in the definition of a fully 

integrated dual eligible special needs 

plan, as well as where it now appears 

in § 422.308. 

Response: While section 3205 of the 

ACA provides us with the authority to 

apply a frailty adjustment payment to a 

fully integrated dual eligible special 

needs plan with a similar average level 

of frailty as the PACE program, the 

statute does not limit our ability to use 

the definition of a fully integrated dual 

eligible special needs plan for only this 

purpose. Therefore, we will not include 

this requested reference in the final 

definition so we are able use this 

definition for other purposes in the 

future. 

Comment: One commenter asked us 

to clarify what is meant by ‘‘aligned care 

management and specialty care network 

methods for high-risk beneficiaries,’’ and 

also provided brief recommendations on 

how to implement this requirement. 

Further, the commenter recommended 

that any clarification on the ‘‘aligned 

care management’’ requirement specify 

that a fully integrated dual eligible 

special needs plan is responsible for 

managing care that is covered by 

Medicare or Medicaid in such a way 

that the individual beneficiary gets full 

access to all services covered by both 

programs. 

Response: Section 164(d) of the 

Medicare Improvement for Patients and 

Providers Act of 2008 (MIPPA) requires 

that special needs plans ‘‘have in place 

an evidenced-based model of care with 

appropriate networks of providers and 

specialists * * * and use[s] an 

interdisciplinary team in the 


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management of care.’’ The terms 

‘‘aligned care management and specialty 

care network methods for high-risk 

beneficiaries’’ derive from this 

requirement in MIPPA. In the 

September 18, 2008 Federal Register, 

we issued an interim final rule with 

comment on this MIPPA provision. We 

have received several comments on this 

provision and will finalize the provision 

later this year. As such, the final rule 

will provide additional clarification on 

what is required to ‘‘coordinates the 

delivery of covered Medicare and 

Medicaid health and long-term care 

services, using aligned care management 

and specialty care network methods for 

high-risk beneficiaries’’ as required by 

the definition for a fully integrated dual 

eligible special needs plan. 

Comment: One commenter asked us 

to clarify the requirement that a plan 

designated as a fully integrated dual 

eligible special needs plan must provide 

notices specific to the dual-eligible 

population it is serving as opposed to 

generic notices designed for non-dual 

beneficiaries that do not correctly 

identify their rights and obligations. 

Response: We appreciate this concern 

and currently require certain 

communications be developed specific 

to a beneficiary’s eligibility. For 

example, we have created an Annual 

Notice of Change/Evidence of Coverage 

standard template specifically for dual 

eligible special needs plans for use 

starting with contract year 2012. The 

template was developed through several 

rounds of consumer testing and 

listening sessions with SNP 

representatives and consumer 

advocates. Other CMS models may be 

customized to meet the needs of dual 

eligible members. Furthermore, fully 

integrated and dual eligible special 

needs plans are required to coordinate 

and integrate member materials to 

contain information specific to both the 

Medicare and Medicaid benefits. We are 

committed to ensuring beneficiaries 

receive appropriate and helpful 

marketing materials and will continue 

to explore opportunities to improve 

beneficiary experience in this regard. 

Comment: One commenter 

recommends that we approve and allow 

both fully integrated dual eligible 

special needs plans and non-fully 

integrated dual eligible special needs 

plans to operate so that a larger 

population of duals may be served by 

these plans. 

Response: We agree with this 

commenter’s recommendation. We will 

continue to approve and allow both 

fully integrated dual eligible special 

needs plans and non-fully integrated 

dual eligible special needs plan to 

operate so a larger population of duals 

may be served by these plans. 

Comment: One commenter seeks 

clarification in the requirement that a 

fully integrated dual eligible special 

needs plan have a ‘‘capitated’’ contract 

with the State Medicaid agency. 

Response: In response to this 

comment to clarify the meaning of the 

term ‘‘capitated’’ in the third prong of 

the definition, a capitated contract is a 

contract that provides for a fixed 

payment from the State Medicaid 

Agency to the fully integrated dual 

eligible special needs plan that does not 

vary based on services provided in 

exchange for the plan’s provision of the 

covered Medicaid benefits to the 

beneficiaries. 

b. Extending SNP Authority 

Based on section 3205(a) of the ACA, 

which revised section 1859(f)(1) of the 

Act, we proposed in our November 2010 

proposed rule (75 FR 71198) to extend 

the authority for SNPs to restrict 

enrollment to special needs individuals, 

thereby permitting SNPs to continue to 

limit enrollment to special needs 

individuals through the 2013 contract 

year. This extension applies to all SNP 

categories defined at § 422.2, with the 

exception of dual eligible SNPs (D– 

SNPs) that do not have a contract with 

the State in which they operate in 

contract year 2013, as described in 

section II.B.3.c of this final rule. 

This provision was effective upon 

enactment of the ACA. However, we 

proposed that the regulations 

implementing this provision would be 

effective 60 days after the publication of 

this final rule. 

After considering comments, we are 

finalizing this provision without 

modification. 

Comment: Several commenters 

believed that delaying the proposed 

provision’s effective date until 60 days 

after publication of the final rule was 

unnecessary. 

Response: We disagree with the 

commenters’ claim that it is 

unnecessary to delay implementation of 

this provision until 60-days following 

publication of this final rule. While 

section 3205(a) of the ACA was effective 

upon enactment, the regulations 

codifying this provision can be effective 

no earlier than 60 days following 

publication of this final rule, as 

provided under the Administrative 

Procedure Act for economically 

significant regulations. 

Comment: One commenter suggested 

that extending the SNP program for 

longer than 1 year would provide SNPs 

with more operational certainty. 

Response: Our proposed provision 

extended all SNPs, with the exception 

of D–SNPs that do not have a State 

contract in the State in which they 

operate, until contract year 2013, 

consistent with the statutory language at 

section 1859(f)(1) of the Act. We do not 

have the statutory authority to extend 

the SNP authority beyond the length of 

time Congress specified in the ACA. 

Therefore, we are finalizing this 

provision without modification. 

c. Dual-Eligible SNP Contracts With 

State Medicaid Agencies (§ 422.107) 

Section 164(c)(2) of MIPPA required 

all new D–SNPs and all existing D– 

SNPs that are seeking to expand their 

service areas to have contracts with the 

State Medicaid agencies in the States in 

which they operate. The provision 

allowed existing D–SNPs that were not 

seeking to expand their service areas to 

continue to operate without a State 

contract through the 2010 contract year 

as long as they met all other statutory 

requirements. Section 3205 of the ACA, 

which revised section 164(c)(2) of 

MIPPA, extends the date that D–SNPs 

not seeking to expand their service areas 

can continue to operate without a State 

contract to December 31, 2012. In order 

to implement this provision, we 

proposed to revise § 422.107(d)(ii) to 

specify the new deadline. 

This provision was effective upon 

enactment of the ACA. However, we 

proposed that the regulations 

implementing this provision would be 

effective 60 days after the publication of 

the final rule. 

Comment: Many commenters 

supported this proposed provision. 

However, the majority of the comments 

we received on this provision centered 

on the operational issues related to the 

State contracting requirement. Several 

commenters indicated that variation in 

State contracting and procurement 

processes has caused some D–SNPs to 

experience delays in obtaining contracts 

with State Medicaid agencies and they 

requested that CMS give D–SNPs 

additional flexibility to meet these 

contracting deadlines. A few 

commenters suggested that CMS 

incentivize States to engage with D– 

SNPs that are seeking to contract with 

the State(s) in their service areas, while 

another commenter proposed that CMS 

hold plans harmless if States either 

refuse to contract with them or require 

them to meet contract requirements that 

are beyond the minimum CMS-required 

contract elements. Other commenters 

recommended that CMS provide further 

regulatory and operational guidance on 

the State contracting process. Several 

commenters expressed concern that 


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States were receiving conflicting 

information from CMS central and 

regional offices (ROs), and asked CMS to 

develop a model State contract for 

dissemination to D–SNPs, States, and 

the CMS ROs. Some commenters 

recommended that CMS establish a 

system of review and oversight of D– 

SNP State contracts through rulemaking. 

Response: The proposed rule neither 

codified the D–SNP State contracting 

requirement nor specified specific 

contract requirements; it only amended 

§ 422.107 to conform to the statutory 

extension of the State contracting 

deadline for existing, non-expanding D– 

SNPs. Comments about operationalizing 

the State contracting requirement were 

not strictly within the scope of this rule. 

We note that, although we are not 

addressing these specific operational 

concerns in this final rule, we intend to 

provide additional operational guidance 

on the D–SNP State contracting 

requirements in future operational 

guidance well in advance of the State 

contracting deadline of December 31, 

2012. 

d. Approval of Special Needs Plans by 

the National Committee for Quality 

Assurance (§ 422.4, § 422.101, and 

§ 422.152) 

The ACA amended section 1859(f) of 

the Act to require that all SNPs, 

existing, new, and those wishing to 

expand their service areas, be approved 

by the National Committee for Quality 

Assurance (NCQA) effective January 1, 

2012 and subsequent years. Section 

1859(f) of the Act further specified that 

the NCQA approval process shall be 

based on the standards established by 

the Secretary. 

In our November 2010 proposed rule 

(75 FR 71199), we stated that both the 

quality improvement (QI) program plan 

description and the model of care 

(MOC) are critical clinical elements that 

represent the potential for the SNP to 

provide integrated care for Medicare 

enrollees. We proposed that NCQA 

review both the QI program plan 

description and the MOC submitted 

during the application process for all 

SNPs using standards developed by 

CMS. Specifically, we proposed to add 

a new paragraph (iv) to § 422.4(a) to 

require MA plans wishing to offer a 

SNP, whether new or current, to be 

approved by NCQA, effective January 1, 

2012, by submitting their quality QI 

program plan and MOC to CMS for 

NCQA evaluation and approval, per 

CMS guidance. We also proposed to 

codify the new requirement at 

§ 422.101(f), which specifies MOC 

requirements, by adding a new 

paragraph (vi). Finally, we proposed to 

codify the new requirement by revising 

§ 422.152(g), which specifies QI 

program requirements. 

In the proposed rule, we also clarified 

that CMS would not participate in the 

scoring and review of the MOC and QI 

program plans. We also stated in our 

proposed rule that we would release 

specific instructions and guidance to 

organizations, including the specific 

criteria that NCQA would use to 

evaluate the QI program plan 

description and MOC, information 

about technical assistance training that 

would be available to the SNPs as they 

prepared their QI program plan and 

MOC submissions, as well as details on 

the frequency of the SNP approval 

process. We also expressed concern that 

an annual approval process could be 

burdensome for plans and solicited 

comments on how to determine the 

appropriate frequency for the SNP 

approval process. 

Based on the comments we received 

on the proposed rule, we are modifying 

§ 422.4(a)(iv), § 422.101(f), and 

§ 422.152(g), as described below. 

Comment: Several commenters 

expressed concern with our proposed 

SNP approval process and the 

components that comprise that process. 

Specifically, these commenters noted 

that both the 2012 application cycle and 

the 2011 SNP structure and process 

measure submissions were due in 

February 2011. The commenters 

requested that CMS clarify any 

relationship between the two processes. 

Other commenters requested that CMS 

link the SNP approval process to the 

work NCQA currently performs around 

QI, MOC and HEDIS® requirements. 

Response: In our proposed rule, we 

proposed that NCQA would review the 

QI program plan and MOC submitted by 

all SNPs during the application cycle 

using standards developed by CMS. Our 

basis for this proposal was that the 

description of the plan’s QI program 

plan and the MOC contained critical 

elements representing the potential for a 

SNP to provide integrated care for 

Medicare enrollees. Some commenters 

appear to have confused our proposed 

requirements for the SNP approval 

process with other quality requirements, 

such as, the quality improvement 

projects (QIPs), chronic care 

improvement programs (CCIPs) and the 

NCQA structure and process measures. 

As a result of this confusion, the 

majority of these comments did not 

support using evaluation of either the QI 

program plan or MOC as part of this 

process. Other commenters 

recommended that CMS ensure that 

there is consistency between the 

requirements for the SNP approval 

process and those of the other, unrelated 

NCQA quality assessment process. 

Response: We agree with commenters 

that the QI program plan may not be the 

most appropriate basis for approval of 

SNPs. Therefore, we have modified our 

original proposal by removing 

evaluation of the QI program plan from 

the NCQA SNP approval process 

described in § 422.4(a)(iv), § 422.101(f), 

and § 422.152(g). As a result, the SNP 

approval process will be based only on 

evaluation of the MOC, which will 

allow the NCQA to focus purely on a 

component of quality that is primarily 

clinical in nature and is also unique to 

SNPs. Removing evaluation of the QI 

program plan from the SNP approval 

process may also help reduce the 

confusion and concern plans expressed 

about alignment of the SNP approval 

process with other QI assessment 

measures and activities. All MA plans 

will still be required to submit their QI 

program plan; however, we will retain 

responsibility for review and assessment 

of this component as part of our larger 

QI efforts. 

Comment: Several commenters urged 

CMS to ensure that there is consistency 

between the QI program and MOC 

documents submitted during the 

application process and NCQA structure 

and process measures submissions. 

Response: The submission of 

structure and process measures is an 

ongoing annual QI assessment activity 

for all SNPs. The SNP approval process 

is a separate process for ensuring that 

SNPs comprehend the unique 

requirements of the SNP program and 

are capable of implementing these 

requirements. We believe commenters 

may be confusing submission of 

structure and process measures and the 

SNP approval process given NCQA’s 

involvement in both processes, even 

though there is no relationship between 

the two. Therefore, we clarify that there 

is no relationship between the 

documents required to be submitted 

during the application process and the 

information required for the structure 

and process measures submissions. 

Comment: Two commenters requested 

that CMS address the relationship 

between the requirements for D–SNPs to 

contract with States, the SNP 

application, and the new SNP approval 

process. They further requested that 

CMS clarify that if a D–SNP were 

approved by NCQA for longer than one 

year but lost its State contract, CMS 

would not approve the D–SNP and 

would terminate the plan. 

Response: The D–SNP State 

contracting requirement is separate from 

the SNP approval and SNP application 


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processes and is described elsewhere in 

this final rule. 

Comment: Several commenters 

recommended that CMS consider 

incorporating the SNP approval process 

into the existing NCQA accreditation 

process. One of the commenters 

requested that CMS replace specific 

Medicare requirements, such as QI 

program requirements that may be part 

of the NCQA accreditation process, in 

lieu of more appropriate and relevant 

MOC and SNP-specific measures. 

Response: Section 1859(f) of the Act 

specifies that the SNP approval process 

‘‘shall be based on the standards 

established by the Secretary.’’ While 

CMS has broad discretion regarding the 

development of the SNP approval 

process, our goal is to develop a process 

that is equitable for all SNPs. We do not 

believe that substituting NCQA 

accreditation for explicit SNP approval 

is appropriate because accreditation is 

voluntary, and not all plans are 

accredited, nor is NCQA the only 

accreditation organization recognized by 

CMS. CMS also has agreements with 

URAC (formerly the Utilization Review 

Accreditation Committee) and the 

Accreditation Association for 

Ambulatory Healthcare (AAAHC) to be 

deeming accreditation organizations. 

Each accreditation organization defines 

its fully accredited status level 

differently. 

Comment: Several commenters 

supported our proposal to consider 

implementing a multi-year approval 

period for high scoring plans. These 

commenters recommended a 3-to-5-year 

approval cycle to limit the 

administrative burden on plans that 

demonstrate their ability to meet the 

needs of special needs populations. 

These commenters stated that 

implementing an extended approval 

cycle would also allow CMS the 

opportunity to provide additional 

oversight of low performing plans. Two 

commenters recommended that CMS 

structure the approval process in a 

manner similar to that of the NCQA 

structure and process measures review 

cycle. 

Response: We agree with the 

commenters’ position that a multi-year 

approval period would limit MA 

organizations’ administrative burden. 

To that end, we intend to implement a 

multi-year approval process that will 

allow plans that receive a higher score 

on NCQA’s evaluation of their MOC to 

be granted a longer approval period, 

meaning they would not be required to 

be reapproved for 1 or more years, 

unlike plans that score at the lower end 

of the scoring spectrum and which will 

be granted a shorter approval period. 

Specific guidance regarding the 

standards for multiyear approvals will 

be provided in separate guidance such 

as HPMS memoranda and annual call 

letters. 

Comment: One commenter supported 

a multi-year approval cycle but 

recommended that, rather than develop 

new measures, CMS should use QI 

measures that SNPs currently collect, 

such as annual QI audit results. 

Response: We are conducting a review 

of the MOCs from a sample of the SNPs. 

While data are not yet available from 

these audits, we expect that the audits 

will be completed by the end of 

calendar year 2011. We will use these 

data to revise and improve the MOC 

requirements in the future, as well as to 

refine the required evaluation criteria 

for the SNP approval process over time. 

We will also continue to research 

additional and appropriate QI measures 

to use as part of this process. 

Comment: To avoid introducing 

additional complexity into the 

transition to NCQA approval of SNPs, 

one commenter recommended that CMS 

not introduce new criteria for evaluation 

of SNPs at this time. This commenter 

also recommended that, once our 

approval standards are finalized, CMS 

leave them intact for several years in 

order to give NCQA and plans time to 

assess operational impacts and to finetune their systems. 

Response: We intend to continue 

using criteria for evaluation of SNPs that 

are familiar to plans. However, we will 

continue researching the feasibility of 

revising the criteria for future approval 

cycles. We will communicate changes to 

these criteria and provide opportunities 

for public review and comment. 

Comment: Several commenters 

expressed concern that CMS is 

proposing to delegate full authority of 

the SNP approval process to NCQA. 

These commenters did not favor giving 

so much authority to a private entity 

whose processes and activities are not 

subject to public scrutiny. These 

commenters recommended that CMS 

periodically audit NCQA’s work to 

ensure that the work it is tasked with 

performing is serving the best interests 

of the beneficiaries. 

Response: Section 1859(f) of the Act 

requires that NCQA approve SNPs based 

on standards established by the 

Secretary. We will maintain oversight of 

this process via its contract with NCQA, 

as well as by establishing appropriate 

standards for NCQA approval, as 

described elsewhere in this preamble. 

Comment: One commenter requested 

that CMS clarify that it will continue its 

own review of SNP applications rather 

than allow NCQA approvals of two 

documents to serve as deemed 

compliance with all regulatory 

requirements. 

Response: We confirm that we will 

retain responsibility of the MA and SNP 

application review process, and the SNP 

approval process is one component of 

this process. We believe this commenter 

may have confused the NCQA approval 

process with the annual application 

process, since both have the same 

timeline. 

Comment: Several commenters 

recommended that CMS remove the 

SNP approval process from the annual 

SNP application timeframe. 

Response: We disagree with these 

commenters’ recommendation. While 

we proposed to link the SNP approval 

process to the MA application process, 

the SNP approval process is only one 

component of the overall process for 

determining whether a SNP may operate 

in contract year 2012. SNPs must still 

complete other components of the SNP 

proposal and other CMS requirements to 

be fully operational in contract year 

2012. We believe we are minimizing 

MA organizations’ administrative 

burden by linking the SNP approval 

process to the annual application cycle. 

Synchronizing the timelines for these 

two processes will allow SNPs to follow 

timelines and procedures with which 

they are familiar and allow for SNP 

approvals to be completed prior to the 

bid submission deadline. 

Comment: One commenter 

recommended that CMS work with 

SNPs to identify a list of SNP-specific 

clinical and non-clinical QIP topics that 

are relevant to target populations served 

by SNPs, as well as a list of topics for 

dual-eligible SNPs (D–SNPs) that could 

be coordinated with State Medicaid 

agencies so that they can meet both 

Federal and State requirements. 

Response: A major element in the 

design of the QIPs and CCIPs continues 

to be that they must address a target 

population that is appropriate for that 

plan. We intend to review the nonclinical and clinical QIPs and CCIPs that 

MA organizations have submitted to 

identify gaps in topics that plans should 

be addressing. We intend to issue 

further guidance on the submission of 

QIPs and CCIPs, through HPMS 

memoranda or the annual call letter 

process. 

Comment: Several commenters 

requested the opportunity to review and 

comment on the new QI program plan 

and MOC instructional guidance. 

Response: We are currently in the 

process of conducting a review of MOCs 

from a sample of SNPs. Information 

received from the review will be used to 

assist us in revising and improving the 


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MOC. In addition, we intend to use the 

information to modify and refine the 

required evaluation criteria over time to 

improve the QI program and the MOC. 

Updates or changes to the QI program 

plan and MOC instructional guidance 

will be made available in advance for 

public review and comment. 

Comment: One commenter 

recommended that the CMS Federal 

Coordinated Health Care Office work 

with NCQA and States to align MOC 

and QI program requirements 

established by CMS for the SNP 

approval process for D–SNPs. 

Response: We appreciate the 

recommendation and note that we are 

already working closely with the 

Federal Coordinated Health Care Office 

on a myriad of SNP issues. 

Comment: One commenter believed it 

was not clear when plans that are not 

requesting a service area expansion 

(SAE) would be evaluated. This 

commenter also requested that CMS 

clarify whether the January 1, 2012 

effective date means that the approval 

process begins in 2012 or that the 

approvals must be completed for all 

existing SNPs prior to January 1, 2012 

(thus beginning in 2011). 

Response: We approve potential 

applicants for contract the year prior to 

the date the contract becomes 

operational. Therefore, any 

requirements that must be in effect as of 

January 1, 2012 will be addressed as 

part of the 2012 SNP application cycle 

for contract year 2012. The deadline for 

submitting applications for 

consideration during the 2012 

application cycle was February 24, 

2011. 

4. Section 1876 Cost Contractor 

Competition Requirements (§ 417.402) 

In accordance with section 3206 of 

the ACA, which revised section 

1876(h)(5)(C) of the Act, we proposed in 

our November 2010 proposed rule (FR 

75 71199) to extend implementation of 

the section 1876 cost contract 

competition provisions until January 1, 

2013. Previously, MIPPA had specified 

that section 1876 cost contractors 

operating in service areas or portions of 

service areas with two or more local or 

two or more regional Medicare 

coordinated care plans meeting 

minimum enrollment requirements 

(5,000 enrollees for urban areas and 

1,500 enrollees for non urban areas) 

would be non-renewed beginning in 

2010. 

In implementing the new contract 

non-renewal date, we specified in our 

November 2010 proposed rule that we 

would evaluate enrollment of competing 

MA coordinated care plans beginning in 

2012, send out non-renewal notices to 

affected section 1876 cost contracts in 

2013, and that affected section 1876 cost 

contractors would first be unable to 

offer a plan beginning contract year 

2014. We proposed to codify the 

statutory change in § 417.402(c). 

We received no comments on this 

provision and are finalizing the 

provision as proposed. 

5. Making Senior Housing Facility 

Demonstration Plans Permanent (§ 422.2 

and § 422.53) 

Section 3208 of the ACA established 

(at section 1859(g) of the Act) that as of 

January 1, 2010, senior housing facility 

plans participating as of December 31, 

2009 ‘‘in a demonstration project 

established by the Secretary under 

which such a plan was offered for not 

less than 1 year’’ may continue 

participation as Medicare Advantage 

senior housing facility plans. In 

implementing this provision of the 

ACA, we proposed in our November 

2010 proposed rule (75 FR 71199 and 

71200) to amend the definitions at 

§ 422.2 to include ‘‘senior housing 

facility plan’’ as a new coordinated care 

plan type. Our proposed definition of 

the term was consistent with the 

statutory requirements for such plans at 

section 1859(g) of the Act: that such a 

plan restrict enrollment to individuals 

who reside in a continuing care 

retirement community as defined in 

§ 422.133(b)(2); provide primary care 

services onsite and have a ratio of 

accessible physicians to beneficiaries 

that we determine is adequate 

consistent with prevailing patterns of 

community health care as provided 

under § 422.112(a)(10); provide 

transportation services for beneficiaries 

to specialty providers outside of the 

facility; and was participating as of 

December 31, 2009 in a demonstration 

established by us for not less than 1 

year. We also noted that a senior 

housing facility plan must otherwise 

meet all requirements applicable to MA 

organizations under this part. 

In addition, we proposed to add a 

new § 422.53 to subpart B of Part 422 to 

address the eligibility and enrollment 

policies applicable to senior housing 

facility plans. We proposed specifying 

at § 422.53 that MA senior housing 

facility plans must restrict enrollment in 

these plans to residents of continuing 

care retirement communities, and that 

individuals enrolled in such plans must 

meet all other MA eligibility 

requirements in order to be eligible to 

enroll. In addition, we proposed 

specifying at § 422.53(c) that an MA 

senior housing facility plan must verify 

the eligibility of each individual 

enrolling in its plan using a CMSapproved process. We proposed that the 

regulations implementing this provision 

would be effective 60 days after the 

publication of the final rule. 

We are finalizing our proposed 

provisions regarding senior housing 

facility plans without modification. 

Comment: One commenter requested 

that our regulations make clear that, if 

a beneficiary who is enrolled in a senior 

housing facility plan moves out of the 

senior housing facility, he/she would be 

eligible for a special election period 

and, therefore, able to enroll in another 

MA plan or PDP outside of the annual 

election period. 

Response: We agree with this 

commenter that a special election 

period should apply in this situation; 

however, it is not necessary to codify a 

new special election period for this 

situation. Current guidance in Chapter 2 

of the Medicare Managed Care Manual 

http://www.cms.gov/MedicareMangCare

EligEnrol/Downloads/FINALMA

EnrollmentandDisenrollmentGuidance

UpdateforCY2011.pdf, entitled 

‘‘Medicare Advantage Enrollment and 

Disenrollment,’’ provides that an MA 

enrollee is eligible for the SEP for 

changes in residence if he/she moves 

out of the plan’s service area. Since a 

senior housing facility plan’s service 

area is comprised of only the senior 

housing facility, an enrollee who moves 

out of the senior housing facility may 

use this existing SEP to enroll in any 

MA or Part D plan for which he/she is 

eligible in his/her new place of 

residence and is eligible for Medigap 

guaranteed issue rights if he/she 

disenrolls to Original Medicare. 

6. Authority to Deny Bids (§ 422.254, 

§ 422.256, § 423.265, and § 423.272) 

Section 3209 of the ACA amends 

section 1854(a)(5) of the Act by adding 

subsection (C) (ii) to stipulate and 

expressly provide that the Secretary 

may deny a bid submitted by an MA 

organization for an MA plan if it 

proposes significant increases in cost 

sharing or decreases in benefits offered 

under the plan. Section 3209 of the ACA 

also extends this provision to apply to 

the review of bids from Part D sponsors 

by amending section 1860D–11(d) of the 

Act to add a new paragraph (3). This 

statutory authority applies to bids 

submitted for contract years beginning 

on or after January 1, 2011. However, as 

indicated in section II.A. of this final 

rule, the regulations codifying this 

provision will be effective 60 days after 

the date of display of the final rule. 

In the proposed rule, we stated that 

we believe these amendments clarify the 

Secretary’s authority to deny bids 


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submitted by MA organizations and PDP 

sponsors and provide support for our 

current policies as specified in our final 

rule, ‘‘Policy and Technical Changes to 

the Medicare Advantage and the 

Medicare Prescription Drug Benefit 

Programs’’ (75 FR 19678 through 19826). 

These policies include imposing limits 

on cost sharing and denying bids 

submitted by plans with sustained low 

enrollment or bids for multiple plans 

offered by the same MA organization or 

PDP sponsors in a service area that are 

not meaningfully different with respect 

to benefits or costs. These policies were 

further discussed in a memorandum 

sent on April 16, 2010 via the Health 

Plan Management System (HPMS) titled 

‘‘Benefits Policy and Operations 

Guidance Regarding Bid Submissions; 

Duplicative and Low Enrollment Plans; 

Cost Sharing Standards; General 

Benefits Policy Issues; and Plan Benefits 

Package (PBP) Reminders for Contract 

Year (CY) 2011.’’ 

Because these policies have been 

implemented so recently, we concluded 

that it was premature to propose 

additional regulatory restrictions 

limiting MA organizations’ or PDP 

sponsors’ flexibility in developing plan 

bids until we are able to evaluate the 

effectiveness and impact on the market 

of those current policies. However, in 

the preamble to the proposed rule, we 

requested comments on the criteria 

outlined in our April 16, 2010 guidance 

issued via HPMS and whether we 

should establish additional 

requirements to limit plan offerings in a 

service area and whether there are other 

measures we should consider as part of 

future rulemaking that may help us in 

our efforts to protect beneficiaries and 

promote the provision of high quality, 

affordable health plans. We also invited 

comments on whether we should adopt 

other substantive criteria for exercising 

our authority under 3209 of the ACA by 

implementing caps or limits on the 

number of plans offered in a region, or 

on the number of sponsors participating 

in the program. Finally, we solicited 

comments on the best way to ensure fair 

notice and equal treatment for all plan 

bids in the absence of specific nonacceptance and denial policies. While 

we indicated that we would not propose 

additional specific regulatory criteria for 

CY 2012, we noted that our decision 

should not be interpreted as an 

indication that we would not adopt 

specific policies in future rulemaking. 

We will consider the suggestions and 

comments we received from the public 

on the proposed rule to guide our future 

policy. 

We proposed to codify the 

amendments made to sections 

1854(a)(5) and 1860D–11(d) of the Act 

by adding paragraph (a)(5) to § 422.254, 

revising § 422.256(a), adding paragraph 

(b)(3) to § 423.265 and by adding 

paragraph (b)(4) to § 423.272. 

Comment: We received several 

recommendations in response to our 

request for comments on our current 

meaningful differences policies. 

Commenters recommended that CMS 

issue clear and comprehensive guidance 

containing the CMS criteria for 

evaluating and accepting or denying MA 

and Part D plan bids well in advance of 

the bid deadline. Moreover, commenters 

recommended that CMS provide 

specific information to MA 

organizations and Part D sponsors that 

is sufficiently detailed to allow sponsors 

the ability to replicate the 

methodologies applied in the tools that 

CMS uses in its bid evaluations. This 

information should be sufficient for 

plan actuaries to test their assumptions 

against CMS assumptions prior to their 

bid submission. 

Response: We appreciate your 

comments regarding our current 

meaningful differences policies. We 

have released, via the Final Rate 

Announcement and Call Letter for CY 

2012 released on April 4, 2011, a 

detailed discussion of the methods and 

tools that CMS intends to use to 

evaluate bids and ensure beneficiaries 

enjoy meaningful choices among MA 

and Part D plans. Specifically, in the 

final CY 2012 Call Letter, we announce 

that we will make an out-of-pocket cost 

(OOPC) model available that will allow 

plans to calculate OOPC estimates for 

each of their benefit offerings to prepare 

for negotiations with us. Standalone 

PDPs, MA, and MA–PD sponsors and 

organizations are encouraged to run 

their plan benefit structures through the 

OOPC model to ensure meaningful 

differences between their plan offerings 

as required by CMS regulations (see 

§ 423.272(b)(3)(i) and § 423.265(b)(2)). 

Plans will be asked to complete this 

analysis prior to submitting their bids 

for the CY 2012. 

A detailed discussion regarding the 

thresholds that CMS will be using for 

CY 2012 meaningful differences policies 

are included in the Final Rate 

Announcement and Call Letter for CY 

2012. 

Comment: We received several 

comments regarding the bid evaluation 

tools used by CMS and as specified in 

the April 16, 2010 guidance. 

Specifically, commenters indicated that 

if the total beneficiary cost (TBC) metric 

is used in future bidding cycles, CMS 

will need to take into account planspecific variations such as plan 

consolidation, new plan service areas, 

pairing of plans to meet target margins 

and other payment policy issues such as 

the lagged sustainable growth rate (SGR) 

fix. 

A few commenters indicated that 

CMS did not provide sufficiently 

detailed information as to how plan 

benefits as part of the OOPC calculation 

were projected and estimated for 2011. 

A number of sponsors discovered 

during bid negotiations that estimates 

they had produced to guide their benefit 

designs were significantly different than 

CMS recommendations. Commenters 

recommended CMS reevaluate use of 

the tool to analyze plan bids and engage 

in detailed discussion with MA and Part 

D plan sponsors to identify alternatives. 

One commenter believes the OOPC 

tool, which is used by CMS to provide 

out-of-pocket costs information through 

the http://www.Medicare.gov Web site, 

is inappropriate and the estimates 

produced by the tool are not linked to 

the projections of MA and Part D planspecific enrollee utilization of 

healthcare services and the revenue 

needed to fund them that are at the core 

of plan bids. Instead, these estimates 

reflect utilization under the Medicare 

fee-for-service program for a sample of 

beneficiaries that is somewhat out of 

date. 

Response: We appreciate the 

commenters’ suggestions and critique of 

our current bid evaluation tools. Based 

on the comments we have received in 

response to this rule and from the 

industry following bid negotiations for 

CY 2011, we have committed to 

providing additional information 

regarding the OOPC calculation and an 

OOPC tool to address the industry’s 

specific concerns and to support their 

development of plan bids for CY 2012. 

We have also provided additional 

guidance and proposed policies for bid 

review in the Final Rate Announcement 

and Call Letter for CY 2012. 

Comment: A few commenters 

recommend that star quality ratings 

either should, or should not, be used 

when evaluating plan bids. One 

commenter indicated that quality 

ratings, such as low star ratings, should 

be used as bid evaluation criteria since 

lower star ratings would result in 

decreased enrollment causing the plan 

to eventually fail meeting our lowenrollment thresholds. Other 

commenters support the use of star 

ratings and recommended that CMS 

only reassign beneficiaries to plans with 

a star rating of four stars or higher 

ensuring beneficiaries are offered plans 

that have a track record of quality 

service. One commenter indicated that 

they support the use of the star rating 

system; however, CMS would need to 


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consider the different changes faced by 

plans in geographic areas. 

Response: We appreciate the 

comments we received regarding the 

potential use of quality ratings in 

determining whether to deny or decline 

bids under our new authority. While we 

will not be codifying specific criteria 

under this rule at this time, in the future 

we may explore the use of our authority 

to deny bids based on quality ratings, 

such as the star ratings. 

Comment: Several commenters 

indicate that CMS should not impose 

limits on the number of plans in a 

service area, nor limit the number of 

MA organizations or Part D sponsors 

participating in the program, as this 

would be inconsistent with the 

competitive framework of the MA and 

Part D programs. One commenter 

indicated that limiting the number of 

plans in a specific service area would 

limit competition and potentially lead 

to higher prices and program costs in 

the long run. Another commenter 

suggests that CMS defer further 

consideration of initiatives to limit the 

number of plans offered until the impact 

of existing policies and statutory 

program changes can be fully evaluated. 

Response: We appreciate the 

comments we received regarding 

limiting the number of plans in a service 

area and limiting the organizations that 

participate in the program using the 

new authority to not accept bids. We 

will not be codifying such limits under 

this rule. We will consider these 

comments if we propose additional 

rulemaking limiting plans in a service 

area, or, limiting organizations 

participating in the program. 

Comment: One commenter requests 

that we continue the waiver of our 

meaningful differences policy for 

employer group waiver plans (EGWPs). 

Response: We announced in the Final 

Rate Announcement and Call Letter for 

CY 2012, released on April 4, 2011, that 

this waiver will continue to apply to 

EGWPs for CY 2012 and future contract 

years. 

Comment: Many commenters 

indicated either their support for, or 

opposition to, a premium increase 

threshold when determining whether to 

deny or decline bids under our new 

authority. In particular, one commenter 

indicated that CMS be permitted to 

deny a bid if such premium increases or 

benefit changes are unsubstantiated. An 

exception to an unsubstantiated change 

would be if actuarially the benefit 

design requires that benefits be 

decreased if premiums increased. 

Another commenter indicated that 

denying bids based upon changes to 

premiums assumes all sponsors have 

gravitated to the same level of maturity 

and that individual plan differences 

should be accounted for when applying 

a cap on premium increases. 

Response: We appreciate the 

comments we received regarding the use 

of strict limits on premium increases or 

benefit decreases when evaluating bids. 

While we will not be codifying into 

regulation strict limitations on premium 

increases or benefit decreases as part of 

this final rule, we will take these 

comments into consideration as our 

policies regarding our authority to deny 

bids evolve. 

Comment: One commenter urged that 

CMS consider a plan’s proposed profit 

margin in order to assure consistent and 

fair treatment across health plans. This 

commenter believed that plans with 

higher profit margins have a greater 

capacity to implement member cost 

reductions requested by CMS, and plans 

that have losses, or very small profit 

margins, should be allowed to increase 

their profit to allow for risk reserves. 

Response: We appreciate the 

recommendation provided by this 

commenter. As our meaningful 

differences policies and the impact of 

such policies on plan bids evolve, we 

will consider the possibility of 

examining plan profit margins as part of 

our bid evaluation criteria. 

Comment: A few commenters 

believed it was important for us to 

develop an appeals process for plans 

that face bid denials and that such 

processes should allow for the timely 

reconsideration of our decision. 

Response: We will not be adopting 

specific bid denial criteria or processes 

in this final rule. We will continue to 

work with plans prior to, and during, 

the bidding process to ensure the 

meaningful differences policies and bid 

evaluation criteria, as set forth in our CY 

2012 Final Rate Announcement and Call 

Letter, take into account the individual 

plan’s population, service area, and 

level of maturity. We will ensure this 

information is provided in a timely 

manner so that plans will know, 

prospectively, our expectations 

regarding the plans that will be made 

available to our Medicare population. 

Comment: We received many 

comments requesting that CMS disclose, 

prior to bid development, all criteria 

that will be used to review bids each 

contract year. The commenters asserted 

that without definitions of what CMS 

identifies as ‘‘significant increases’’ in 

cost sharing or ‘‘decreases in benefits’’ 

offered and all other criteria by which 

plan bids will be evaluated and possibly 

denied, MAOs and Part D sponsors 

could be subject to inconsistent and 

potentially unfair bid denials. 

Commenters overwhelmingly requested 

that CMS make available in this final 

rule, its annual Call Letter or other 

appropriate published guidance, no 

later than mid-April, the specific 

standards plan bids will be required to 

meet as well as, the tools and 

methodologies that would be necessary 

for plans to replicate CMS’ bid review 

results. They asserted that if plans are 

provided the appropriate tools and 

information they will be able to develop 

and submit initial plan bids that meet 

all CMS requirements. 

Response: We agree with commenters 

that plan bids based on guidance we 

provide prior to or during bid 

development are more likely to satisfy 

our requirements. The final CY 2012 

Call Letter, released on April 4, 2011, 

provides the tools and information 

necessary for sponsors to develop and 

submit complete initial bids that will 

meet our requirements. 

Comment: Some of the comments we 

received requested that CMS not deny 

bids based on increases in beneficiary 

costs or on decreases in benefits offered 

because plans may need to increase 

costs or decrease benefit offerings to 

cover the growing gap between costs for 

providing services and revenue. 

Commenters expressed concern that 

continued application of the Total 

Beneficiary Cost (TBC) review criterion 

that CMS used for review of CY 2011 

bids has the potential to undermine the 

financial integrity of plan bids and to 

adversely affect enrolled beneficiaries. 

Some stated their beliefs that the 

constraint on increases in plans’ 

revenue required to meet the TBC 

measure is likely below a reasonable 

cost trend and could result in negative 

margins for some plan bids, putting 

them in conflict with other CMS bid 

guidance. Finally, commenters asserted 

that CMS criteria that limit premium 

and other beneficiary cost increases or 

decreases in benefits offered are not 

consistent with competitive bidding, the 

fundamental principal that bids should 

satisfy actuarial soundness requirements 

that anticipated revenue is sufficient to 

cover plan costs, or the requirement that 

bids be certified by actuaries. 

Response: We understand that MAOs 

and Part D plan sponsors may be facing 

a number of challenges as they develop 

plan bids for CY 2012, including those 

related to meeting our standards for 

meaningfully different plan offerings, 

out-of-pocket maximums and cost 

sharing standards. We develop bid 

requirements with input from our Office 

of the Actuary (OACT), which takes into 

consideration the potential impact of its 

own guidance regarding negative 

margins. Together, we have developed a 


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TBC requirement that will not restrict a 

plan’s ability to meet any additional bid 

guidance (for example, OACT’s negative 

margin requirement) and considers 

environmental changes, as well as 

changes in Medicare payment and their 

impact on plan bids. In our final CY 

2012 Call Letter, we describe the 

methodology we will use to limit 

significant increases in TBC to ensure 

that plans offered for CY 2012 are 

affordable and offer good value for 

enrollees. As described previously, we 

have provided a detailed discussion of 

the methods and tools we intend to use 

to evaluate plan bids in our CY 2012 

Call Letter. We evaluate this guidance 

annually, and make refinements as 

necessary, taking into consideration 

comments we receive from industry 

following the end of bid review season. 

For CY 2012, we also are providing 

additional information about the OOPC 

calculation and will make an OOPC 

model available so that plans will be 

able to calculate OOPC estimates for 

their target benefit offerings in advance 

of submitting their bids to CMS. We 

believe that this increased transparency 

will support plans in their work to 

develop their benefit designs. 

Comment: Many commenters 

indicated that if CMS does maintain its 

policy to approve only plan bids that do 

not propose significant increases in 

beneficiary costs or decreases in benefits 

offered using the TBC measure then the 

measure will need to take into account 

the large effects of CMS payment 

changes, plan-specific variations such as 

plan consolidation, new plan service 

areas, whether the plan is a SNP, pairing 

of plans to meet target margin and other 

payment policy issues. One commenter 

urged that MAOs be able to adjust for 

mistakes made in prior years’ bids, such 

as to revise benefit amounts to curb 

demonstrated adverse selection into the 

plan. 

Response: We thank the commenters 

for their suggestions for enhancing the 

development of the TBC criterion. We 

have considered these issues and 

worked with OACT to incorporate 

several of these factors, to the extent 

possible, into the TBC measure for CY 

2012. However, we wish to point out 

that CMS does not support the notion 

that a plan should be able to adjust their 

pricing year to year to account for 

‘‘mistakes’’ in a prior year’s bid. Plans 

are responsible for submitting bids that 

reflect accurate and actuarially 

reasonable bid projections and 

assumptions for the coming year, which 

should not include amounts attributable 

to making up for errors in a past year. 

Therefore, our TBC measure will not 

account for errors in a plan’s previous 

year’s bid. To the extent practicable, we 

will consider relevant and appropriate 

factors and circumstances in order to 

develop and publish in a timely manner 

measures that we will use to evaluate 

bids consistently across plans. 

Comment: Commenters expressed 

their concern that any single threshold 

established by CMS for review of 

significant increases in beneficiary costs 

or decreases in benefits offered would 

fail to address the many circumstances 

that vary across plans such as, 

geographic location, plan size, plan 

experience, plan type, and their belief 

that CMS must ensure that plans have 

some ‘‘due process’’ rights related to the 

upcoming contract year bid review. In 

addition to receiving full and timely 

disclosure of the criteria to be used for 

evaluating plan bids, commenters 

would like an opportunity to question, 

or comment on, CMS’ methodologies 

prior to their implementation, and 

request assurance from CMS that bids 

will be reviewed using only published 

criteria. The commenters believe that 

CMS owes them a meaningful 

opportunity to challenge the application 

of CMS’ criteria to their bids, using 

actuarial analysis, and to modify a bid 

that does not satisfy the criteria or 

where CMS choose not to accept the 

organization’s rationale for the bid. As 

another example, commenters requested 

that CMS permit bid approvals in cases 

in which the plan can demonstrate 

actuarial justification for decreases in 

benefits offered and/or increases in 

beneficiary costs that exceed CMS’ 

threshold. 

Response: We thank the commenters 

for sharing these concerns. As in past 

years, our goal is to ensure that the MA 

and Part D programs remain healthy and 

that there are meaningful, high value 

choices available to beneficiaries We 

note that during CY 2011 bid reviews, 

the vast majority of outlier plans came 

into compliance with CMS guidance or 

submitted acceptable justifications to 

CMS for their plan bid. In an effort to 

reduce confusion, and the need for 

resubmissions, CMS is providing 

comprehensive guidance and tools in 

advance of the bid submission deadline 

so that organizations can develop initial 

submissions that meet all bid 

requirements. Organizations had an 

opportunity to comment on our 

guidance and methodology through the 

draft CY 2012 Call Letter and we 

considered such comments in preparing 

the final CY 2012 Call Letter, released 

on April 4, 201l. 

Comment: One commenter 

recommended that CMS, as it 

implements its authority deny bids, 

continue to examine the impact of cost 

sharing for specialty tier drugs in a 

plan’s formulary which may reduce 

patient access to needed medications. 

Response: This comment is not 

relevant to the discussion in the 

proposed rule concerning our authority 

to deny bids; rather, it is a comment on 

CMS’ formulary review process. We 

have in place a rigorous formulary 

review process that ensures cost-sharing 

imposed by plans on drugs found on 

specialty tiers will not impede a 

beneficiary’s access to medications. 

7. Determination of Part D Low-Income 

Benchmark Premium (§ 423.780) 

The ACA amends the statute 

governing the calculation of the LIS 

benchmark premium amount (see 

section 3302 of the ACA, as amended by 

section 1102 of HCERA). As amended, 

section 1860D–14(b)(3)(B)(iii) of the Act 

requires us to calculate the LIS 

benchmarks using MA–PD basic Part D 

premiums before the application of Part 

C rebates each year, beginning with 

2011. We proposed to update the 

regulations at § 423.780(b)(2)(ii)(C) to 

incorporate this change. We also 

proposed that the regulations 

implementing this provision would be 

effective 60 days after the publication of 

the final rule. 

Comment: We received several 

comments in support of the proposed 

change. 

Response: We agree that LIS 

benchmarks should be calculated using 

basic Part D premiums before the 

application of Part C rebates and we are 

finalizing this provision without 

modification. 

8. Voluntary De Minimis Policy for 

Subsidy Eligible Individuals (§ 423.34 

and § 423.780) 

Section 3303(a) of the ACA modifies 

section 1860D–14(a) of the Act by 

creating a new subsection (5) that 

permits PDPs and MA–PD plans to 

waive a de minimis monthly beneficiary 

premium for low income subsidy (LIS) 

eligible individuals who are enrolled in 

the plan. The provision also prohibits 

the Secretary from reassigning LIS 

individuals enrolled in a plan with a 

premium greater than the LIS 

benchmark premium amount, so long as 

the amount of the premium that exceeds 

the LIS benchmark is de minimis and 

the plan volunteers to waive that de 

minimis amount. 

Section 3303(b) of the ACA modifies 

section 1860D–1(b)(1) of the Act by 

inserting new language in subparagraph 

(C) and adding a new subparagraph (D) 

that permits the Secretary to include 

PDPs and MA–PD plans that waive the 

de minimis amount in the autoVerDate Mar<15>2010 17:41 Apr 14, 2011 Jkt 223001 PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 E:\FR\FM\15APR2.SGM 15APR2

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enrollment process that we use to enroll 

those LIS-Eligible individuals who fail 

to enroll in a Part D plan. If these plans 

are included in the process, and more 

than one such plan exists within the 

respective PDP region, the statute 

requires that enrollees be randomly 

assigned among all such plans in the 

PDP region. We proposed to amend 

§ 423.34 and § 423.780(f) to codify the 

new statutory requirements. The 

statutory provision is effective January 

1, 2011; however, as indicated in 

section II.A. of this final rule, the 

regulations implementing these 

provisions are effective 60 days after the 

date of display of this final rule. 

a. Reassigning LIS Individuals (§ 423.34) 

Section 423.34(c) specifies that CMS 

may reassign certain LIS-eligible 

individuals if CMS determines that 

further enrollment is warranted. We 

have used this authority to reassign LISeligible individuals annually when a 

PDP’s monthly beneficiary premium 

amount will exceed the low income 

benchmark, as calculated in 

§ 423.780(b)(2). As noted previously, the 

ACA prohibits the Secretary from 

reassigning a plan’s LIS eligible 

enrollees based on the fact that the 

plan’s monthly beneficiary premium 

exceeds the LIS benchmark premium 

amount, so long as the amount of 

premium that exceeds the LIS 

benchmark is de minimis and the plan 

volunteers to waive that de minimis 

amount. Thus, plans that would 

otherwise have lost enrollees because of 

a de minimis monthly beneficiary 

premium can retain such membership. 

We proposed to amend § 423.34(c) 

regarding reassignment of LIS 

beneficiaries to reflect section 1860D– 

14(a)(5) of the Act. 

Comment: All commenters supported 

our proposal to amend section 

§ 423.34(c) to reflect newly added 

section 1860–14(a)(5) of the Act. These 

commenters noted that the primary 

benefits of such a de minimis policy are 

to minimize the need for reassignments, 

and the associated disruptions of an 

individual’s continuity of care. One 

commenter recommended that we 

provide additional language in 

§ 423.34(c)(1) to describe the 

circumstances under which 

reassignment occurs and the individuals 

affected by reassignment, in order to 

provide meaningful context for the 

exception described in § 423.34(c)(2). 

Response: We agree with commenters 

that the de minimis policy supports the 

desirable goal of minimizing disruptions 

of an individual’s continuity of care 

potentially associated with 

reassignment, while simultaneously 

ensuring a zero-premium Part D benefit 

to certain LIS-eligible individuals 

unlikely to have the financial means to 

pay the de minimis amount. Also, we 

appreciate the suggestion that additional 

context be added in § 423.34(c)(1) to 

describe the circumstances under which 

reassignment occurs and the individuals 

affected by reassignment. However, we 

believe that it is more appropriate to 

provide the level of detail the 

commenters request through 

subregulatory guidance. Therefore, we 

are finalizing our proposal to amend 

§ 423.34(c) without modification. We 

will update Chapter 3 of the Medicare 

Prescription Drug Benefit Manual, 

(‘‘Eligibility, Enrollment, and 

Disenrollment’’—available at the 

following link: http://www.cms.gov/ 

MedicarePresDrugEligEnrol) to provide 

the additional context requested by 

commenters. 

b. Enrollment of LIS-Eligible Individuals 

(§ 423.34) 

Section 423.34(d) specifies that CMS 

will automatically enroll LIS-eligible 

individuals who fail to enroll in a PDP. 

The pool of PDPs into which we autoenroll these individuals includes those 

plans with monthly beneficiary 

premiums for LIS-eligible individuals 

that do not exceed the low income 

benchmark as calculated in 

§ 423.780(b)(2). We proposed to amend 

§ 423.34(d) regarding auto-enrollment of 

LIS-eligible individuals to be consistent 

with section 1860D–1(b)(1) of the Act, 

as modified by section 3303(b) of the 

ACA, which expands the Secretary’s 

discretionary authority to include PDPs 

or MA–PD plans that voluntarily waive 

the de minimis amount in the pool of 

Part D plans qualified to receive autoenrollees and reassignees, if the 

Secretary determines that such 

inclusion is warranted. 

Comment: The majority of 

commenters supported our proposal to 

amend § 423.34(d) to be consistent with 

section 1860D–1(b)(1) of the Act, as 

modified by section 3303(b) of the ACA. 

However, a few commenters urged that 

CMS not codify such discretionary 

authority with respect to including MA– 

PD plans that voluntarily waive the de 

minimis amount in the pool of qualified 

plans to receive auto-enrollees and 

reassignees. Among the reasons they 

cited for not including the provisions 

concerning MA–PD plans in the 

regulations were that: (1) Random autoenrollment and reassignment of such 

beneficiaries into MA–PD plans could 

have deleterious consequences on an 

individual’s access to his or her Part A 

and Part B benefits; and (2) the public 

policy goal of eliminating premium 

cost-sharing for such LIS-eligible 

beneficiaries would not be 

accomplished for those individuals 

enrolled into an MA–PD plan with a 

Part D beneficiary premium within the 

de minimis amount but a Part C 

beneficiary premium of an amount for 

which the LIS recipient would incur 

liability. 

Response: We agree with the concerns 

raised by these commenters, particularly 

with respect to the potential disruption 

of an individual’s access to his or her 

Part A and Part B benefits (for example, 

by imposing network restrictions) by 

including MA–PD plans that voluntarily 

waive the de minimis amount in the 

pool of Part D plans qualified to receive 

auto-enrollees and reassignees. Since 

the inception of the auto-enrollment and 

reassignment processes, this concern 

has served as an underlying basis for 

inclusion of only PDPs in the pool of 

Part D plans that receive auto-enrollees 

and reassignees. We also agree that autoenrollment and reassignment of such 

LIS-eligible individuals into MA–PD 

plans, in some cases, would fall short of 

our public policy goal of ensuring zero 

premium cost-sharing for these 

beneficiaries to access their Part D 

benefit. 

For the reasons stated previously, we 

are amending § 423.34(d) to codify the 

Secretary’s authority only with respect 

to including PDPs that voluntarily 

waive the de minimis amount in the 

pool of plans qualified to receive autoenrollees and reassignees. At this time, 

we do not intend to exercise such 

authority to auto-enroll or reassign LISeligible beneficiaries into PDPs that 

voluntarily waive the de minimis, 

except under limited instances, such as 

to allow beneficiaries to remain within 

the same parent organization or to 

ensure that LIS-eligible beneficiaries in 

all PDP regions have access to a plan 

with zero beneficiary premium liability. 

However, the regulations will retain the 

flexibility to permit future 

reassignments to PDPs above the LIS 

benchmark that waive the de minimis 

amount, should the Secretary determine 

such reassignments to be warranted. 

Comment: One commenter suggested 

that CMS examine the impact on 

enrollment stability if the Agency were 

to apply the de minimis policy to partial 

premium subsidy recipients. 

Response: The underlying goal of the 

de minimis policy is to minimize 

unexpected disruptions of care that may 

result from reassignment. The proposed 

application of the de minimis policy to 

full-benefit subsidy beneficiaries 

supports this policy goal, as we do not 

reassign partial premium subsidy 

recipients enrolled in a Part D plan with 


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a beneficiary premium amount that 

exceeds the LIS benchmark amount. 

Since partial premium subsidy 

recipients pay a partial premium, they 

are more likely to be accustomed to 

proactively selecting a plan with a 

premium amount within their financial 

means to avoid disruption of care. 

Finally, application of the de minimis 

policy to partial premium subsidy 

recipients would partially undermine 

the downward pressure on Part D bids 

by decreasing the incentive for plans to 

bid lower in order to retain such 

beneficiaries. Therefore, we are making 

no modifications to our de minimis 

proposal with respect to its application 

to only full-benefit subsidy recipients. 

Comment: One commenter urged 

CMS to permit plan sponsors to reassign 

LIS beneficiaries enrolled in its 

‘‘enhanced plan’’ into the plan sponsor’s 

‘‘basic plan.’’ The commenter noted that 

such a change would minimize 

disruption of care as the beneficiary 

would remain within the same parent 

organization, which typically has the 

same formularies and many similar 

benefits and services across plans. The 

commenter further noted that such a 

policy would prevent potential future 

terminations of members due to nonpayment of premium, since their 

premium in the new plan should be 

much less than in the enhanced plan. 

Response: In accordance with our 

long-standing public policy of honoring 

a beneficiary’s plan choice by excluding 

from the reassignment process those 

beneficiaries who have proactively 

enrolled in a plan, we will continue our 

like-minded policy that prohibits plans 

from passively and selectively 

reassigning LIS-eligible beneficiaries 

who have proactively enrolled in the 

sponsor’s enhanced plan. In the rare 

instance of plan consolidations, such 

reassignments may be permitted at our 

discretion, as they would not dishonor 

the beneficiary’s plan choice, since the 

chosen plan no longer exists under such 

circumstances. Such situations would 

generally involve the elimination of the 

enhanced plan for all enrollees, and 

thus would not result in the selective 

reassignment of LIS-eligible 

beneficiaries. 

c. Premium Subsidy (§ 423.780) 

We also proposed to amend 

§ 423.780(f) to reflect section 1860D– 

14(a)(5) of the Act, permitting a Part D 

plan to waive a de minimis amount that 

is above the monthly beneficiary 

premium defined in 

§ 423.780(b)(2)(ii)(A) or (B) for full 

subsidy individuals as defined in 

§ 423.780(a) or § 423.780(d)(1), provided 

waiving the de minimis amount results 

in a monthly beneficiary premium that 

is equal to the established low income 

benchmark as defined in § 423.780(b)(2). 

In addition, because section 1860D– 

14(a)(5) of the Act refers to waivers of 

de minimis premium that exceeds the 

low-income benchmark, which accounts 

only for the basic benefit, we limit the 

waiver of the de minimis amount to the 

premium applicable to the basic benefit. 

Comment: We received one comment 

strongly encouraging CMS to increase 

the de minimis amount beyond $2.00 for 

full-benefit dual-eligible beneficiaries 

enrolled in special needs plans to help 

meet the needs of this more vulnerable 

population. 

Response: We determine the de 

minimis amount based on the outcome 

of the plan bidding process. We 

consider the impacts of setting the de 

minimis amount at varying levels each 

year, including the impact on the 

number of zero premium plans and the 

number of reassignments. At this time, 

however, we do not believe that it is 

necessary to apply different de minimis 

amounts for various plan types, because 

we believe that a uniform de minimis 

amount ensures that impacted 

beneficiaries are treated equitably in 

terms of their premium assistance 

regardless of plan type. Thus, we plan 

to continue establishing a uniform de 

minimis amount applicable to all plan 

types each year. 

Comment: Some commenters 

recommended that CMS release the LIS 

benchmarks and the de minimis amount 

earlier than August to allow adequate 

time for Part D sponsors to modify 

systems and member communications 

given the statutory change to the AEP. 

Response: While we appreciate 

concerns about providing sufficient time 

for Part D sponsors to modify their 

systems and member communications, 

we cannot determine the regional LIS 

benchmarks until August when the Part 

D bids have been received and 

reviewed. In order for Part D sponsors 

to modify systems and member 

communications, they would need both 

the regional LIS benchmarks and the de 

minimis amount. Additionally, we 

release the de minimis amount in 

August to ensure that it does not 

influence bid submissions 

inappropriately. Therefore, we will not 

be modifying the release date of the 

regional LIS benchmarks or de minimis 

amount and are finalizing our proposal 

without modification. 

9. Increase In Part D Premiums Due to 

the Income Related Monthly 

Adjustment Amount (D—IRMAA) 

(§ 423.44, § 423.286, and § 423.293) 

Section 3308 of the ACA amended 

section 1860D–13(a) of the Act by 

establishing an income related monthly 

adjustment amount (hereafter referred to 

as Part D—IRMAA) that is added to the 

monthly Part D premium for individuals 

whose modified adjusted gross income 

exceeds the same income threshold 

amounts established under section 

1839(i) of the Act with respect to the 

Medicare Part B income related monthly 

adjustment amount (Part B—IRMAA). 

In CY 2007, the income ranges set 

forth in section 1839(i) of the Act 

required that individual and joint tax 

filers enrolled in Part B whose modified 

adjusted gross income exceeded $80,000 

and $160,000, respectively, would be 

assessed the Part B—IRMAA on a 

sliding scale. As specified in section 

1839(i)(5) of the Act, since the 

implementation of the Part B—IRMAA, 

each dollar amount within the income 

threshold tiers has been adjusted 

annually based on the Consumer Price 

Index. As a result of the annual 

adjustment, for calendar year 2010, the 

income threshold amounts were 

increased to reflect the four income 

threshold amount tiers shown below: 


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We note that section 3402 of the ACA 

freezes the income thresholds at the 

above 2010 levels through 2019. 

In accordance with section 3308 of 

the ACA, effective January 1, 2011, any 

individual enrolled in the Medicare 

prescription drug program whose 

modified adjusted gross income exceeds 

the same income threshold amount tiers 

established under Part B will have an 

income related increase to his/her Part 

D monthly premium. Section 3308 of 

the ACA provides that the Part D— 

IRMAA will be calculated using the Part 

D national base beneficiary premium 

and the premium percentages in the 

above chart as follows: BBP × [(P 

percent ¥25.5 percent)/25.5 percent]. 

The BBP is the base beneficiary 

premium and P is the applicable 

premium percentage (35 percent, 50 

percent, 65 percent, or 80 percent). The 

premium percentage used in the 

calculation will depend on the level of 

the Part D enrollee’s modified adjusted 

gross income. 

Section 3308 of the ACA requires 

CMS to provide the Social Security 

Administration (SSA) with the national 

base beneficiary premium amount used 

to calculate the Part D—IRMAA no later 

than September 15 of every year, 

beginning in 2010. Beginning in 2010, 

we must also provide SSA, no later than 

October 15 of each year, with: (1) The 

modified adjusted gross income 

threshold ranges; (2) the applicable 

percentages established for Part D— 

IRMAA in accordance with section 

1839(i) of the Act; (3) the corresponding 

monthly adjustment amounts; and (4) 

any other information SSA deems 

necessary to carry out the Part D— 

IRMAA. With respect to the final item, 

we previously provided SSA with an 

initial list of all individuals enrolled in 

the Part D program. 

In accordance with section 3308 of 

the ACA and the interim final rule with 

request for comments entitled 

‘‘Regulations Regarding Income-Related 

Monthly Adjustment Amounts to 

Medicare Beneficiaries’ Prescription 

Drug Coverage Premiums’’ (75 FR 

75884), SSA used this initial list of Part 

D enrollees to request beneficiaryspecific tax payer information from the 

Internal Revenue Service in order to 

determine: (1) Which Part D enrollees 

exceed the income threshold amounts 

established under section 1839(i) of the 

Act; and (2) the income related monthly 

adjustment amount that these enrollees 

must pay. This exchange of information 

between CMS and SSA occurred in 2010 

so that individuals identified were 

billed the correct Part D—IRMAA 

beginning January 1, 2011. Following 

this initial data exchange with SSA, 

CMS will routinely provide SSA with 

the names of all individuals newly 

enrolling in the Part D program so that 

SSA can repeat the process of 

identifying individuals who must pay 

the Part D—IRMAA and the specific 

income-related amount. We will also 

routinely provide the names of 

individuals who have disenrolled from 

the Part D program so that such 

individuals will no longer be assessed 

the Part D—IRMAA. In cases where an 

individual disagrees with a 

determination that he/she is subject to 

the Part D—IRMAA, such individual 

may appeal as provided in the SSA 

regulations under 20 CFR part 418. 

Section 3308 of the ACA also 

stipulates that the Part D—IRMAA must 

be withheld from benefit payments in 

accordance with section 1840 of the Act. 

Therefore, in cases where an individual 

is receiving benefit payments from SSA, 

the Railroad Retirement Board (RRB), or 

the Office of Personnel Management 

(OPM), the Part D—IRMAA must be 

withheld from such benefit payments. 

However, if the benefit payment is 

insufficient to allow the Part D—IRMAA 

withholding, or an individual is not 

receiving benefit payments as described 

in section 1840 of the Act, section 3308 

of the ACA requires SSA to enter into 

agreements with CMS, RRB, and OPM, 

as necessary, in order to allow the Part 

D—IRMAA to be collected directly from 

these beneficiaries. 

To implement section 3308 of the 

ACA, we proposed to revise § 423.286 

(rules regarding premiums), § 423.293 

(collection of monthly beneficiary 

premium), and § 423.44 (involuntary 

disenrollment by PDP). 

a. Rules Regarding Premiums 

(§ 423.286) 

Currently, § 423.286(a) provides that 

the monthly beneficiary premium for a 

Part D plan in a PDP region is the same 

for all Part D-eligible individuals 

enrolled in the plan with the exception 

of employer group waivers, the 

assessment of the Part D late enrollment 

penalty, or an enrollee receiving lowincome assistance. We proposed to 

revise the following: 

• Section 423.286(a) to include the 

assessment of the income related 

monthly adjustment amount as another 

exception to the requirement for a 

uniform monthly beneficiary premium 

for a Part D plan in a PDP region; 

• Section 423.286(d)(4) to define the 

increase for the income related monthly 

adjustment amount for Part D; 

• Section 423.286(d)(4)(i) to specify 

that SSA would determine the 

individuals that are subject to the Part 

D—IRMAA and the amount of the 

adjustment; 

• Section 423.286(d)(4)(ii) to provide 

the formula used to calculate the 

monthly adjustment amount; and 

• Section 423.286(d)(4) to provide 

appeals rights to individuals who 

disagree with SSA’s determination that 

they are subject to the Part D—IRMAA 

or the threshold amount of the 

adjustment they must pay. 

Comment: Commenters wanted to 

know if there was any plan 

responsibility in tracking or collecting 

the Part D—IRMAA. One commenter 

believed the Part D—IRMAA would 


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cause beneficiary confusion and that 

plans would have little recourse to 

address beneficiary concerns. A few 

commenters requested that CMS 

provide information to plans, including 

copies of communications released to 

the IRMAA population and individuals’ 

Part D—IRMAA billing information, 

potentially through the Medicare 

Advantage Prescription Drug (MARx) 

System via a transaction reply response 

(TRR). This information would enable 

plans to address both general and 

specific beneficiary concerns and 

provide proactive communications to 

improve the beneficiary experience. 

Lastly, a commenter encouraged CMS to 

provide plans with guidance regarding 

how plans’ customer service agents can 

best handle beneficiary inquiries 

regarding income related adjustments to 

their premium. 

Response: Part D plan sponsors do not 

have responsibility for tracking or 

collecting the Part D—IRMAA. Section 

3308 of the ACA clearly states that the 

additional amount is to be withheld 

from a beneficiary’s Social Security 

benefit check. In cases where the benefit 

check is not sufficient to allow the 

withholding, the beneficiary will be 

directly billed the amount by CMS. 

However, as discussed below, Part D 

plan sponsors will be responsible for 

providing beneficiaries with the 

disenrollment notice after we notify 

plans that the beneficiary’s Part D 

coverage has been terminated for failure 

to pay his/her Part D—IRMAA. 

On December 10, 2010, we released to 

Part D plan sponsors a memorandum 

entitled, ‘‘Part D—Income Related 

Monthly Adjustment Amount— 

Frequently Asked Questions & 

Answers,’’ which included plainlanguage, beneficiary-friendly questions 

and answers specifically addressing 

inquiries plans may receive from 

beneficiaries. These FAQs include 

information such as how the Part D— 

IRMAA is collected, the responsible 

entity for determining who should be 

assessed the amount, as well as the 

appropriate government agency a 

beneficiary should contact with 

additional questions. 

We have provided clear instructions 

to plans regarding the appropriate 

referral agency for specific questions 

regarding an individual’s Part D— 

IRMAA determination and billing. We 

will continue to work with Part D plan 

sponsors to determine what specific 

additional guidance they need in 

answering beneficiary inquiries related 

to the Part D—IRMAA. 

Comment: A commenter asserted that 

there will be an increase in premiumrelated complaints submitted to 1–800– 

MEDICARE due to the Part D—IRMAA 

noting that plans are unable to influence 

or control members’ experiences related 

to the premium increase and should not 

be penalized for these complaints. The 

commenter requested that CMS exclude 

complaints specific to the Part D— 

IRMAA premiums in plan quality 

metrics. 

Response: While there may be an 

increase in the number of beneficiary 

complaints related to the Part D— 

IRMAA, we believe our developed 

scripts and FAQs will address most 

concerns. We agree beneficiary 

complaints related to these types of 

issues should not be part of Medicare 

Part D plan sponsors’ quality metrics. 

Comment: Commenters requested that 

we clarify how a Part D sponsor would 

operationalize the Part D—IRMAA and 

whether the Part D—IRMAA affects the 

Part D bid or the base beneficiary 

premium. 

Response: Currently, Part D sponsors 

are not expected to implement any 

operational changes with regards to the 

collection of the Part D—IRMAA. 

Unlike the normal Part D plan 

premiums, applicable beneficiaries will 

not pay the Part D—IRMAA to Part D 

sponsors. Instead, as noted previously, 

the Part D—IRMAA will be collected by 

the Federal government via a 

withholding from beneficiaries’ SSA, 

RRB, or OPM benefit payments or 

collected by us directly. As stated 

previously, though, Part D plan 

sponsors will be responsible for 

providing beneficiaries with the 

disenrollment notice if we involuntarily 

disenroll an individual for failure to pay 

his/her Part D—IRMAA, just as they 

would for any other disenrollment 

action initiated via a CMS transaction 

file, such as those disenrollments that 

result from choosing another plan. 

Consistent with section 1860D– 

15(a)(1) of the Act, we will not apply 

Part D—IRMAA to the base beneficiary 

premium used to calculate the Part D 

direct subsidy payments. In addition, no 

other Part D—IRMAA related 

adjustments will be made to the Part D 

payments received by Part D sponsors. 

As a result, the Part D—IRMAA is 

expected to have no impact on the Part 

D bids or Federal payments received by 

Part D sponsors. 

Comment: One commenter conveyed 

that it did not support the imposition of 

the Part D—IRMAA because of the 

‘‘potentially adverse effect’’ of this 

provision, referencing our estimate that 

approximately 220,000 beneficiaries 

may disenroll from the Part D program 

as a result of the Part D—IRMAA (see 75 

FR 71256). Another commenter 

suggested that CMS monitor the impact 

of this policy on enrollment in Part D 

plans and the potential for adverse 

selection. More specifically, this 

commenter was concerned that the most 

healthy, affluent seniors may elect to 

delay enrollment in a Part D plan as it 

may be financially advantageous to pay 

the late enrollment penalty for delaying 

enrollment rather than paying the Part 

D—IRMAA for many years when 

expected drug expenditures are 

minimal. Despite one of the 

commenters’ dislike for this statutory 

requirement, the commenter applauded 

CMS for developing timely regulations 

to implement this new requirement. 

Response: We have no discretionary 

authority to waive the Part D—IRMAA, 

which is clearly required by the ACA. 

We are dedicated to ensuring a timely 

and thorough implementation and 

appreciate acknowledgement of our 

efforts to develop regulations to 

implement this new requirement. We 

will monitor all aspects of Part D— 

IRMAA implementation, including the 

impact of this policy has on future Part 

D disenrollments and enrollments. 

Comment: One commenter asserted 

that the introduction of the IRMAA for 

Part B and Part D premiums through 

Social Security deductions is not 

understood by many beneficiaries. 

Consequently, the commenter 

encouraged consideration of some 

notification from SSA or CMS of each 

individual’s premiums under each Part 

prior to the upcoming year. 

Response: Each year, SSA will 

determine who will be assessed an 

IRMAA in both the Part B and Part D 

programs. In November, SSA will send 

the beneficiary an annual letter that 

indicates the amount of any IRMAA the 

individual may owe. Further, CMS and 

SSA developed beneficiary-friendly 

publications and FAQs to assist 

beneficiaries and our partners with 

understanding this new requirement. 

We believe that more outreach and 

education will assist beneficiaries in 

understanding the IRMAA and which 

government Agency (CMS or SSA) 

should be contacted with further 

questions. Plans may refer beneficiaries 

to SSA with questions regarding the 

content of their annual letter from SSA 

regarding the IRMAA. 

We would also like to note that in the 

preamble of the proposed rule we 

inadvertently referenced the wrong 

citation in describing our proposal to 

add provisions regarding a beneficiary’s 

right to file an appeal of SSA’s Part D— 

IRMAA determination. We referenced 

§ 423.286(d)(4)(iii) and (iv), but should 

have referred to § 423.286(d)(4)(i) which 

is where these provisions were 


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21456 Federal Register / Vol. 76, No. 73 / Friday, April 15, 2011 / Rules and Regulations 

proposed and where they are being 

finalized in this rule. 

b. Collection of Monthly Beneficiary 

Premium (§ 423.293) 

We proposed establishing a new 

§ 423.293(d)(1) to describe how the Part 

D—IRMAA would be collected. First, 

we addressed the process for collecting 

the Part D—IRMAA from SSA, RRB, or 

OPM benefit payments. In cases where 

SSA determines that a Part D enrollee 

must pay a Part D—IRMAA, such 

amount must be paid through 

withholding from the enrollee’s Social 

Security benefit payments, or benefit 

payments by the RRB or OPM in the 

manner that the Part B premium is 

withheld. Additionally, we proposed at 

§ 423.293(d)(2) that in cases where 

premium withholding is not possible 

because the monthly benefit check is 

insufficient to allow the withholding, or 

the enrollee is not receiving any 

monthly benefit payment, the 

individual must be directly billed for 

the Part D—IRMAA through an 

electronic funds transfer mechanism 

(such as automatic charges of an 

account at a financial institution or a 

credit or debit card account) or 

according to other means that we may 

specify. 

Section 3308 of the ACA provides that 

the Part D—IRMAA is an increase to the 

monthly beneficiary premium for 

certain individuals. Section 

1851(g)(B)(i) of the Act, as incorporated 

by section 1860D–1(b)(5) of the Act, 

establishes that a beneficiary may be 

terminated for failing to pay his/her Part 

D premiums. At § 423.293(d)(3), we 

proposed that CMS will terminate Part 

D coverage for any individual who fails 

to pay the income related monthly 

adjustment amount in accordance with 

proposed § 423.44 (see discussion 

below). 

Comment: Several commenters 

conveyed that they understood that 

implementation of the Part D—IRMAA 

requires coordination among CMS, Part 

D plan sponsors, and SSA, with SSA 

having primary responsibility for an 

individual’s IRMAA determination. 

They suggested that the final regulations 

address the need for the timely 

exchange of beneficiary information and 

any updates in order to facilitate 

coordination amongst these entities. As 

an example, commenters contended that 

in cases where a higher income 

beneficiary is no longer enrolled in a 

Part D plan, the Part D sponsor should 

send this information immediately to 

CMS and SSA so that the Part D— 

IRMAA is no longer deducted from the 

beneficiary’s benefit check or billed to 

the beneficiary. 

Response: We appreciate the 

recommendation that CMS and SSA 

maintain close and timely coordination 

related to Part D enrollment and the Part 

D—IRMAA. As noted in the proposed 

rule ‘‘* * * CMS will routinely provide 

SSA with the names of all individuals 

newly enrolling in the Part D program 

* * * and will also routinely provide 

the names of individuals who have 

disenrolled from the Part D program so 

that such individuals will no longer be 

assessed the Part D—IRMAA.’’ 

Furthermore, as stated in § 423.36 and 

in our guidance, Part D plan sponsors 

must submit the disenrollment 

transactions to CMS within 7 calendar 

days of receipt of the beneficiary’s 

completed disenrollment request in 

order to ensure the correct effective 

date. (See Chapter 3, § 50.4.1 ‘‘Voluntary 

Disenrollments’’ of the Medicare 

Prescription Drug Benefit Manual 

published August 17, 2010). We believe 

that through this existing process, all 

involved entities will receive timely 

notification to address changes to either 

Part D enrollment or Part D—IRMAA. 

Comment: One commenter asserted 

that they foresaw enrollment ‘‘glitches’’ 

similar to those of LIS-eligible 

beneficiaries who were inadvertently 

dropped from one plan but not correctly 

auto-enrolled in the next. This 

commenter further stated that, 

undoubtedly, some high-income 

beneficiaries would face disenrollment 

because of miscommunications that 

result because prescription drug plan 

premiums are paid to their chosen plan 

and the Part D—IRMAA is paid to CMS. 

Based on this assertion, the commenter 

encouraged CMS to develop an 

expeditious, straight-forward process for 

resolving such problems and to 

publicize that process on Medicare.gov. 

Response: We appreciate the 

commenter’s concern about possible 

problems or beneficiary confusion 

regarding payments for the Part D— 

IRMAA to the Federal government and 

plan premiums. The vast majority of 

individuals required to pay the Part D— 

IRMAA will have the IRMAA amount 

deducted from their monthly benefit 

check, which will eliminate the 

possibility of involuntary disenrollment 

for failure to pay the Part D—IRMAA. 

For those individuals who will be billed 

by CMS directly, we will notify them 

via monthly billing notices. Further, we 

have developed FAQs for use by plans, 

partners, and 1–800–MEDICARE to 

educate beneficiaries on the proper 

means to make payments for their Part 

D—IRMAA. However, we will consider 

outlining the process for Part D— 

IRMAA payment and possible 

disenrollment on Medicare.gov to assist 

in beneficiary understanding. 

c. Involuntary Disenrollment by CMS 

(§ 423.44) 

Section 3308 of the ACA provides that 

the Part D—IRMAA increases the 

monthly beneficiary premium for 

individuals who are subject to the 

assessment. Therefore, we proposed to 

apply provisions similar to the existing 

Part D premium rules to terminate Part 

D coverage (provided for by Section 

1860D–13(c) of the Act) for any 

individual who fails to pay the Part D— 

IRMAA. Specifically, we proposed the 

following: 

• Section 423.44(e)(1) provides that 

CMS will disenroll individuals who do 

not pay their Part D—IRMAA. 

• Section 423.44(e)(2) provides 

individuals a 3-month grace period to 

pay outstanding Part D—IRMAA 

amounts before they are involuntarily 

disenrolled. 

• Section 423.44(e)(3) provides an 

opportunity for a disenrolled 

beneficiary to establish ‘‘good cause’’ for 

failure to pay their Part D—IRMAA and 

have their plan enrollment reinstated if 

Part D—IRMAA arrearages are paid. 

• Section 423.44(e)(4) requires PDPs, 

after notification by CMS, to notify 

enrollees of the termination of their 

enrollment in the Part D plan in a form 

and manner determined by CMS. 

• Section 423.44(e)(5) establishes that 

the effective date of disenrollment is the 

first day following the initial grace 

period. 

• Finally, we proposed modifying the 

title of § 423.44 from ‘‘Involuntary 

Disenrollment by the PDP’’ to 

‘‘Involuntary Disenrollment from Part D 

Coverage.’’ 

Comment: We received several 

comments on the length of the proposed 

grace period applicable to Part D— 

IRMAA premiums. While several 

commenters commended CMS for 

proposing a longer grace period to pay 

the Part D—IRMAA, other commenters 

suggested that CMS synchronize the 3- 

month grace period for payment of the 

Part D—IRMAA with the plans’ 

minimum 2-month grace period already 

established by CMS regulations and 

guidance. Commenters asserted that 

having different grace periods could 

cause potential conflict and confusion if 

the enrollee failed to pay both the Part 

D premium and the Part D—IRMAA and 

was provided a grace period by both the 

PDP and CMS, but on differing 

timelines (for example, a 2-month grace 

period under the PDP and a 3-month 

grace period under CMS). 

Commenters also requested that we 

take into consideration the potential 


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overlap, conflicts, and/or confusion that 

could occur for beneficiaries receiving 

notices for non-payment of their plan 

premium and non-payment of the Part 

D—IRMAA and any conflicting grace 

periods. The commenter requested that 

CMS revise the approach to better 

coordinate the timing of the plan 

beneficiary disenrollment notices with 

the plan and the Part D—IRMAA grace 

periods and that we should do our best 

to prevent the potential problems. 

Another commenter asked us to clarify 

that a Part D beneficiary could be 

disenrolled from a Part D plan for 

failure to pay the plan premium after 

the plan’s two-month grace period 

regardless of whether the enrollee has 

paid their Part D—IRMAA or has not 

exhausted the 3-month grace period for 

the D—IRMAA. 

In addition, one commenter 

recommended that CMS delay 

implementation of the grace period 

specific to the Part D—IRMAA in light 

of the other CMS provisions that require 

process and system changes. According 

to this commenter, CMS should 

consider this recommendation since the 

Part D—IRMAA affects only a small 

percentage of the total Part D 

population. 

Response: Under the Original 

Medicare program, beneficiaries 

assessed the Part B–IRMAA are afforded 

an initial 3-month grace period to pay 

their Part B premiums before they are 

terminated. As individuals may be 

subject to both the Part B and the Part 

D—IRMAA, we believe that the grace 

period for both programs should be 

consistent. 

With respect to synchronizing the Part 

D—IRMAA with plan premium grace 

periods, our regulations at 

§ 423.44(d)(1)(iii) stipulate that plans 

choosing to implement a policy of 

involuntary disenrollment for failure to 

pay the Part D plan premium must 

provide a minimum 2-month grace 

period. A Part D plan sponsor with an 

established 2-month minimum grace 

period may disenroll a beneficiary for 

failing to pay the plan’s premium, if 

such grace period ends prior to the 3- 

month grace period allotted for payment 

of the Part D—IRMAA. Current 

guidance (Medicare Prescription Drug 

Benefit Manual, Chapter 3, § 50.3.1) 

allows plans to implement a longer 

grace period or forgo involuntary 

disenrollments for failure to pay 

premiums entirely. Therefore, plans 

already have the ability to modify their 

respective grace periods and are 

encouraged to do so if they believe the 

existence of two different grace periods 

will create conflict or confusion. 

As noted previously, the vast majority 

of individuals subject to the Part D— 

IRMAA are paying the income-based 

amount through a deduction from their 

Social Security checks, and thus the 

grace period associated specifically with 

payment of the Part D—IRMAA is not a 

factor. However, to the extent that 

individuals fail to pay only the Part D— 

IRMAA, we believe it is appropriate to 

use the same procedures and time 

frames that apply to the Part B–IRMAA. 

Note that individuals who fail to pay the 

Part D premium that is owed to a plan 

may be disenrolled by the plan after the 

expiration of the 2-month grace period, 

regardless of the payment status of their 

Part D—IRMAA. 

If a plan chooses to retain a grace 

period that is shorter than the one 

specific to the Part D—IRMAA, once the 

beneficiary is disenrolled from the plan, 

the assessment of the Part D—IRMAA 

will cease. Therefore, the beneficiary 

will receive the disenrollment notice as 

a result of not paying the plan’s 

premium and there will be no need to 

issue the involuntary notice for failing 

to pay the Part D—IRMAA. For 

example, if the beneficiary fails to pay 

the plan premium within the plan’s 

grace period but the grace period 

specific to the Part D—IRMAA has not 

lapsed, the Part D plan sponsor will, in 

accordance with CMS rules, send us a 

plan transaction to disenroll the 

beneficiary. Following confirmation 

from us that the disenrollment 

transaction has been accepted, the Part 

D plan sponsor must send the 

beneficiary the disenrollment notice no 

later than 3 business days following the 

last day of the grace period. (See 

Chapter 3, Section 50.3.1 of the 

Medicare Prescription Drug Benefit 

Manual.) Once the beneficiary has been 

disenrolled from the plan, the 

withholding and/or billing of the Part 

D—IRMAA will cease. Lastly, in those 

cases where the Part D—IRMAA and the 

plan premium grace periods are 

different, but end on the same date, the 

beneficiary will receive two 

disenrollment notifications—Notice of 

Failure to Pay Plan Premiums and the 

Notification of Involuntary 

Disenrollment by the Centers for 

Medicare and Medicaid Services for 

Failure to Pay the Part D—IRMAA since 

the former conveys information about 

requesting the plan to reconsider its 

decision and the latter provides 

information about requesting a ‘‘good 

cause’’ determination. 

For these reasons, we are finalizing 

the regulatory provisions as proposed. 

However, we will carefully consider 

these comments and potential system 

impacts as it develops its program 

instructions to plans regarding the 

procedures for disenrolling beneficiaries 

who fail to pay their Part D—IRMAA 

and the timing of when plans will 

convey the notice. In addition, we will 

closely monitor the disenrollment 

process and make adjustments to the 

process to ensure optimum coordination 

between the timing of the grace period 

and the issuance of the beneficiary 

disenrollment notice. 

Comment: One commenter 

recommended that CMS make attempts 

to collect the Part D—IRMAA before 

terminating the enrollee, and 

encourages CMS to publish, with 

opportunity for public comment, the 

proposed process for doing so. 

Response: As explained previously, 

for individuals that do not have their 

Part D—IRMAA deducted from their 

Social Security checks, we are following 

the same process we use in collecting 

the Part B–IRMAA. This process 

involves repeated monthly statements 

(initial bill, second notice and a 

delinquent notice) to the beneficiary to 

solicit the payment and to notify the 

individual of the potential 

consequences of failure to make a 

payment prior to disenrollment at the 

end of the initial 3-month grace period. 

In addition, if payment is not made, the 

beneficiary will have an additional 3 

months to establish ‘‘good cause’’ for 

failure to pay their Part D—IRMAA and 

remit payment for any arrearages to be 

reinstated into their Part D plan. We 

believe this process provides sufficient 

notification to the beneficiary and 

opportunity to pay their Part D—IRMAA 

prior to disenrollment for failure to pay. 

Comment: Several commenters 

expressed concern with the proposed 

requirement that plans issue the 

disenrollment notice to enrollees 

involuntarily disenrolled for failure to 

pay their Part D—IRMAA. Commenters 

believed that CMS was in the best 

position to send these notices in a 

timely manner since we, not the plan, 

are aware of the member’s Part D— 

IRMAA amount and any possible 

arrearages. Commenters were concerned 

that if plans served as an intermediary 

in this process, they would inevitably be 

contacted with complaints or subject to 

grievances. It was suggested that a CMSgenerated notice would reduce the 

burden on plans and would more 

clearly communicate to enrollees that 

CMS should be contacted regarding 

questions on the Part D—IRMAA. 

Response: As described previously, 

individuals who are subject to 

disenrollment based on their failure to 

pay the Part D—IRMAA will have first 

received a series of monthly billing 

statements from CMS informing them of 


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their obligation to pay the Part D— 

IRMAA, and the consequences of their 

failure to do so. If and when 

disenrollments do become necessary, 

we believe affected individuals should 

be afforded the same notices that other 

individuals would receive from their 

plans. Thus, we disagree that plans 

should not be responsible for sending a 

disenrollment notice. Such notices are 

part of a plan’s daily business 

operations. This process is consistent 

with existing requirements for 

disenrollment of a beneficiary who is no 

longer eligible to remain in a Medicare 

prescription drug plan due to loss of 

Medicare Part A and/or B. In this 

situation, we involuntarily disenroll the 

beneficiary, and the beneficiary’s Part D 

plan sponsor is required to provide the 

individual with the Disenrollment Due 

to Loss of Medicare Part A and/or Part 

B Notice (See Chapter 3, Section 50.2.2 

of the Medicare Prescription Drug 

Benefit Manual). 

We recognize that Part D plan 

sponsors may receive questions from 

their members regarding the 

disenrollment. As such, the notification 

used by Part D plan sponsors will 

explicitly state that the disenrollment is 

being effectuated by the plan at CMS’ 

direction. This notice further instructs 

the beneficiary to contact us, not the 

plan, about questions pertaining to the 

notice. As noted previously, the 

December 10, 2010 CMS memorandum 

mentioned previously provides plans 

with language they can use in 

responding to members’ Part D—IRMAA 

inquiries. We will continually develop 

and release information to Part D plan 

sponsors, partners, and beneficiaries via 

the CMS information channels (1–800– 

MEDICARE, http://www.medicare.gov) 

that will assist beneficiaries with 

questions about their Part D—IRMAA 

and direct them to the appropriate 

entity for assistance. Thus, we will 

retain the proposed provision that Part 

D plan sponsors will provide a 

beneficiary with the notice when he/she 

is disenrolled for failing to pay the Part 

D—IRMAA. 

Comment: A commenter contended 

that it was not clear from our proposal 

if CMS intended to tell Part D plan 

sponsors to disenroll the non-paying 

member before or after the end of the 

grace period. The commenter concluded 

that if timing for notification is the 

latter, this could result in a retroactive 

disenrollment from the plan, with 

possible complications in terms of bills 

for non-covered services and 

medications retroactive to the effective 

date of the disenrollment. 

Response: We recognize this concern 

and will keep this issue in mind as we 

develop operational guidance on the 

disenrollment process. 

Comment: Two commenters disagreed 

with the proposed policy of an 

additional 3-month grace period for 

individuals to establish ‘‘good cause’’ 

after the disenrollment date, allowing 

for no disruption in coverage if 

reinstated. Another commenter 

suggested that plans be informed if a 

disenrolled member requests a ‘‘good 

cause’’ determination for failure to pay 

their Part D—IRMAA. 

Response: We believe that 

beneficiaries should be afforded the 

opportunity to establish ‘‘good cause’’ 

for not paying the Part D—IRMAA 

amount and the ability to be reinstated 

in their Part D coverage without 

interruption. We appreciate the 

comment regarding plan notification of 

requests for good cause and will take 

this into consideration as we develop 

the process for good cause’’ 

determinations. (See section II.C.8 of 

this preamble for a further discussion of 

this issue.) 

Comment: A few commenters 

expressed concern about what would 

happen to individuals involuntarily 

disenrolled from their plan for failure to 

pay their Part D—IRMAA. Some 

commenters requested that we clarify 

that a disenrollment for failure to pay 

the Part D—IRMAA would result in a 

loss of health coverage if the individual 

is enrolled in an MA plan, cost plan, or 

employer group health plan with 

prescription drug coverage. Another 

commenter asked whether a beneficiary 

who is disenrolled for failure to pay the 

Part D—IRMAA would be subject to the 

Part D late enrollment penalty (LEP) 

upon reenrollment in a Part D plan. In 

addition, commenters made the 

following suggestions: 

• Establish a special enrollment 

period (SEP) for disenrolled individuals 

to re-enroll into another MA-only (or a 

cost plan). 

• Allow for passive enrollment into 

an MA-only plan within the same 

organization if an individual is 

disenrolled from their MA–PD plan for 

failure to pay Part D—IRMAA. 

• Grant employer group waiver plans 

a waiver from the disenrollment 

process. 

Response: An individual in an MA– 

PD who fails to pay the Part D—IRMAA 

within the 3-month grace period will be 

disenrolled to Original Medicare. 

Because this policy ensures that 

beneficiaries will not lose health care 

coverage, we believe an SEP is 

unwarranted and unnecessary. 

Furthermore, a beneficiary’s Part D 

coverage may be reinstated without 

interruption if within 3 months after 

disenrollment, the enrollee 

demonstrates ‘‘good cause’’ for failure to 

pay the Part D—IRMAA and pays all 

Part D—IRMAA and plan premium 

arrearages. The SEP policy at 

§ 423.38(c)(8)(ii) permits CMS to 

address exceptional enrollment cases for 

individuals on a case-by-case basis. To 

the extent that individuals believe they 

have exceptional situations that warrant 

consideration to enroll in a MA-only (or 

other plan that does not offer Part D 

coverage), they should call 1–800– 

MEDICARE and ask to be put in touch 

with a CMS regional caseworker. In 

addition, the policies for the Part D LEP 

remain unchanged by the 

implementation of Part D—IRMAA. An 

individual who is disenrolled for failure 

to pay the Part D—IRMAA may be 

subject to the Part D LEP if he or she 

goes without creditable prescription 

drug coverage for 63 days or more. If an 

individual would like to restart 

prescription drug coverage, he or she 

would have to pay any arrearages and 

make an election during a valid 

enrollment period. 

Individuals in employer group waiver 

plans and employer group health plans 

will also be disenrolled for failure to 

pay Part D—IRMAA. Employer groups 

that want to assure that their members 

retain coverage are not prohibited from 

informing their retirees that they will be 

reimbursed by their employer group for 

any Part D—IRMAA they are required to 

pay. 

We appreciate the comments on our 

proposals and, for the reasons contained 

in the discussion previously, are 

finalizing these provisions as proposed. 

We have, however, made technical 

revisions to § 423.286(d)(4) 

and§ 423.293(d) to incorporate 

references to the new SSA regulations 

regarding the Part D IRMAA, which 

were published after the issuance of our 

proposed rule. 

10. Elimination of Medicare Part D CostSharing for Individuals Receiving Home 

and Community-Based Services 

(§ 423.772 and § 423.782) 

The MMA, as reflected in § 423.782, 

established that full-benefit dual eligible 

institutionalized individuals have no 

cost-sharing for covered Part D drugs 

under their PDP or MA–PD plan. 

Section 3309 of the ACA eliminates 

cost-sharing for full-benefit dual eligible 

individuals who are receiving home and 

community-based services (HCBS) 

under a home and community-based 

waiver authorized for a State under 

section 1115 or subsection (c) or (d) of 

section 1915 of the Act, or under a State 

Plan Amendment under section 1915(i) 

of the Act, or if such services are 


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provided through enrollment in a 

Medicaid managed care organization 

with a contract under section 1903(m) 

or 1932 of the Act. These services are 

targeted to frail, elderly individuals 

who, without the delivery in their home 

of services such as personal care 

services, would be at risk of 

institutionalization. We proposed to 

amend § 423.772 to establish the 

definition of ‘‘individual receiving home 

and community-based services’’ and 

§ 423.782(a)(2)(ii) to reflect that these 

individuals will have no cost-sharing. 

The Best Available Evidence (BAE) 

policy set forth in § 423.800—which 

requires plans to charge a lower 

copayment if certain evidence is 

provided—is written broadly enough 

that it will apply to this new copayment 

category; therefore, we proposed to 

make no regulatory changes to 

§ 423.800. We proposed to update our 

guidance to plans to provide additional 

detail on how the BAE rules apply to 

this population. 

Section 3309 of the ACA provides the 

Secretary with discretion regarding the 

effective date of this provision, with the 

stipulation that it shall be effective no 

earlier than January 1, 2012. We 

proposed that this provision would take 

effect on January 1, 2012, because we 

believed it was important to provide 

this benefit at the earliest possible date 

to an estimated 600,000 beneficiaries a 

year. 

Comment: Commenters supported our 

proposal to amend § 423.772 to establish 

the definition of an ‘‘individual 

receiving home and community-based 

services’’ and § 423.782(a)(2)(ii) to 

reflect that these individuals will have 

no cost-sharing. One commenter urged 

the inclusion of individuals residing in 

assisted living facilities in the definition 

of an ‘‘individual receiving home and 

community-based services’’ in 

§ 423.772. 

Response: The commenter that urged 

the inclusion of individuals residing in 

assisted living facilities in the definition 

of an ‘‘individual receiving home and 

community-based services’’ raises an 

important distinction warranting the 

following clarification in our guidance 

to plans and States. Individuals residing 

in an assisted living facility will be 

included in the definition of an 

‘‘individual receiving home and 

community-based services’’ only to the 

extent that they satisfy the inclusion 

criteria set forth in section 3309 of the 

ACA. Specifically, the assisted living 

facility resident must be a full-benefit 

dual eligible individual receiving HCBS 

under a home and community-based 

waiver authorized for a State under 

section 1115 or subsection (c) or (d) of 

section 1915 of the Act, or under a State 

Plan Amendment under section 1915(i) 

of the Act, or if such services are 

provided through enrollment in a 

Medicaid managed care organization 

with a contract under section 1903(m) 

or 1932 of the Act. 

We appreciate the strong support we 

received from commenters for our 

proposal to amend § 423.772 to establish 

the definition of an ‘‘individual 

receiving home and community-based 

services’’ and § 423.782(a)(2)(ii) to 

reflect that these individuals will have 

no cost-sharing. We are finalizing these 

regulations as proposed. 

Comment: Many commenters urged 

us to provide explicit guidance on the 

types of BAE that would be deemed 

acceptable to establish HCBS status, 

along with clear reporting requirements 

for plans receiving such evidence to 

report it to us. Several of these 

commenters recommended that we 

categorize these individuals on the 

Transaction Reply Report (TRR) as lowincome subsidy level 3 

(institutionalized—$0 cost share), as 

opposed to developing a new lowincome subsidy level for the HCBS 

status. One commenter requested 

guidance on whether the PDE value will 

be unique for these individuals. 

Response: We agree with commenters 

that successful implementation of this 

provision will require us to update its 

guidance to plans to provide additional 

detail on how BAE rules apply to this 

population. In such guidance, we intend 

to address key concerns raised by 

commenters, including at a minimum 

how such beneficiaries will appear on 

the TRR, their low-income subsidy 

level, and the correct PDE value to be 

reported. 

Comment: Several commenters urged 

CMS to provide explicit guidance to 

State Medicaid Agencies regarding the 

new zero copayment group, and develop 

data transfer protocols to ensure that 

States accurately identify HCBS eligible 

individuals and transmit such data to 

CMS in a timely fashion. 

Response: We look forward to 

partnering closely with States to 

facilitate the identification of all such 

HCBS eligible individuals and to ensure 

timely and accurate transmission of the 

necessary data to CMS. We will provide 

customized guidance to states to ensure 

that they have a clear understanding of 

this new category of individuals 

qualified for the zero copayment status. 

We will require State Medicaid 

Agencies to submit data at least monthly 

identifying these individuals by 

leveraging the existing data exchange 

currently used by States to identify their 

dual eligible individuals to CMS. We 

will add a new value for the existing 

institutional status field, which will 

prompt CMS to set a zero copayment 

liability for full-benefit dual eligible 

beneficiaries who qualify for HCBS zero 

cost-sharing, as set forth under section 

3309 of the ACA. 

Comment: One commenter 

recommended that CMS provide model 

notifications to Part D plans to send to 

affected beneficiaries to ensure that 

such beneficiaries are provided maximal 

opportunities to understand their new 

zero copayment Part D status. Another 

commenter suggested that CMS develop 

a form for Medicaid Managed Care plans 

to provide to beneficiaries, attesting to 

their use of HCBS services. 

Response: We thank the commenters 

for these suggestions. We will determine 

later in 2011 whether the existing Part 

D model notifications that provide such 

beneficiaries with their copayment 

status are adequate or whether a new 

Part D model notice customized to this 

population might be beneficial. We will 

also consider the latter suggested notice 

as we update our BAE guidance to plans 

to ensure the most efficient procedures 

for accurately identifying this 

population. 

Comment: Two commenters noted 

that individuals who receive HCBS 

under a home and community-based 

waiver under section 1115 and State 

plan participants under section 1915 of 

the Act generally receive letters 

informing them that they have qualified. 

These commenters described such 

letters as varying significantly among 

States and programs, and urged that 

CMS work with plans to help them 

identify such letters to serve as BAE. 

Response: We will work with States to 

identify the most common forms of such 

letters provided to participants, and we 

intend to share best practices with plans 

to more effectively identify full-benefit 

subsidy eligible individuals who qualify 

for zero cost-sharing under this HCBS 

provision. 

Comment: One commenter urged 

CMS to clarify that an effective date of 

January 1, 2012, for the HBCS provision 

does not permit retroactive application 

of the zero cost-sharing benefit to extend 

prior to January 1, 2012, 

notwithstanding that the effective date 

of LIS eligibility in many cases is 

retroactive and extends prior to January 

1, 2012. 

Response: In accordance with section 

3309 of the ACA, the Secretary’s 

discretionary authority to establish the 

effective date of the HCBS provision is 

limited by the stipulation that the 

effective date shall be no earlier than 

January 1, 2012. This effective date does 

not allow for retroactive application of 


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the zero cost-sharing benefit to extend 

prior to January 1, 2012, even for 

beneficiaries whose effective date of LIS 

eligibility extends prior to January 1, 

2012. We appreciate the commenter 

bringing to our attention the need for 

such clarification and we will provide 

such clarification in our guidance to 

plans. 

Comment: A commenter urged that 

CMS require Part D sponsors to 

appropriately reimburse long term care 

(LTC) pharmacies for the additional 

value that those pharmacies must 

provide to beneficiaries receiving 

pharmacy services in assisted living 

facilities, such as special unit dose 

medication packaging, medication 

delivery, and medication reviews by 

pharmacists. 

Response: Any such reimbursements 

are a matter of negotiation between the 

plan sponsor and the LTC pharmacy. 

Comment: Two commenters 

recommended that CMS adopt the same 

procedural approach for determining 

the deeming period for HCBS eligibility 

that CMS uses for individuals who 

qualify for the full-benefit subsidy based 

on Medicaid enrollment. Specifically, if 

an individual appears on State files as 

eligible for HCBS at any point during 

the year, that individual would qualify 

for the HCBS zero cost-sharing for the 

remainder of the year. If an individual 

shows as eligible in the month of July 

or any later month in the year, the HCBS 

zero cost-sharing would continue 

through the next plan year. 

Response: We thank the commenters 

for raising this issue, as it warrants the 

following noteworthy clarification in 

our guidance to plans and States. To 

ensure procedural consistency and 

operational efficiency, we will apply the 

same procedural approach for 

determining the deeming period for 

HCBS eligibility that we apply for 

individuals who qualify for the full 

benefit subsidy based on Medicaid 

enrollment, as set forth under 

§ 423.773(c)(2), to the extent that an 

individual’s HCBS deemed period does 

not exceed the individual’s full-benefit 

dual deemed period. Specifically, if an 

individual is deemed eligible for HCBS 

zero cost-sharing at any point during the 

year, that individual will qualify for 

HCBS zero cost-sharing for the 

remainder of the year. If an individual 

is deemed eligible for HCBS zero costsharing in the month of July or any later 

month in the year, the individual’s 

HCBS zero cost-sharing will continue 

through the next plan year so long as the 

individual was also deemed in the 

month of July or any later month in the 

year for the full-benefit subsidy based 

on Medicaid enrollment. In other words, 

an individual’s ongoing HCBS deemed 

status is dependent on concurrent 

deemed full-benefit dual eligibility. We 

believe that this policy will promote 

effective administration of the HCBS 

cost-sharing benefit and decrease the 

administrative burden on CMS and 

State Medicaid Agencies, as well as on 

HCBS eligible individuals. We note that 

it also is consistent with how we 

determine the deeming period for 

institutionalized full benefit dual 

eligible individuals. 

We appreciate the comments that 

were submitted on these provisions and 

will be finalizing these proposals. 

11. Appropriate Dispensing of 

Prescription Drugs in Long-Term Care 

Facilities Under PDPs and MA–PD 

Plans (§ 423.154) 

In our proposed rule, we proposed to 

implement section 3310 of the ACA by 

adding a new regulation at § 423.154 to 

govern how plan sponsors (all 

organizations and sponsors offering Part 

D including stand-alone Part D plans, 

MA organizations, EGWP contracts, and 

PACE plans) direct network pharmacy 

dispensing of covered Part D drugs in 

LTC facilities. Under § 423.154 (a)(1)(i) 

of the proposed rule, we require all 

sponsors to contract with network 

pharmacies servicing LTC facilities, as 

defined in § 423.100, to dispense brand 

medications, as defined in § 423.4, to 

enrollees in such facilities in no greater 

than 7-day increments at a time. In an 

effort to target the drugs resulting in the 

most financial waste and to lessen the 

burden for facilities transitioning from 

30-day supplies to 7-day-or-less 

supplies, we proposed initially limiting 

the requirement for 7-day-or-less 

dispensing to brand drugs as defined in 

§ 423.4. We noted in the proposed rule 

that as a result of consultation with 

industry representatives, a transitional 

approach would ease the initial burden 

on nursing and pharmacist staff by 

reducing the number of products for 

which a pharmacy would have to 

transition from dispensing one 30-day 

supply per month to dispensing at least 

four 7-day supplies per month. We also 

acknowledged that we are not aware of 

any objective data that demonstrate the 

cost effectiveness of full versus partial 

implementation, but welcomed 

comments from the public presenting 

such data and also solicited comments 

on how soon the industry can transition 

to include generic drugs in the 7-day-orless requirement. 

Under § 423.154(a)(1)(ii) of the 

proposed rule, we require Part D 

sponsors to permit the use of uniform 

dispensing techniques defined by each 

of the LTC facilities being serviced. We 

proposed to define uniform techniques 

to mean that dispensing methodologies 

will be uniform with respect to the type 

of packaging used to dispense Part D 

drugs within a LTC facility, but may 

vary by the quantity of medication 

(days’ supply) dispensed at a time. We 

explained that it is the LTC facilities 

that are in the best position to identify 

uniform dispensing techniques to be 

used throughout their LTC facility. 

Therefore, we proposed that Part D 

sponsors must permit their contracted 

pharmacies to implement the uniform 

dispensing techniques selected by each 

LTC facility, and may not require the 

use of a different packaging system or 

technology than that selected by the 

facility through its contracted LTC 

pharmacy. 

We noted in the proposed rule that we 

do not expect pharmacy delivery 

schedules to change as a result of the 7- 

day-or-less dispensing requirement 

since deliveries are generally made 

daily to accommodate new admissions 

and first doses. We do recognize, 

however, that there may be changes in 

the way some pharmacies make 

deliveries. We stated in the preamble of 

the proposed rule that, subject to State 

restrictions, pharmacies, and LTC 

facilities may agree to use a common 

carrier for some deliveries to LTC 

facilities. We would not consider a 

contractual agreement for a pharmacy to 

deliver a portion of Part D drugs to Part 

D enrollees residing in LTC facilities via 

common carrier as causing the 

pharmacy to be considered a mail order 

pharmacy. We solicited comments on 

our interpretation. 

We proposed to exclude from the 

requirements of § 423.154(a), those 

drugs that are difficult to dispense in a 

7-day-or-less supply and those drugs 

that are dispensed for acute illnesses. 

We expressed our belief that requiring 

these types of drugs to be dispensed in 

7-day-or-less increments could result in 

safety or efficacy concerns or could have 

the counterproductive effect of 

increasing drug waste. For medications 

that we proposed to exclude from the 

requirement, we encouraged use of 

smaller size containers, when available, 

to reduce the potential for waste. We 

proposed to codify these exclusions at 

§ 423.154(b) and solicited comments on 

the types of dosage forms and drugs that 

should be excluded from the 

requirements under § 423.154(a). 

We explained that we considered 

‘‘return for credit and reuse’’ as a 

possible solution to reduce waste in 

LTC facilities. Although ‘‘return for 

credit and reuse’’ is not prohibited by 

CMS, we recognized limitations to this 

approach since ‘‘return for credit and 


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reuse’’ is not permitted in all states, 

often excludes lower cost generic drugs, 

is frequently limited to a subset of drugs 

in unused or specially approved 

packaging, does not address issues 

regarding diversion, and is subject to 

Drug Enforcement Agency (DEA) 

limitations with respect to controlled 

substances. Upon consideration of these 

facts, we decided that ‘‘return for credit 

and reuse’’ would not be the optimal 

solution to address the issue of unused 

drugs in LTC facilities under Part D. 

Although we did not propose ‘‘return 

for credit and reuse’’ as an alternative to 

7-day-or-less dispensing, we understand 

that it may be a supplement to reduce 

the minimal pharmaceutical waste 

associated with 7-day-or-less 

dispensing, particularly in 

circumstances where a Part D drug can 

be safely returned to stock for reuse. We 

proposed to explicitly allow ‘‘return for 

credit and reuse’’ in LTC pharmacies, 

when ‘‘return for credit and reuse’’ is 

permitted under the State law and is 

explicitly allowed under the contract 

between the Part D sponsor and the 

pharmacy. In addition, when permitted 

or required contractually, we noted that 

pharmacy dispensing fees paid to 

pharmacies may take into account 

restocking fees consistent with the 

modification to dispensing fees under 

§ 423.100, ‘‘Dispensing Fees’’ discussed 

in section II. F. of this final rule (Other 

Clarifications and Technical Changes). 

We explained in our proposed rule 

that only when data has been 

systematically collected will the extent 

of waste of Part D drugs be quantifiable 

on other than an anecdotal basis. 

Therefore, we proposed to add a 

provision at § 423.154(f) to require that 

Part D sponsors include terms in their 

LTC pharmacy contracts that require 

any unused drugs originally dispensed 

to the Part D sponsor’s enrollees to be 

returned to the pharmacy (not 

necessarily for reuse) and reported to 

the sponsor. Such contracts would also 

address contractual obligations for 

disposal in accordance with Federal and 

State regulations. We solicited 

comments on whether there are DEA or 

state technical issues that may be 

barriers to the implementation of this 

provision. 

We noted that options for billing to 

accommodate 7-day-or-less dispensing 

are being discussed in a National 

Council for Prescription Drug Programs 

(NCPDP) workgroup, and unless the 

industry voluntarily adopts a single 

billing standard, we believe that Part D 

sponsors should generally allow 

pharmacies to use be currently accepted 

transactions to minimize burden in 

transitioning to more frequent 

dispensing of smaller amounts. 

Pursuant to our authority under 

section 1860D–12(b)(3)(D) of the Act, 

which incorporates by reference section 

1857(e)(1) of the Act, we proposed a 

new requirement under § 423.154(a)(2) 

in which Part D sponsors must collect 

and report to CMS the dispensing 

methodology used for each dispensing 

event described by § 423.154(a)(1)(i) and 

(ii) and on the nature and quantity of 

unused drugs returned to the pharmacy. 

This data collection would be done in 

an effort to help us estimate the relative 

efficiencies of dispensing methodologies 

and determine the residual waste to 

estimate additional savings. 

We stated in the proposed rule that 

this provision would likely lead to a 

change in copayment methodology. We 

noted that we anticipate the 

implementation of particular copayment 

methodologies will be dependent on the 

billing and dispensing methodologies 

used, and as a result, we acknowledged 

that copayment methodologies within 

the same plan may vary depending on 

the LTC facility where the beneficiary 

resides. Copayment may be collected at 

the first dispensing event in a month, 

the last dispensing event in a month, or 

prorated based on the number of days a 

Part D drug was dispensed in a month. 

However, due to the relatively small 

copayments for low-income subsidy 

(LIS) beneficiaries, copayments for LIS 

beneficiaries should be billed with the 

first or last dispensing event of the 

month. 

Under § 423.154(c) of the proposed 

rule, we would waive the requirements 

under paragraph (a) for pharmacies 

when they dispense brand Part D drugs 

to Part D enrollees residing in 

intermediate care facilities for the 

mentally retarded (ICFMR) and 

institutes for mental disease (IMDs) due 

to specific problems with medication 

delivery and dispensing to closed (and 

often locked) facilities. We explained 

that waiving the requirements in this 

instance would be consistent with the 

statute when done on a uniform basis 

(that is, all similarly situated LTC 

facilities) and when there is a 

demonstration that applying the 

dispensing requirements to pharmacies 

servicing enrollees residing in that type 

of LTC facility would not serve to 

reduce waste. We solicited comments 

on whether other types of facilities 

(such as LTC facilities utilizing Indian 

Health Service (IHS) facilities to provide 

Part D drugs or utilizing Tribal facilities 

providing pharmacy services for the IHS 

under Pub. L. 93–638 compacts or 

contracts) should also be waived from 

the requirement and on the specific 

reasons as to why those facilities should 

be waived from the requirement. In 

addition, we solicited specific 

comments on the waiver criteria for LTC 

pharmacies. 

Under § 423.154(d) of the proposed 

rule and pursuant to section 3310 of the 

ACA, the requirements of this section 

would be effective January 1, 2012. 

However, under § 423.154(e) of the 

proposed rule, we proposed to allow an 

independent community pharmacy 

(such as, not a closed door pharmacy 

dedicated to servicing LTC facilities 

only) that is the primary provider of the 

Part D drugs to a small LTC facility (less 

than 80 beds) located in a rural 

community (as defined by the Bureau of 

the Census) to dispense no more than a 

14-day supply through December 31, 

2012, assuming that the pharmacy is not 

already dispensing a 7-day supply to 

any patient population in the LTC 

facility. We explained that we expected 

that Part D sponsors contracting with 

these pharmacies would find solutions 

to their significant challenges and work 

toward full compliance with 

§ 423.154(a) during this extension. 

Under the proposed rule, these 

pharmacies would be required to come 

into full compliance with § 423.154(a) 

by January 1, 2013. We solicited 

comments on this matter. 

Based on the preceding, we proposed 

revising § 423.150 by renumbering 

paragraphs (b) through (g) as paragraphs 

(c) through (h) and adding a new 

paragraph (b) to address appropriate 

dispensing of covered Part D drugs to 

enrollees in LTC facilities. We proposed 

adding new requirements, as discussed 

previously, at § 423.154 to require Part 

D sponsors to ensure that all pharmacies 

servicing LTC facilities dispense no 

more than a 7-day supply of brand 

medications and use uniform 

dispensing methodologies as defined by 

each of the LTC facilities being serviced. 

In addition, under § 423.154(a)(2), we 

proposed requiring Part D sponsors to 

collect and report, as CMS specifies, the 

dispensing methodology used for each 

dispensing event described by 

paragraphs (a)(1)(i) and (ii) of § 423.154. 

We proposed identifying exceptions to 

this requirement at § 423.154(b)(1) and 

(2) relative to specific drugs and waivers 

of this requirement for specific 

pharmacies under § 423.154(c). 

Pursuant to section 3310 of the ACA, we 

proposed an effective date of January 1, 

2012 for these requirements at 

§ 423.154(d), with a limited extension 

through December 31, 2012 for 

pharmacies meeting the requirements 

under § 423.154(e). We also proposed 

that Part D sponsors require any unused 

Part D drugs originally dispensed to 


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their enrollees to be returned to the 

pharmacy and reported to the sponsor 

and address whether ‘‘return for credit 

and reuse’’ is permitted under their 

contracts with pharmacies servicing 

LTC facilities at § 423.154(f). 

Comment: We received several 

comments regarding the term ‘‘waste.’’ 

Commenters requested that we clarify 

the term. Some commenters 

recommended that we not use the term 

‘‘waste’’ but rather ‘‘unused drugs’’ 

because the ‘‘waste’’ description in the 

proposed rule does not harmonize with 

definitions of waste in other State and 

Federal regulations applicable to 

unused pharmaceuticals. 

Response: We agree with the 

commenters that the use of the term 

‘‘waste’’ may cause confusion because 

‘‘waste’’ as discussed in the proposed 

rule may not be consistent with other 

agencies’ definitions. Further, we 

believe that in using the term ‘‘waste’’ in 

section 3310 of the ACA, Congress 

intended to refer to unused drugs. 

Therefore, in this final rule we will use 

the term ‘‘unused drugs’’ instead of 

‘‘waste.’’ 

Comment: A few commenters 

requested that we allow for 14-day-orless dispensing instead of 7-day-or-less 

dispensing. Commenters stated that a 

14-day dispensing cycle would balance 

CMS’s goal of reducing drug waste with 

the administrative, technological, and 

financial burdens placed on Part D 

sponsors, pharmacies, and beneficiaries. 

Commenters urged CMS to consider 

implementing a 14-day-or-less 

dispensing cycle because it is a more 

reasonable and realistic goal that will 

minimize the burden on pharmacies, 

beneficiaries, and plans. Some 

commenters stated that the statute does 

not mandate 7-day dispensing and that 

the dispensing techniques may (but 

need not) include weekly dispensing. 

Response: We initially proposed 

limiting these techniques to 7-days-orless methodologies. We continue to 

believe that 7-day-or-less dispensing 

more effectively minimizes the volume 

of unused drugs and the resulting 

financial waste paid for under the Part 

D program. However, the majority of 

comments we received in response to 

our request for information on the 

impact of our proposed provision 

suggested that costs might increase 

significantly. While this point of view 

conflicts with other opinions we heard 

during the consultation period with the 

industry, we did not receive detailed 

comments that supported more 

moderate cost increases. We also 

received little additional information 

during the comment period on the 

amount of unused drugs in LTC 

facilities paid for under the Part D 

program, and none that could be 

considered as thorough, unbiased, or 

authoritative. As a result, the 

information we have to work with in 

projecting potential savings reflects 

widely divergent estimates. The 

variation in savings estimates range 

from as low as approximately 3 percent 

to as high as 17 percent for 7-day 

supplies, and as high as 20 to 25 percent 

for automated dose dispensing. Given 

the divergence in estimates and the 

uncertainty in the rate of conversion to 

the more efficient methodologies, we 

have elected to be conservative in 

estimating savings and costs in order to 

finalize a policy we estimate will result 

in savings. Therefore, we are finalizing 

the requirement to dispense in 14-dayor-less increments. Nothing about this 

change, however, precludes facilities 

and pharmacies from selecting 7-day-orless methodologies or Part D sponsors 

from incentivizing the adoption of more 

efficient dispensing techniques. 

We agree with the commenters that 

the statute does not mandate 7-day-orless dispensing. Section 3310 of ACA, 

which is implemented by § 423.154, 

states ‘‘[t]he Secretary shall require PDP 

sponsors of prescription drug plans to 

utilize specific uniform dispensing 

techniques, as determined by the 

Secretary, in consultation with relevant 

stakeholders, * * * such as weekly, 

daily, or automated dose dispensing 

***’’ Because the dispensing 

frequencies are illustrative examples (as 

indicated by the use of the phrase ‘‘such 

as’’), we interpret this language as an 

indicator of Congress’ preference to give 

the Secretary flexibility in determining 

the dispensing increments based on 

information received from the relevant 

stakeholders. Based on comments, we 

believe that 14-day-or-less dispensing is 

a more prudent approach to initially 

implementing section 3310 of ACA. A 

14-day-or-less dispensing requirement 

will place less of a burden on 

pharmacies and LTC facilities than a 7- 

day-or-less dispensing requirement 

while allowing CMS to collect data to 

determine the impact of 14-day-or-less 

dispensing on unused drugs in LTC 

facilities. 

For purposes of scoring this final rule, 

we project that the current aggregate 

level of dispensing fees will double. 

Obviously, the negotiations between 

LTC pharmacies and Part D sponsors or 

PBMs that would determine any 

changes in dispensing fees have not yet 

taken place and the actual level of 

dispensing fees is not knowable. 

Historically, we believe dispensing fees 

on LTC claims have been relatively low 

and not directly related to pharmacy 

costs, reflecting the economies of scale 

and dominant competitive strategy of 

long-term care pharmacies in a highly 

concentrated industry and the 

negotiating leverage of large PBMs. 

Therefore, pharmacy costs have not 

been recovered solely through 

dispensing fees, but also through other 

revenue sources, such as mark-up of 

negotiated prices for drug sales over 

acquisition costs and receipt of rebates 

from drug manufacturers. Since these 

other revenue sources are expected to 

remain, it is not at all clear that 

negotiated dispensing fees must or will 

increase directly in proportion to the 

number of dispensing events per month 

as some, but not all, commenters assert. 

Although the way we are finalizing this 

rule will result in only minimal 

additional costs (for example, only one 

additional dispensing event per month 

with 14-day dispensing and a 

substantial reduction in burden 

associated with the reporting 

requirements as compared to the 

proposed rule), we believe that there 

will be some upward pressure on 

dispensing fees to incentivize the use of 

more efficient and cost effective systems 

in some pharmacies. Therefore, in order 

to be as conservative as possible in 

projecting cost increases, we have 

assumed a doubling of the current 

aggregate level of dispensing fees. 

The comments that follow refer to the 

7-day-or-less dispensing requirement 

reflecting our requirement in the 

proposed rule. We believe that the 

comments also apply to 14-day-or-less 

dispensing, as it is a shorter dispensing 

increment than traditional 30-day 

dispensing used in LTC facilities today. 

Although all of the comments apply to 

14-day-or-less dispensing, we believe 

that some of the burden and costs 

described in the comments are 

decreased as a result of less frequent 

dispensing events per month associated 

with 14-day-dispensing versus 7-daydispensing. 

Comment: We received few comments 

related to concerns about patient care. 

Some commenters believe that that the 

confusion resulting from two different 

dispensing methodologies will lead to 

medication errors and patient safety 

issues. Another commenter was 

concerned about delays in treatment, in 

particular related to protected class 

drugs, resulting from, for example, 

delivery delays due to bad weather. 

Another commenter recommended that 

we implement 7-day-or-less dispensing 

only when the requirement is not likely 

to interfere with patient care. 

Response: Based on our conversations 

with the industry, we know that most 

facilities have experience utilizing 


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multiple dispensing methodologies 

today. For example, most pharmacies 

dispense using one technique for their 

Part D patients and another for their Part 

A patients. We understand that many 

pharmacies already dispense in lessthan-30-day increments for their Part A 

patients because it is more efficient for 

the LTC facilities to do so. This is 

because the LTC facilities must pay for 

Part A drugs out of their per diem 

payments. These LTC facilities already 

require their LTC pharmacists to employ 

7- or 14-day dispensing methodologies 

to limit exposure to unnecessary costs 

associated with unused drugs when 

they are the payor. Thus, it is clear that 

LTC facilities and their contracted 

pharmacies have been able to manage 

dispensing to patients using multiple 

dispensing methodologies. 

Consequently, we do not see any 

evidence that multiple dispensing 

methodologies per se in a LTC facility 

necessarily results in medication errors, 

and we received no comment that 

provided any specific information to 

support this assertion. 

In fact, we believe that the original 7- 

day-or-less dispensing requirement, and 

to a somewhat lesser extent, the new 14- 

day-or-less dispensing requirement, 

incentivizes the use of the most effective 

and efficient dispensing technologies, 

such as automated dose dispensing, 

which we believe based on 

conversations with LTC facility and 

pharmacy staff who have implemented 

such systems, will actually result in 

fewer medication errors. We learned 

from multiple industry representatives 

that automated dose dispensing systems 

reduce medication errors by ensuring 

the accuracy of the medication 

dispensed to the patient by eliminating 

many manual steps involved in 

removing doses from multiple blister 

packs and collecting them in paper cups 

prior to the medication pass. In 

addition, these systems free up nursing 

time allowing nursing staff to focus 

more on patient care. 

We believe that facilities and 

pharmacies evaluating the optimal 

systems to employ in meeting the 

required change from 30-day dispensing 

will seriously consider all alternatives, 

and many will find that the confluence 

of improvements in dispensing 

equipment technology and 

developments in health information 

technology standards, combined with 

changes in dispensing fees represent an 

excellent opportunity to upgrade their 

dispensing systems to the most efficient 

methodologies to further both costeffective operations and competitive 

advantage. 

As stated in the proposed rule, we 

have learned from many industry 

representatives that delivery schedules 

will not be expected to change 

significantly to accommodate 14-day-orless dispensing. We received a few 

comments on the proposed rule 

asserting that there might be delays in 

therapy as a result of changes to 

delivery schedules to accommodate 

shorter dispensing increments. 

However, no commenters provided 

details that contradict what we heard 

from most industry representatives 

during consultation. In most LTC 

facilities deliveries are already made on 

a daily basis to accommodate new 

admissions and first doses. We did not 

receive any comments with 

substantiating detail that lead us to 

believe delivery schedules will have to 

significantly change as a result of this 

requirement. Nor do we believe that bad 

weather will impact deliveries to any 

greater extent than it does today. We 

did, however, state in the proposed rule 

that the way in which some deliveries 

are made may have to change. We stated 

that, when allowed by State law, 

common carriers may be used to make 

some deliveries from the pharmacy to 

the LTC facility. So in rare 

circumstances when a delivery cannot 

be made by the pharmacy, deliveries by 

common carrier may supplement the 

delivery schedule. In summary, the 

comments we received did not persuade 

us that the information we received 

during our pre-rulemaking consultation 

with the industry was incorrect or 

insufficient, and for this reason, we 

continue to believe that the parties are 

capable of handling various dispensing 

methodologies and frequent deliveries, 

and thus the 14-day-or-less dispensing 

requirement will not interfere with 

patient care. 

Comment: Several commenters 

supported the proposal that a pharmacy 

should not be considered a mail order 

pharmacy because the pharmacy 

delivers some of the drugs using a 

common carrier. 

Response: We received only 

supportive comments on this issue, and 

we intend to issue guidance in manual 

chapters to document this policy. 

Comment: We received a couple of 

comments regarding the identification 

of brand name versus generic drugs. A 

commenter questioned whether the 

brand name status would be based on 

the NDA/ANDA status. 

Response: As indicated in the 

proposed rule, ‘‘brand name drug’’ is 

defined at § 423.4. ‘‘Brand name drug’’ 

means a drug for which an application 

is approved under section 505(c) of the 

Federal Food, Drug, and Cosmetic Act 

(21 U.S.C. 355(c)), including an 

application referred to in section 

505(b)(2) of the Federal Food, Drug and 

Cosmetic Act (21 U.S.C. 355(b)(2)). 

Thus, the definition specifically refers 

to a drug approved under an NDA. In 

response to this comment, however, and 

to avoid confusion, we are making a 

technical change to the regulation to 

refer to ‘‘brand name drug’’ instead of 

‘‘brand name medication.’’ 

Comment: We received many 

comments in support of our proposal to 

limit the 7-day-or-less dispensing 

requirement to brand name drugs only 

to minimize any transition issues. 

Commenters agreed that the majority of 

the financial waste is associated with 

brand name drugs. Commenters also 

stated that limiting the requirement to 

brand name drugs was a practical 

approach. We also received a smaller 

number of comments from certain 

pharmacies and from environmental 

groups that did not support our 

proposal to limit the requirements to 

brand name drugs. Environmental 

groups urged us to include generics in 

the requirement because generic drugs 

account for majority of the unused drugs 

(in terms of quantity). 

Response: We proposed to limit the 

requirement to brand name drugs 

because, after consultation with the 

industry, we were persuaded by its 

arguments that by targeting brand name 

drugs, we would target a majority of the 

financial waste but minimize the initial 

burden on LTC facilities and 

pharmacies converting from a 30-day 

dispensing increment to a shorter 

dispensing increment. Once we are able 

to collect data on unused drugs and 

negotiated prices in the Part D market, 

we will be in a better position to 

evaluate the implications of extending 

the requirement to generics. As we 

stated in our proposed rule, however, 

nothing in the requirement prevents 

LTC facilities and pharmacies from 

extending the practice to generic drugs, 

and we encourage Part D sponsors to 

facilitate that practice. Given that 

pharmacies and facilities have that 

flexibility, we continue to believe that 

imposing this requirement initially only 

for brand name drugs is the appropriate 

policy. 

We agree with the environmental 

groups that extending the requirement 

to generic drugs would result in fewer 

unused drugs. However, we must weigh 

the effect of our proposal against the 

costs to the Part D program that may 

arise and the burden on LTC pharmacies 

and facilities. As such, we believe that 

the phased-in approach—which focuses 

first on reducing the amount of unused 


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drugs in terms of monetary waste—is 

appropriate. 

Comment: Some commenters 

requested that we conduct a pilot 

program or conduct studies prior to 

implementing the 7-day-or-less 

dispensing requirement. We received 

some comments recommending that we 

limit the 7-day-or-less requirement to 

the most expensive brand name drugs 

and add drugs to the requirement after 

studying the impact of the 7-day-or-less 

requirement. Some commenters urged 

us to conduct studies prior to extending 

the 7-day-dispensng requirement 

beyond brand name drugs and, in 

particular, measure the increase in 

dispensing fees relative to the average 

cost of generic drugs not wasted, to 

determine whether the requirement 

should be extended beyond brand-name 

drugs. 

Response: We disagree with the 

commenters that believe studies or 

pilots must be conducted prior to any 

14-day-or-less requirements. First, 

section 3310 of the ACA does not 

contemplate that we conduct a study 

prior to implementing the provision. 

Second, we do not believe a pilot 

program is necessary. Shorter 

dispensing cycles have already been 

successfully implemented in many LTC 

facilities and thus, are not a new 

approach that warrants a pilot program. 

Moreover, as noted previously, we 

already are proceeding with 

implementation on an incremental basis 

by applying the requirement only to 

brand name drugs and taking other steps 

to facilitate information gathering. In 

this way, we already are further 

mitigating any burden associated with 

this transition by initially focusing on 

only a portion (20 percent of the drugs 

dispensed) of drugs dispensed. As 

discussed elsewhere in this final rule, 

we will be requiring pharmacies to 

report dispensing methodologies and 

report unused drugs to Part D sponsors. 

Our reporting requirements will provide 

us with data we can use to evaluate the 

implications of extending the 

requirement to generic drugs. Finally, 

we decline to limit the 14-day-or-less 

dispensing requirement to the most 

expensive brand name drugs. Pharmacy 

reimbursement varies from pharmacy to 

pharmacy and plan to plan, and 

therefore the most expensive brand 

name drugs similarly may vary. We do 

not believe it would be useful or 

prudent for us to attempt to identify and 

maintain a list of such drugs, 

particularly given that we are prohibited 

from interfering with price negotiations. 

Comment: We received a number of 

comments in support of our 

acknowledgment that it is not possible 

or practical for CMS or Part D sponsors 

to identify the uniform dispensing 

techniques that must be used in all 

pharmacies. We also received comments 

asking us to clarify ‘‘dispensing 

methodology.’’ Commenters wanted us 

to clarify whether ‘‘dispensing 

methodology’’ refers to only the 

technique used or also the number of 

days. We received one comment that 

CMS should require all plan sponsors 

utilize ‘‘7-day’’ dispensing rather than 

‘‘7-day-or-less’’ dispensing. The 

commenter argues: (1) ‘‘7-day-or-less’’ 

dispensing is neither uniform nor 

specific as mandated by the statute; (2) 

less than 7-days will increase 

dispensing fee-related costs; and (3) it is 

impractical because each LTC facility 

and LTC pharmacy would have to 

ascertain the requirements imposed by 

each resident’s plan and then manage 

those requirements. 

Response: For the purposes of this 

provision, the term ‘‘dispensing 

methodology’’ refers to both the 

packaging system (for example, single or 

multidose packing systems such as 

punch cards, envelopes, or strip 

packaging) and the dispensing 

increment (such as 14-day, 7-day, ‘‘2–2– 

3’’ day, ‘‘4–3’’ day, daily, or automated 

dose dispensing). ‘‘Uniform dispensing 

techniques’’ refers to the dispensing 

methodology or methodologies used in 

a particular LTC facility. As stated in 

the proposed rule, the days’ supply 

dispensed to enrollees may vary 

depending on the drug. Under this 

provision, it is the LTC facilities that 

select the dispensing methodology or 

methodologies used in the LTC facility, 

obviously in concert with their 

contracted LTC pharmacy. We disagree 

with the commenter that our 

requirements are neither uniform nor 

specific. We also disagree with the 

commenter’s third point and believe it 

indicates a misunderstanding of our 

proposal. The dispensing methodology 

(or methodologies) will be uniform with 

respect to each LTC facility, and these 

uniform requirements will apply to all 

Part D sponsors and pharmacies 

dispensing to enrollees in that facility. 

Thus, a LTC facility may choose to have 

one dispensing methodology for brand 

name Part D drugs, and another for 

generic Part D drugs, and a third for 

drugs dispensed to non-Part D enrollees. 

As long as the facility, not the Part D 

sponsor, chooses the methodologies, 

such methodologies will be uniform 

throughout that facility. Conversations 

with the industry lead us to believe that 

the facilities will elect to standardize 

around the 14-day-or-less dispensing 

methodologies because these 

methodologies will minimize wasterelated costs across the board. Further, 

the LTC facility will identify the 

specific type (or types) of packaging to 

be used to dispense Part D drugs within 

the LTC facility. Although the days’ 

supply dispensed at a time may vary (up 

to 14 days’ worth), we believe the 14- 

day maximum is sufficiently uniform, 

particularly given that LTC facilities 

may vary widely in terms of their 

resources, physical plant, and enrollee 

population. Given these disparities, we 

continue to believe that it is the LTC 

facilities that are in the best position to 

identify the uniform dispensing 

technique or techniques to be used 

throughout the facility. That is, we look 

to the facility to define the technique or 

combination of techniques that meet the 

facilities’ business needs in concert with 

their contracted LTC pharmacies and 

require that the Part D sponsors defer to 

that decision rather than impose their 

own requirements. Therefore, the LTC 

facility will not need to ascertain Part D 

sponsors’ requirements for the LTC 

facility’s residents—indeed, our 

requirement is precisely the opposite. 

However, we agree with the 

commenter that dispensing fees will 

likely increase with 14-day-or-less 

dispensing. Although we are prohibited 

from intervening between negotiations 

between Part D plans and pharmacies, 

we do expect that dispensing fees will 

increase with the increased number of 

dispensing events in a billing cycle up 

to a point. Consistent with feedback 

from the LTC industry and comments 

on the proposed rule, we believe that 

drugs dispensed in shorter dispensing 

increments will result in fewer unused 

drugs. We also believe that appropriate 

dispensing fees that differentiate among 

the various dispensing methodologies 

could incentivize more rapid adoption 

of the most cost-effective technologies 

and effectively align facility, plan 

sponsor, and public interest in 

minimizing costs associated with 

unused drugs. 

Comment: Several commenters 

asserted that leaving uniform dispensing 

techniques to the discretion of the LTC 

facility would lead to undue expense 

upon pharmacies. One commenter 

stated that the proposal would lead to 

more concentration in the LTC 

pharmacy business which would 

potentially increase costs. 

Response: We believe this comment is 

based on a misunderstanding of what is 

meant by ‘‘uniform.’’ The commenter 

may believe that we intended to impose 

a requirement for a single dispensing 

methodology throughout each LTC 

facility and that such regimentation 

would present a barrier to entry in the 


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market to pharmacies that specialize in 

innovative systems. Decreased 

competition could be expected to result 

in higher prices. However, as explained 

previously, we define ‘‘uniform’’ by the 

dispensing methodologies chosen by the 

facility because the facility will choose 

the set of dispensing methodologies that 

best suits its needs and effectively 

minimize costs. We expect pharmacies 

will work with the LTC facilities they 

contract with to determine the 14-dayor-less dispensing methodology or 

methodologies that will work best for 

the LTC facility, taking into account not 

only physical plant and labor 

considerations, but also the overall cost 

effectiveness and waste reduction 

potential. Again, we have no intent to 

limit the range of methodologies 

selected by the LTC facilities to meet the 

facilities’ needs; rather we mean to 

prohibit Part D sponsors requirements 

from imposing different requirements 

than those selected by the facility. 

Comment: We received comments 

stating that CMS should be indifferent 

to dispensing, shipping and other 

operational methods employed by a 

pharmacy as long the billing for the 

medication is not in excess of 7-days of 

usage. 

Response: We disagree. Section 3310 

of the Act directs us to impose 

requirements aimed at reducing the 

amount of unused drugs in LTC 

facilities. For that reason, we do not 

believe it is enough for us to merely 

limit billing to no greater than 14-day 

increments. If we were to focus only on 

billing, nothing would preclude a 

pharmacy from dispensing a full 30-day 

supply of drugs and bill for all of them 

in 14-day increments regardless of 

whether they had been used. Such a 

practice would not prevent the 

accumulation of unused drugs in LTC 

facilities and certainly would not reduce 

financial waste associated with unused 

drugs. Thus, the commenter’s suggested 

approach would, in our view, run 

counter to the purpose of the statute. 

Comment: Some commenters 

supported CMS’ decision not to require 

the use of automated dose dispensing. 

The commenters agreed that such 

systems are not practical for all 

facilities. We also received many 

comments that generally supported the 

use of automated dose dispensing 

systems. Commenters believe that these 

systems are the most efficient and cost 

effective way to reduce the volume of 

unused drugs and increase patient 

safety. We received comments that CMS 

should promote the rapid adoption of 

this technology by ensuring appropriate 

dispensing fees, providing incentive 

programs similar to the electronic 

prescribing incentive program, and 

establishing a Federal program that 

makes capital more readily available to 

LTC pharmacies and facilities that are 

investing in technologies aimed at 

reducing waste. 

Response: We agree that automated 

dose dispensing systems appear to be 

the most efficient and effective way to 

reduce waste. However, as stated in the 

proposed rule, we recognize there are 

significant limitations to the rapid 

industry-wide adoption of automated 

dose dispensing systems, including 

capital acquisition costs, state pharmacy 

board restrictions, lack of final 

automated medical record to pharmacy 

system interface standards, and 

inventory considerations. Additionally, 

automated dose dispensing may not be 

considered practical by some LTC 

facilities due to physical size and plant 

limitations. However, given our 

proposed changes to the definition of 

‘‘dispensing fee’’ in § 423.100 and the 

prohibition on our ability to interfere 

with negotiations between pharmacies 

and Part D sponsors, we do not believe 

it is necessary or appropriate for us to 

provide financial incentives or support 

of the type the commenters suggest. 

With respect to incentive programs, we 

understand the value of the incentive 

programs; however, we do not believe 

that the implementation of section 3310 

of ACA is predicated on those programs. 

Comment: We received comments in 

support of our proposal to limit the 7- 

day-or-less dispensing requirement to 

LTC facilities as defined in § 423.100. 

This definition excludes assisted living 

facilities. We also received several 

comments requesting that we extend the 

requirements to include assisted living 

facilities. One commenter stated that 

including assisted living facilities in the 

requirements would reduce the 

pharmacy burden of having to manage 

multiple dispensing systems. Another 

commenter suggested that including 

assisted living facilities in the 

requirements would be the only way to 

ensure the Part D sponsors would 

reimburse pharmacies for services 

provided. 

Response: We decline to revise the 

regulation to include assisted living 

facilities. Section 3310 of the ACA refers 

to LTC facilities, which we believe 

indicates Congress’s intent that the 

requirements apply to LTC facilities as 

defined in our regulations that predate 

the ACA. Therefore, terms and 

conditions pertaining to services to 

residents in assisted living facilities, 

including any differential in dispensing 

fees is a matter of negotiation between 

the parties. Moreover, we are aware that 

the medication packaging requirements 

needed for beneficiaries residing in 

assisted living facilities may be different 

from the medication packaging needs of 

beneficiaries residing in LTC facilities 

due to the different levels of 

independence of the residents of the 

facilities. Therefore, extending the 

requirements to assisted living facilities 

may not reduce the burden associated 

with multiple systems. However, 

nothing in the provision precludes 

pharmacies from extending 14-day-orless dispensing to assisted living 

facilities if the assisted living facilities 

and pharmacies decide that is the best 

option for their operations. Pharmacies 

and facilities believing that it is a 

burden to manage multiple dispensing 

systems may want to consider extending 

14-day-or-less dispensing to assisted 

living facilities. Pharmacies choosing to 

extend 14-day-or-less dispensing to 

assisted living facilities are free to 

negotiate dispensing fees to reflect that 

service. However, dispensing fees for 

those services remain a matter of 

contract negotiations between the 

pharmacy and the Part D sponsor. 

Comment: We received support for 

our proposal that the requirements 

would apply to all pharmacies, 

including closed-door LTC pharmacies, 

retail pharmacies, and mail order 

pharmacies that dispense to Part D 

enrollees residing in LTC facilities. We 

received a couple of comments 

requesting that we limit the 

requirements to those pharmacies 

contracted to the LTC pharmacy 

network, in part, because most retail 

and mail order pharmacies have no 

means to identify enrollees residing in 

LTC facilities. 

Response: We disagree that the 

requirements should be limited to 

pharmacies dedicated to dispensing 

medications to patients residing in LTC 

facilities because we do not believe 

section 3310 of the ACA is intended to 

apply only to those pharmacies. We 

further believe that to accomplish that 

the purpose of section 3310 of the ACA, 

which is to reduce the amount of 

unused drugs in LTC facilities, it is 

necessary for all pharmacies that 

dispense Part D drugs to enrollees in 

LTC facilities to dispense brand name 

drugs in no greater than 14-day 

increments. We note that Part D 

sponsors receive a long-term care 

institutionalized resident report twice a 

year from CMS. This report provides 

information to Part D sponsors on which 

of their enrollees are institutionalized, 

as well as the names and addresses of 

the particular LTC facilities in which 

those beneficiaries reside. Therefore, 

Part D sponsors’ pharmacies providing 

services to LTC facilities do have a way 


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to identify enrollees residing in LTC 

facilities. Moreover, sponsors generally 

become aware of their enrollees’ 

institutionalized status much sooner 

when they get a claim from the LTC 

pharmacy including the ‘‘place of 

service’’ code. Upon receipt of that 

claim, the Part D sponsor is required to 

contract with that LTC pharmacy. Part 

D sponsors manage the care of their 

enrollees, not merely process claims for 

prescription drugs. Part D sponsors’ LTC 

pharmacies must be capable of meeting 

certain performance and service criteria, 

as specified under 50.5.2 of Chapter 5 of 

the Medicare Prescription Drug Benefit 

Manual. These performance criteria 

must be incorporated into an addendum 

to a Part D sponsor’s standard network 

contract for those pharmacies that 

would like to be designated as a 

network long-term care pharmacy. In 

order to comply with these criteria, 

sponsors must be able to identify 

beneficiaries residing in LTC facilities. 

For these reasons, we believe sponsors 

will have sufficient information to 

determine to which enrollees these 

dispensing requirements apply and can 

therefore appropriately monitor 

pharmacy compliance with these 

requirements. 

Comment: We received many 

comments requesting that we extend the 

7-day-or-less dispensing requirement to 

pharmacies other than those that 

dispense to LTC facilities. Many 

commenters requested that we 

investigate the potential to reduce the 

volume of unused drugs in other noninstitutionalized settings including 

retail pharmacy and mail order 

pharmacy. 

Response: We appreciate these 

comments and will consider them as 

appropriate for future rulemaking; 

however, we decline to extend these 

requirements at this time—our proposal 

was intended to implement section 3310 

of the ACA, which is specific to 

reducing unused Part D drugs in LTC 

facilities. However, we again reiterate 

that pharmacies, facilities and Part D 

sponsors are free to implement 

measures intended to reduce the 

amount of unused drugs dispensed, and 

we believe our revised definition of 

‘‘dispensing fees’’ in § 423.100 makes it 

clear that costs associated with such 

measures can appropriately be included 

in pharmacy dispensing fees. 

Comment: Many commenters 

supported our proposal to exclude 

certain drugs from the 7-day-or-less 

dispensing requirement. In addition to 

the list of excluded drugs suggested in 

the proposed rule, some organizations 

specifically recommended that we 

exclude all antibiotics, insulin and 

diabetic supplies, all controlled 

substances, contraceptives, liquids, 

patches, limited distribution drugs, kits, 

Boniva monthly, vaginal rings, Prephase 

and Prempro, steroid bursts, weekly 

medications, Fosamax, powdered 

medications, total parenteral nutrition 

(TPNs), and compounded medications. 

Many commenters requested that we 

exclude liquids from the 7-day-or-less 

requirement for practical and patientsafety-related reasons. Some 

commenters thought it may be difficult 

to interpret and operationalize the 

‘‘drugs difficult to dispense in supply 

increments of 7-day-or-less’’ exclusion. 

We also received comments requesting 

that we clarify the definition of ‘‘acute 

illness.’’ Finally, many commenters 

requested that CMS should maintain a 

list of excluded drugs to promote 

consistency across the industry. 

Response: We agree with the 

commenters who believe the ‘‘drugs 

difficult to dispense’’ standard may be 

difficult to interpret and operationalize 

and, as a result, we are modifying this 

standard. We will require 14-day-or-less 

dispensing specifically for solid oral 

doses of brand name drugs. We also will 

eliminate the reference to ‘‘acute 

illnesses’’ and ‘‘drugs difficult to 

dispense.’’ Based on the comments, we 

will specifically exclude antibiotics and 

drugs that must be dispensed in their 

original container as indicated in the 

Food and Drug Administration 

Prescribing Information and drugs that 

are customarily dispensed in their 

original packaging to assist patients 

with compliance (for example, oral 

contraceptives). We believe that with 

this simplification of the rule, a list of 

Part D drugs by NDC is not necessary; 

therefore, we decline to maintain such 

a list. 

We disagree with commenters that 

requested that we exclude controlled 

drugs. As stated in the proposed rule, 

the Drug Enforcement Agency rules do 

not preclude dispensing controlled 

drugs in 14-day-or-less increments. 

Further, we believe that 14-day-or-less 

dispensing of controlled drugs will 

result in less unused controlled drugs in 

the LTC facilities, and therefore, will be 

less of a disposal burden on LTC 

facilities or a diversion risk. But unlike 

antibiotics and drugs that must be 

dispensed in their original packaging, 

we do not find a similar basis for 

excluding controlled substances from 

the dispensing requirements (unless 

they are excluded for another reason) 

because there is no clinical or patient 

safety reason to do so. 

Comment: We received some 

comments requesting an exemption 

from the dispensing requirement in 

cases where a prescriber determines that 

it is medically necessary for the enrollee 

to receive more than a 7-day supply at 

a time and in cases where patients are 

stabilized on a medication. One 

commenter stated that some drugs and 

biologicals may require a longer time 

period in order to gauge tolerance or 

efficacy, and in those circumstances a 

partial fill may not be medically 

appropriate. 

Response: We disagree with these 

comments. First, we believe an 

exclusion from the dispensing 

requirements for ‘‘medical necessity’’ is 

unnecessary. As we stated in the 

proposed rule, the dispensing 

requirements have no bearing on the 

quantity prescribed. A prescriber is free 

to prescribe any quantity of medication 

that he or she believes is medically 

appropriate for the patient. Our 

requirements merely would govern the 

increment in which such medication is 

dispensed to the facility at a time. 

Further, we are not persuaded that there 

should be an exception for patients who 

are stabilized on a medication—we 

believe it would be more burdensome 

for pharmacies, Part D sponsors, and 

LTC facilities to apply beneficiaryspecific, drug-specific dispensing 

requirements without any benefit in the 

form of reduced financial waste 

associated with unused drugs. In fact, 

such an approach could both increase 

the amount of unused drugs and 

increase costs. Moreover, while we 

agree that some drugs and biologicals 

require a longer time to gauge tolerance 

or efficacy, we disagree that the answer 

is to exempt these drugs from the 

dispensing requirements. To the 

contrary, it makes more sense to 

dispense those drugs in 14-day-or-less 

increments. If the patient does not 

tolerate the drug or the drug is 

ineffective and has to be discontinued, 

fewer unused drugs will result when a 

14-or-less day’s supply, as opposed to a 

30-day supply, is discontinued. 

Comment: Some commenters agreed 

that return and reuse was not an optimal 

method to reduce the amount of unused 

drugs in LTC facilities. Others 

commented that we should allow either 

return and reuse or a 7-day-or-less 

dispensing requirement, but not both. 

Others commented that we should 

prohibit ‘‘return for credit and reuse’’ for 

Part D drugs that are subject to the 7- 

day-or-less dispensing requirement. 

Some commenters requested that we 

exempt from the requirement those 

pharmacies that already utilize lowwaste practices or ‘‘return for credit and 

reuse’’. 

Response: As stated in the proposed 

rule, we considered ‘‘return for credit 


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and reuse’’ as a way to reduce waste in 

LTC facilities. We explained that there 

are limitations to this approach, 

especially that fact that not all states 

allow ‘‘return for credit and reuse,’’ and 

reuse of controlled substances is limited 

by the DEA. Because of these 

limitations, we believe financial waste 

will be more effectively reduced by 

preventing the accumulation of unused 

drugs in the first place rather than 

addressing handling of unused drugs 

after they have accumulated in the LTC 

facilities. That said, we do not prohibit 

the ‘‘return for credit and reuse’’ of 

drugs, and under this provision require 

Part D sponsors’ pharmacy contracts to 

explicitly address whether return and 

reuse is authorized where permitted by 

State law. As stated in the proposed 

rule, we recognize that ‘‘return for credit 

and reuse’’ can be effective in certain 

situations (for example, where there is 

an onsite pharmacy at the LTC facility); 

however, we believe that ‘‘return for 

credit and reuse,’’ where allowed by 

State law, should be used in 

conjunction with 14-day-or-less 

dispensing to further reduce the volume 

of unused drugs over and above that of 

14-day-or-less dispensing. We decline to 

provide an exception from the 

requirements for those pharmacies 

already practicing techniques that limit 

the volume of unused Part D drugs. Part 

D sponsors’ pharmacies that already 

utilize 14-day-or-less dispensing will be 

compliant with the requirements. 

Therefore, pharmacies utilizing ‘‘other 

low waste practices’’ will not be exempt 

from the 14-day-or-less dispensing 

requirements. 

Comment: A few organizations 

commented that the dispensing 

methodology would not be apparent 

from the claim making it difficult to 

comply with the proposed reporting 

requirement that the Part D sponsor 

collect and report information on the 

dispensing methodology used for each 

dispensing event. We also received 

comments requesting that we not apply 

the reporting requirement absent 

compelling justification of how we will 

use the information to evaluate 

efficiencies. Some commenters 

questioned our authority to collect data 

on dispensing methodologies and 

unused Part D drugs. We received a 

comment that the National Council for 

Prescription Drug Programs (NCPDP) 

has developed codes for dispensing 

methodology that are compatible with 

the HIPAA billing transactions and that 

will facilitate CMS’s and Part D 

sponsors’ ability to track the dispensing. 

Response: We will collect the data 

from sponsors through Part D reporting 

requirements. Under section 1860D– 

12(b)(3)(D) of the Act, which 

incorporates section 1857(e)(1) of the 

Act, we are authorized to require Part D 

sponsors to provide such information as 

we find necessary or appropriate. We 

are concurrently issuing further 

guidance on this reporting requirement 

in a revision to the Part D Reporting 

Requirements (currently approved 

under OMB Control No. 0938–0992). We 

intend to use this data to determine the 

extent to which the dispensing 

requirements reduce the amount of 

unused drugs and determine the cost 

effectiveness of expanding the 

requirement beyond brand name drugs. 

We note that billing transactions are 

handled through regulatory processes 

associated with HIPAA transactions. We 

appreciate the comment from NCPDP 

that they have developed codes for 

dispensing methodologies that will 

facilitate CMS’s and Part D sponsors’ 

ability to track the dispensing using 

information available on version D.0 

claim transactions. 

Comment: Some commenters 

supported our proposal to have unused 

drugs returned to the pharmacy and also 

supported data collection of the 

quantity and types of drugs that go 

unused in LTC facilities. We also 

received several comments from 

organizations requesting that CMS delay 

the requirement that unused drugs be 

returned to the pharmacy and reported 

to the Part D sponsor until such time 

when NCPDP has developed an 

electronic transaction to capture the 

nature and quantity of unused drugs. 

Commenters stated that manual 

reporting of unused drugs would create 

a burden on the pharmacy and sponsor 

and require additional staffing to 

accommodate the increased workload. 

Some organizations recommended that 

we require all solid oral doses (brand 

and generic drugs) to be dispensed in 

7-day-or-less increments and eliminate 

the ‘‘return and report’’ requirement at 

least until an NCPDP transaction is 

developed. Some commenters wanted 

us to clarify the ‘‘return and report’’ 

provision. Commenters requested that 

we clarify whether the provision applies 

to Part D drugs dispensed prior to the 

implementation date of the requirement 

and whether drugs to which the 

requirements do not apply were exempt 

from the ‘‘return and report’’ 

requirement. Many commenters 

believed that the Controlled Substance 

Act, hazardous waste laws, and State 

laws would be a barrier to LTC facilities 

returning unused drugs to pharmacies. 

One commenter requested that we add 

an option for the LTC facilities to report 

the unused drugs. Another commented 

that since Part D sponsors do not 

directly contract with LTC facilities, the 

Part D sponsors will not have the 

authority to require LTC facilities to 

return unused medications to LTC 

pharmacies. Some commenters stated 

that there may be more effective ways to 

gather data than to require all unused 

drugs be returned to the pharmacies. 

Response: As a result of comments, 

we better understand the existing State 

and Federal requirements on LTC 

facilities to manage waste. In response 

to the comments, we will eliminate the 

requirement that unused drugs be 

transferred to the pharmacy and instead 

retain only the requirement that Part D 

sponsors collect information from the 

network LTC pharmacies to determine 

the amount of unused brand and generic 

drugs, as defined in § 423.4. We 

understand that pharmacies routinely 

receive a date of discontinuation or 

other information that can be used to 

calculate such a date (for example, the 

start date of the new ‘‘substitute’’ 

prescription may be used as the 

discontinuation date of the previous 

prescription) from the LTC facility 

whenever a medication is discontinued 

for any reason. Therefore, we believe 

pharmacies have the data in their own 

systems to calculate the difference 

between the quantity dispensed and the 

quantity consumed, which can be used 

to calculate the amount of unused 

medication and which plan sponsors 

can audit and validate reported 

amounts. We are revising the PRA 

package for the Part D Reporting 

Requirements (currently approved 

under OMB Control No. 0938–0992) to 

reflect this approach and will be able to 

confirm our understanding in the next 

comment period for the Reporting 

Requirements. 

However, for pharmacies that 

voluntarily adopt 7-day-or-less 

dispensing for all solid oral doses (that 

is, both brand name drugs and generic 

drugs), we will waive the requirement 

that Part D sponsors report on the 

unused drugs. All other pharmacies 

must report on the amount of unused 

brand and generic drugs as of 

implementation of this provision, 

January 1, 2013. We continue to believe 

that reporting is essential in order to 

acquire data from which to evaluate the 

potential savings from extending the 

dispensing requirement to generic 

drugs. Only when data has been 

systematically collected will the extent 

of the volume of unused Part D drugs be 

quantifiable. However, we will 

eliminate the reporting requirement for 

those pharmacies that immediately 

adopt 7-day-or-less dispensing for both 

brand name and generic drugs given 


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that doing so will almost eliminate 

unused drugs. 

Comment: We received a comment 

requesting that CMS prohibit plan 

sponsors from seeking credits for 

unused drugs that are returned to LTC 

pharmacies but not reused. We also 

received a comment requesting that 

CMS ensure that the final regulations 

expressly state that beneficiaries are to 

share in any refund resulting from the 

return in proportion to the amount of 

the total cost for the returned drugs 

covered by their cost sharing 

contribution. 

Response: We believe that the 

commenter is concerned that sponsors 

will demand credit for unused drugs 

associated with the reporting 

requirement. We stress that this is not 

the requirement under the rule and 

expect that sponsors will pay 

pharmacies for drugs dispensed under 

this rule, subject to any contractual 

provisions in the contract between the 

Part D sponsor and LTC pharmacy. 

Whether or not Part D plans receive 

credits and the affect on beneficiaries 

will be determined by the contract 

between the sponsor and the pharmacy 

and the terms of the benefit package. 

With respect to return and reuse, that is 

a practice governed by State law and the 

provisions of the contract between the 

Part D sponsor and the pharmacy. We 

do not believe it is necessary or 

desirable for CMS to preempt State laws 

on this issue. For these reasons, we 

decline to adopt the commenters’ 

suggestions. If a pharmacy processes 

unused drugs and redispenses the 

drugs, then the pharmacy must abide 

with any conditions in its contract with 

the Part D sponsor regarding providing 

credit and the Part D sponsor must 

adjust the prescription drug event data 

and TrOOP accordingly for the original 

dispensing event. 

Comment: We received comments 

that Part D sponsors should generally 

allow pharmacies to use currently 

accepted transactions unless the 

industry voluntarily adopts a single 

billing standard. Others recommended 

that we implement a specific billing 

standard. Some commenters 

recommended that we implement ‘‘postconsumption billing’’ as a standard 

billing methodology because there 

would be minimal need for drug 

returns, claim reversal, and TrOOP and 

drug spend adjustments. Some also 

stated that a post-consumption-billing 

method would reduce the potential for 

fraud. 

Response: We defer to the appropriate 

industry standard-setting organizations 

and the HIPAA-mandated rulemaking 

process to determine billing standards 

and for this reason, decline to amend 

our regulations for this purpose at this 

time. 

Comment: We received several 

comments concerned about copayment 

methodologies. Some commenters 

recommended that the copayment 

method not be linked to the dispensing 

methodology. Several commenters 

expressed concern over charging 

beneficiaries additional copays. Many 

recommended that the beneficiary only 

be charged one copayment per month. 

Other commenters believed that the 

beneficiaries’ copayments should be 

prorated based on the number of days a 

Part D drug was dispensed in a month. 

Response: As stated in the proposed 

rule, we expect that copayments will be 

billed on the first dispensing event of 

the month, the last dispensing event of 

the month, or prorated with each 

dispensing event. We leave the decision 

of which copayment collection 

methodology to use up to the parties 

involved in these transactions; however, 

in response to these comments, we will 

add a provision to the regulation to 

clarify our interest that regardless of the 

number of incremental dispensing 

events, the total cost sharing for a Part 

D drug to which the 14-day-or-less 

dispensing requirements apply shall be 

no greater than the total cost sharing 

that would be imposed for such Part D 

drug if the 14-day-or-less requirements 

did not apply. This requirement applies 

for all beneficiaries including lowincome subsidy eligible beneficiaries. 

(We note that, for CY 2013, we are 

considering collection of daily 

copayment information in the PBP tool, 

and that such information would 

facilitate copayment proration.) 

Comment: Some organizations 

expressed concern over ‘‘refill too soon’’ 

edits and utilization management 

requirements that may be placed on 

drugs dispensed in 7-day-or-less 

supplies. A majority of the organizations 

that commented on ‘‘refill too soon’’ 

edits requested that we issue guidance 

to Part D sponsors requiring them to 

turn off the ‘‘refill too soon’’ edit. These 

organizations were concerned that ‘‘refill 

too soon’’ edits on drugs dispensed in 7- 

day-or-less supplies would result in an 

increase in missed doses due to 

medication unavailability. Some 

commenters recommended that Part D 

sponsors would need to allow for all 

medications to receive a one-time prior 

authorization. We also received a 

comment recommending that prior 

authorization and step edits be 

eliminated for drugs dispensed in 7-dayor-less increments and arguing that the 

rationale behind these utilization 

management edits is to reduce costs and 

therefore, they would not be necessary 

under 7-day-or-less dispensing. 

Response: We agree that customary 

‘‘refill too soon’’ edits for traditional 30- 

days supplies will be inappropriate for 

14-day-or-less supplies and could result 

in access issues. We do not agree that 

PA and step-therapy should be 

eliminated as they allow savings 

through use of less costly alternatives 

with potentially equivalent therapeutic 

value. We expect that the industry will 

modify utilization management edits, 

including refill too soon edits to prevent 

discriminatory practices that could 

result in Part D drug access issues. 

Comment: We received comments 

that there may be penalties associated 

with billing Medicaid for quantities less 

than a 30-day supply. We also received 

comments that even the minimal 

Medicaid co-payment on a prescription 

becomes a financial burden on such 

patients if the states are allowed to 

impose the copayment obligations 

currently in effect on each 7-day fill. 

Response: By statute, Medicaid 

cannot be billed for Part D drug claims. 

Therefore, this comment is beyond the 

scope of the rule because our final rule 

with respect to dispensing to LTC 

residents applies only to Medicare Part 

D. 

Comment: We received many 

comments that did not support our 

proposal to grant a limited extension to 

independent community pharmacies 

servicing small LTC facilities in rural 

communities. Many commenters believe 

that it would be difficult to determine 

which pharmacies meet our proposed 

extension criteria. Some commenters 

requested that CMS keep a list of 

pharmacies that qualify for the 

extension to eliminate any confusion 

regarding those pharmacies that qualify 

for the extension. 

Response: As discussed further below, 

we intend to delay the effective date of 

the dispensing and reporting 

requirements set forth in § 423.154 until 

January 1, 2013. For this reason, an 

extension for pharmacies servicing 

small LTC facilities in rural 

communities is no longer necessary. 

Instead, the delay in the implementation 

date will allow all pharmacies and LTC 

facilities time to evaluate dispensing 

methodologies and allow them to make 

a decision regarding the most effective 

and efficient systems for their facilities. 

We are amending the final regulation to 

eliminate the extension for certain 

pharmacies. 

Comment: We received many 

comments in support of our proposal to 

waive the dispensing requirements 

when pharmacies are dispensing to Part 

D enrollees residing in intermediate care 


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facilities for the mentally retarded (ICF/ 

MRs) and Institutes for Mental Diseases 

(IMDs). We also received comments that 

supported waiving the requirements 

when pharmacies dispense to similar 

facilities that meet and demonstrate the 

same criteria outlined in the proposed 

rule. We received specific requests to 

waive I/T/U pharmacies and Indian 

Health Service or tribal facilities from 

the requirement. We also received a 

request to waive this requirement for 

pharmacies when dispensing to PACE 

programs. Other commenters opposed 

any waivers. These commenters argued 

that the lack of data on unused Part D 

drugs in these facilities justifies the 

opposition to the waiver. 

Response: We were persuaded by the 

comments that under certain 

circumstances, waivers should be 

granted. The requirements under 

§ 423.154(a) will not apply to I/T/U 

pharmacies defined in § 423.100. We 

understand that the I/T/U system is 

understaffed. As a result, unlike in most 

LTC pharmacies, which have dedicated 

clinical pharmacy staff, pharmacists in 

the I/T/U system are often called upon 

to perform multiple non-dispensing 

tasks including providing patient care 

that would otherwise be provided by a 

physician. These pharmacists make 

medication deliveries to LTC facilities 

only on days when they provide 

consultant services. In addition, some of 

these pharmacists provide translation 

services and/or provide information in a 

culturally appropriate manner and 

protocol for the Indian population they 

serve. Further stressing the system, 

these pharmacies are called upon to 

support very remote health stations that 

are often accessible, in some cases, only 

on foot, by horseback, airplane, or via 

helicopter. The majority of the clinics 

and health stations serviced by I/T/U 

pharmacists are in remote areas where 

deliveries cannot be made on a daily 

basis. For these reasons, we believe that 

requiring the 14-day-or-less requirement 

is not feasible for I/T/U pharmacies and 

could increase rather than decrease 

costs associated with 30-day dispensing. 

The 14-day-or-less dispensing 

requirements will generally not apply to 

PACE organizations because PACE 

programs provide community-based 

care. When PACE enrollees are in SNFs, 

we would expect that pharmacies 

servicing those facilities adhere to the 

14-day-or-less dispensing requirement. 

Therefore, we are waiving these 

requirements for I/T/U pharmacies, but 

not for pharmacies when they serve 

PACE programs. 

Comment: We received some 

comments requesting the CMS maintain 

a list of facilities for which the 

dispensing requirements have been 

waived along with the NCPDP patient 

resident code so that pharmacies could 

inform the Part D sponsors that the 

pharmacy is dispensing to an enrollee 

residing in a facility that has been 

waived. 

Response: We will consider whether 

this is a practice that CMS should 

maintain. However, we currently 

believe Part D sponsors can adequately 

identify ICF/MRs, IMDs, and I/T/U 

pharmacies as these entities generally 

contract with and bill Part D sponsors 

directly. 

Comment: We received many 

comments from organizations 

recommending that we delay the 

implementation of the requirements 

described under § 423.154. Many 

commenters requested a 1-year delay, 

but some commenters requested a 2-year 

delay. Most commenters argued that an 

implementation date of January 1, 2012 

would not give sufficient time to 

renegotiate contracts between the Part D 

sponsors and the pharmacies or make 

necessary systems and operational 

modifications to comply with the 

requirements. Some commenters argued 

that maintaining the January 1, 2012 

implementation date would lead to 

inaccurate bids for the 2012 contract 

year, since planning for systems changes 

and renegotiation of appropriate 

dispensing fees incorporating related 

costs would be expected to extend 

beyond the CMS bid submission 

deadline. One commenter indicated that 

without a delay to permit appropriate 

negotiation of pharmacy reimbursement, 

pharmacies would likely just convert 

existing 30-day punch card systems to 

7-day punch card systems rather than 

make capital investment in more 

efficient and cost-effective methods for 

complying with the dispensing 

requirement. Commenters stated that 

conversely, the delay until at least 

January 1, 2013 would ensure that 

nursing facilities have sufficient time to 

evaluate dispensing system options 

(such as automated dose dispensing 

systems) with their contracted 

pharmacies and make clear capital 

investment decisions. A commenter 

expressed concern that without the 

delay, hasty business decisions made 

under pressure could put an otherwise 

stable pharmacy business at 

unnecessary risk for failure, particularly 

given that these decisions would 

involve capital investments that cannot 

easily be reversed. This commenter 

believes that as a result, there could be 

a decrease in the number of pharmacies 

that are able to serve LTC facilities. 

Commenters also expressed concern 

that the proposed implementation date 

of January 1, 2012 might put a strain on 

the supply of appropriate dispensing 

equipment. Several commenters stated 

that failure to delay the implementation 

date would likely result in rushed 

transitions to 7-day-or-less dispensing 

that might jeopardize patient safety (for 

example, because of inadequate staff 

training time). Commenters stated that 

given that the LTC facilities will dictate 

the uniform dispensing techniques to be 

used in their facilities, pharmacies may 

need to work with the facilities one at 

a time, which will require additional 

time and resources. 

Response: We are persuaded by the 

comments that a 1-year delay in the 

implementation of these requirements is 

appropriate. Therefore, we are revising 

§ 423.154 to specify that it will take 

effect January 1, 2013. 

This delay will give LTC facilities and 

pharmacies more time to evaluate 

dispensing methodologies and make 

decisions regarding the most effective 

and efficient systems. In particular, we 

are persuaded by the comments that 

indicate that more pharmacies will 

convert to the more efficient dispensing 

systems if given more time to make 

arrangements for those systems. We also 

believe, based on the comments, that if 

the affected parties have more time to 

make measured and fully considered 

decisions about capital investments in 

dispensing technologies, they will be 

more likely to immediately extend 

shorter cycle dispensing to both brand 

and generic drugs in order to maximize 

the return upon their investment. We 

believe that these decisions will 

increase program savings in the long run 

and lead to greater savings than if, 

because of an earlier implementation 

date, the parties did the minimum 

necessary and merely made minor 

adjustments to their current systems to 

meet the requirements. 

We also are persuaded by the 

comments suggesting that the delay will 

give Part D sponsors sufficient time to 

negotiate contractual changes and 

finalize dispensing fees with LTC 

pharmacies in advance of the 2013 bid 

deadline, thereby allowing Part D 

sponsors to submit accurate bids. We 

would be concerned that bids that could 

not accurately account for yet-to-be 

renegotiated dispensing fees would 

increase program costs in other ways 

and could potentially offset savings 

resulting from implementing the 

requirement for 2012, potentially 

defeating the purpose of section 3310 of 

the ACA. 

We further are persuaded that, given 

that we do not have concrete data about 

the amount of savings that could be 

achieved, and consistent with our 


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incremental approach to the dispensing 

requirement, a 1-year delay will reduce 

the burden on Part D plans, pharmacies 

and LTC facilities by permitting a more 

orderly transition to the new dispensing 

requirement. In addition, the delay will 

more closely align the reporting 

requirement for unused drugs with the 

availability of an electronic 

informational reporting transaction that 

could be used for this purpose, which 

we believe will further reduce the 

burden of data collection on pharmacies 

and Part D sponsors. Finally, we are 

persuaded that that a delay will give 

pharmacies and LTC facilities more time 

to transition to different workflows, new 

systems and operational requirements, 

and conduct appropriate staff training. 

We believe this will mitigate any 

potential start up issues, such as 

medication errors, and thus will 

increase patient safety. 

As a result of comments, in our final 

rule, we modify § 423.154(a)(1)(i) to 

dispense solid oral brand name drugs, 

as defined in § 423.4, to enrollees in 

LTC facilities in no greater than 14-day 

increments at a time. We modify 

§ 423.154(a)(2) to collect and report 

information, in a form and manner 

specified by CMS, on the dispensing 

methodology used for each dispensing 

event described by paragraph (a)(1) of 

this section and on the quantity of 

unused brand and generic drugs, as 

defined in § 423.4. Reporting on unused 

brand and generic drugs is waived for 

Part D sponsors’ when their pharmacies 

dispense both brand and generic drugs, 

as defined in § 423.4, in no greater than 

7-day increments. We modify 

§ 423.154(b) to exclude from the 

requirements under paragraph (a) of this 

section: (1) Solid oral doses of 

antibiotics; and (2) solid oral doses that 

are dispensed in their original container 

as indicated in the Food and Drug 

Administration Prescribing Information 

or are customarily dispensed in their 

original packaging to assist patients 

with compliance (for example, oral 

contraceptives). We modify § 423.154(c) 

to include a waiver for I/T/U 

pharmacies. We modify § 423.154(d) to 

change the effective date from January 1, 

2012 to January 1, 2013. We modify 

§ 423.154(e) by eliminating the 

extension for certain pharmacies and 

adding a requirement that regardless of 

the number of incremental dispensing 

events, the total cost sharing for a Part 

D drug to which the dispensing 

requirements under this paragraph (a) 

apply must be no greater than the total 

cost sharing that would be imposed for 

such Part D drug if the requirements 

under paragraph (a) of this section did 

not apply. Finally, we modify 

§ 423.154(f) by eliminating paragraph 

(f)(1) and combining paragraph (f)(2) 

with the introductory clause of 

paragraph (f). 

12. Complaint System for Medicare 

Advantage Organizations and PDPs 

(§ 422.504 and § 423.505) 

In our November 2010 proposed rule, 

we proposed to implement a new 

requirement under the authority of 

section 3311 of the ACA to require MA 

organizations and Part D sponsors to 

respond to complaints. Specifically, we 

proposed to require that MA 

organizations and Part D sponsors use 

our existing Health Plan Management 

System (HPMS) Complaints Tracking 

Module (CTM) to document the closure 

of complaints and provide a detailed 

complaint resolution summary when 

the complaint is resolved. That is, we 

proposed to require an MA organization 

or Part D sponsor to provide an 

explanation of the way in which the 

complaint was closed, rather than 

simply providing the words ‘‘complaint 

closed’’ in the CTM. 

In our proposed rule, we proposed 

applying these requirements to both MA 

organizations and Part D sponsors 

ensure beneficiary access to medical 

services and drugs under the MA and 

Part D programs. We also indicated that 

we were considering adding a drop 

down checklist to CTM for MA 

organizations, and Part D sponsors to 

use as the documentation method when 

closing complaints, as opposed to 

requiring free text descriptions of 

complaint closure, and we invited 

comments on this approach. 

As provided under section 3311 of 

ACA, we developed a model electronic 

complaint form on the Medicare.gov 

Internet Web site and on the Internet 

Web site of the Medicare Beneficiary 

Ombudsman. We proposed that plans be 

required to prominently display the 

CMS-developed complaint form on their 

Web site and directly link to the CMS 

Medicare.gov Web site and the Web site 

of the Medicare Ombudsman. As we 

explained in the proposed rule, when 

we completed our development of the 

model electronic complaint form was 

made available on the internet Web sites 

as in December 2010. 

In our proposed rule, we stated the 

new requirement for plans to 

prominently display the electronic 

model on their Web sites would be 

effective January 1, 2012 and indicated 

that following the issuance of this final 

rule, we would be developing guidance 

to instruct MA organizations and Part D 

sponsors on how to comply with this 

new requirement. 

Comment: We received a significant 

number of comments regarding our 

proposed requirement in 

§ 422.405(a)(15)(i) and 

§ 423.405(b)(22)(i) regarding the 

addition of a drop down checklist in 

CTM that would provide clear and 

consistent closure categories. Many 

commenters supported this proposed 

new requirement. Two commenters 

recommended that, in addition to the 

drop down menu, we include a text box 

for plans that desired to add comments 

about the resolution of complaints. 

These commenters believed that this 

modification would improve specificity 

of the responses. A few commenters 

requested that we define the term 

complaint in order that a complaint 

might be clearly distinguished from a 

grievance or an appeal. 

Response: We appreciate the support 

expressed by the commenters. The 

purpose of the CTM system is to record 

and track complaints we receive from 

beneficiaries, provider, and others 

regarding Medicare health plans and 

prescription drug plans. While our 

current instructions to MA 

organizations and PDP sponsors 

indicate that when a complaint is 

resolved the plan should concisely 

summarize the complaint closure in 

CTM, we have found that many 

sponsors failed to do so. Rather, they 

have merely entered, ‘‘Complaint 

Closed’’ without any explanation of the 

action taken. After reviewing many 

complaint entries, we also discovered 

that ‘‘complaint closed’’ has often been 

used inappropriately. For example, it 

has been used when the sponsor has 

been unable to reach the beneficiary by 

phone, which alone does not constitute 

a reasonable basis for closing a 

complaint. 

We agree with the commenters that a 

text box in addition to the drop-down 

menu in the CTM would be helpful for 

capturing information on the MA 

organization’s or PDP sponsor’s 

resolution of a complaint. Therefore, we 

are adding a text box to the complaint 

form. We will clarify in instructions that 

CMS and plan users must select at least 

one item in the drop down box or use 

the text box in CTM to resolve a 

complaint. Thus, the system will not 

permit the complaint to be resolved if at 

least one of the available options is not 

selected. 

Regarding the commenters’ request 

that we define a complaint, we note that 

the Frequently Asked Questions section 

of CTM describes the difference 

between a complaint and grievance. It 

states that grievances are received 

directly by the plan from beneficiaries 

and that plans are required to report 


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grievances to CMS per the Part D 

reporting requirements. CTM 

complaints, however, are received by 

CMS (through 1–800–Medicare call 

centers, phone calls to the CMS regional 

office, etc.) and are entered into CTM for 

resolution by either the plan or CMS. 

We require that plans track grievances 

separately from CTM complaints. 

Comment: Many commenters 

supported our proposed requirements 

that MA organizations and PDP 

sponsors address and resolve all 

complaints in the CMS complaint 

tracking system and link to the 

electronic complaint form on the 

Medicare.gov and Internet Web site of 

the Medicare Ombudsman from each 

sponsor’s main Web page. However, a 

few commenters expressed opposition 

to the requirement to link to the 

electronic complaint form, stating that a 

direct link on the plan’s Web site could 

potentially discourage use of other plan 

resources available for issue resolution 

and confuse beneficiaries. One 

commenter suggested that, by imposing 

this requirement, we would create an 

additional administrative expense that 

would add little to enhance either the 

complaint resolution process or 

beneficiary satisfaction. Another 

commenter requested the opportunity to 

review and comment on the new 

electronic complaint form prior to its 

implementation. 

Response: We appreciate the support 

commenters expressed for these 

requirements. Congress has directed the 

Secretary to annually report the number 

and types of complaints reported in 

CTM, any geographic variations that 

exist in the complaints, the timeliness of 

CMS’ and the plan’s responses, and the 

resolution of such complaints. Given the 

importance that Congress has placed on 

complaints and their resolution, it is 

important that we have reliable and 

complete data not only prepare our 

annual report to Congress, but also to 

monitor complaint resolution for 

oversight purposes. 

We do not agree with those who 

claimed that having a direct link on the 

plan’s Web site to the Medicare.gov Web 

site and the Web site of the Medicare 

Ombudsman would discourage use of 

plan resources for resolving issues, 

confuse beneficiaries or create 

additional administrative costs. It has 

been our experience that beneficiaries 

go directly to their MA organization or 

PDP sponsor with issues of concern, 

including complaints, prior to 

contacting CMS for assistance. We have 

no cause to believe that requiring 

sponsors to directly link to the 

Medicare.gov Web site and the Web site 

of the Medicare Ombudsman would 

alter the beneficiaries’ practice of 

seeking to resolve their issues by first 

contacting their plan. We also do not 

believe that requiring a link from the 

sponsor’s Web site to the Medicare Web 

sites will add significant administrative 

costs. Since the proposed requirement is 

similar to existing requirements 

regarding a plan’s Web site, we expect 

that any costs related to this 

requirement are currently reflected in 

the organization’s bid. 

We appreciate the commenter’s 

interest in commenting on the new 

electronic complaint form prior to its 

implementation, but as we noted 

previously, we have already posted the 

model electronic complaint form which 

is available at https:// 

www.medicare.gov/ 

MedicareComplaintForm/home.aspx. 

For the reasons discussed previously, 

we are finalizing these requirements as 

proposed with an effective date of 

January 1, 2012 for the requirement that 

MA organizations and Part D plans 

create a link from their main Web page 

to the CMS-developed electronic 

complaint form on the http:// 

www.Medicare.gov Web site. 

13. Uniform Exceptions and Appeals 

Process for Prescription Drug Plans and 

MA–PD Plans (§ 423.128 and § 423.562) 

Section 3312 of the ACA amends 

section 1860D–4(b)(3) of the Act by 

adding a new section (H) that requires, 

effective January 1, 2012, each PDP 

sponsor to use a single, uniform 

exceptions and appeals process 

(including, to the extent the Secretary 

determines feasible, a single uniform 

model form for use under such process) 

with respect to the determination of 

prescription drug coverage for an 

enrollee under the plan; and to provide 

instant access to such processes through 

a toll-free telephone number and an 

Internet Web site. 

In accordance with the new section 

1860D–4(b)(3)(H) of the Act, we 

proposed in the November 2010 

proposed regulation to revise the 

regulation at § 423.562(a) to require Part 

D plans to use a single, uniform 

exceptions and appeals process that 

includes procedures for accepting oral 

and written requests for coverage 

determinations and redeterminations. In 

addition, we proposed to revise the 

regulation at § 423.128 paragraphs (b)(7) 

and (d) to identify specific mechanisms 

that plan sponsors must have in place 

in order to meet the uniform appeals 

requirements of section 1860D– 

4(b)(3)(H) of the Act. Most notably, at 

§ 423.128(b)(7), we proposed adding 

paragraph (i) to require that plan 

sponsors make available a standard form 

to request a coverage determination and 

a standard form to request a 

redetermination, to the extent such 

standard request forms have been 

approved for use by CMS. (Note that in 

the context of appeals, the term 

‘‘standard form’’ or ‘‘standardized form’’ 

is generally used to refer to a form that 

would be the only permissible vehicle 

for requesting a coverage determination 

or redetermination.) 

Section 3312 of the ACA also requires 

plan sponsors to provide instant access 

to the coverage determination and 

appeals process through an internet 

Web site. Consistent with the 

requirement, we also proposed to add 

paragraph (ii) to § 423.128(b)(7), which 

would require sponsors to provide 

immediate access to the coverage 

determination and redetermination 

processes via an Internet Web site. We 

requested comments and ideas 

regarding how this should work and any 

issues that needed to be addressed 

before operationalizing this 

requirement. Section 3312 of the ACA 

also specifies that plan sponsors must 

establish a toll-free telephone line that 

provides instant access to the coverage 

determination and appeals processes. 

Because plan sponsors are currently 

required to offer a toll-free customer call 

center as part of the provision of 

information requirement at § 423.128(d), 

we proposed to revise § 423.128(d)(1) to 

include a requirement that sponsors 

provide enrollees with access to the 

coverage determination and 

redetermination processes through their 

toll-free customer call center. 

To codify the proposals that plans 

make available standard forms for 

requesting coverage determinations and 

redeterminations (to the extent that 

standard request forms have been 

approved for use by CMS), and establish 

a toll-free telephone number and Web 

site for accepting requests for coverage 

determinations and redeterminations, 

we proposed to amend § 423.562 by 

adding a new paragraph (a)(1)(ii) which 

cross-references the requirements in 

§ 423.128 paragraphs (b)(7) and 

(d)(1)(iii), and redesignating paragraphs 

(a)(1)(ii) and (a)(1)(iii) as paragraphs 

(a)(1)(iii) and (a)(1)(iv), respectively. 

Finally, we proposed that Part D 

sponsors modify their electronic 

response transactions to pharmacies so 

that they can transmit codes instructing 

the pharmacy to provide a standardized 

point-of-sale (POS) notice to enrollees 

when a prescription cannot be filled. 

Specifically, we proposed at 

§ 423.128(b)(7)(iii) to require that Part D 

sponsors modify their systems so that 

the plan sponsors are capable of 

transmitting codes to their in-network 


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pharmacies and that the pharmacy will 

be notified to populate or provide a 

notice that can be printed by the 

pharmacist at the point of sale. We 

indicated that we would develop a 

model notice to ensure that messaging at 

the pharmacy is consistent with and in 

accordance with CMS rules. Consistent 

with this proposal, we also proposed to 

revise § 423.562(a)(3) by deleting the 

reference to posting the pharmacy 

notice and instead requiring the sponsor 

to arrange with its network pharmacies 

to distribute notices instructing 

enrollees how to contact their plans to 

obtain a coverage determination or 

request an exception if they disagree 

with the information provided by the 

pharmacist. We proposed that the 

pharmacy notice be provided in writing, 

consistent with the standards 

established in § 423.128(b)(7)(iii), and 

include instructions explaining how 

enrollees can request a coverage 

determination by calling their plan 

sponsor’s toll free customer service line 

or accessing their plan sponsor’s Web 

site. 

Comment: We received a large 

number of comments on the merits of 

requiring the use of a standard form for 

requesting Part D exceptions and 

appeals. Several commenters expressed 

the belief that standard forms are not 

feasible, noting that a single form cannot 

accommodate the wide variations that 

exist among plan formulary and 

utilization management requirements, 

and would therefore hinder access to 

the exceptions and appeals processes. 

Some commenters stated that, 

particularly for biotech or other 

specialty drugs, drug-specific forms 

improve access to coverage because they 

give enrollees and prescribers clearer 

information on the specific plan 

requirements for coverage. Other 

commenters asserted that a single form 

would simplify the processes for 

enrollees, prescribers and plans. 

Response: We have carefully 

considered all the comments we 

received on this issue, both in the 

context of the overarching statutory 

requirement that Part D plans use a 

‘‘single, uniform exceptions and appeals 

process’’ as well as keeping in mind the 

requirements and procedures that are 

already in place with respect to requests 

for coverage determinations and 

appeals. (Note that, as set forth in detail 

in the existing regulations at § 423.578, 

the term ‘‘exception’’ refers to certain 

types of coverage determinations, such 

as a request for a non-formulary drug, 

that require an oral or written 

supporting statement from a prescribing 

physician or other prescriber.) 

Our current regulations permit either 

written or oral requests for a coverage 

determination (§ 423.568), with the 

exception of requests for payment, 

which must be made in writing unless 

the sponsor has a voluntary policy of 

accepting oral payment requests. 

Standard redetermination requests 

generally are made in writing, under 

§ 423.582; plans may also accept oral 

requests for standard redeterminations 

but are not required to do so. Plans must 

accept oral requests for expedited 

redeterminations (§ 423.584). Currently, 

we have developed model forms for 

requesting a coverage determination— 

one for beneficiaries and one for 

prescribers—but there are no 

comparable model forms for requesting 

redeterminations. It is also important to 

note that our existing subregulatory 

guidance specifies that any written 

request from an enrollee or prescriber is 

acceptable, and that plans may not 

require an enrollee or prescriber to make 

a written request on a specific form (see 

Section 40 of Chapter 18 of the 

Prescription Drug Benefit Manual, Part 

D Enrollee Grievances, Coverage 

Determinations and Appeals). We 

believe that the requirement that plans 

accept any written request builds 

significant enrollee protection into the 

coverage determination and appeals 

processes, and requiring the use of a 

‘‘standard’’ form may inadvertently 

create barriers for enrollees accessing 

these processes. Thus, introducing a 

requirement that a standard form be 

used could actually conflict with the 

underlying statutory intent of the new 

provisions which are meant to enhance 

enrollee access to the exceptions and 

appeals processes. 

Therefore, we are modifying the 

proposed regulatory language at 

§ 423.128(b)(7)(i) by replacing the 

proposed reference to a ‘‘standard’’ form 

with the statutory language referencing 

use of a ‘‘uniform model form.’’ In 

support of this requirement, we will 

work with plans, prescribers, and 

beneficiary advocates to revise the 

existing model coverage determination 

request form, including combining the 

existing enrollee and prescriber request 

forms into a single model form. We will 

also develop a separate model 

redetermination request form for use by 

enrollees and their prescribers and 

representatives. Plans will be required 

to make these model forms available to 

their enrollees via their websites, and to 

include the model redetermination 

request form with any coverage 

determination denial notice, consistent 

with the requirement under 

§ 423.568(g)(4) that denial notices 

comply with notice requirements 

established by CMS. 

The introduction of uniform model 

forms is not intended to interfere with 

the current requirements regarding 

acceptance of oral or written requests, 

nor does it preclude plans from 

developing and making available drugspecific coverage determination request 

forms to supplement the model forms to 

the extent such forms can enhance 

access to the exceptions and appeals 

process. Given that plan formularies, 

utilization management tools and step 

therapy requirements can vary widely, 

we believe that not allowing plans to 

continue making drug-specific forms 

available or precluding enrollees from 

making coverage determination requests 

through other written vehicles, may 

actually delay decision-making and/or 

result in additional unfavorable 

decisions based on a lack of adequate 

documentation. Thus, although we 

acknowledge that making multiple 

forms available for use may cause some 

confusion for enrollees, we believe that 

continuing to permit such variation is in 

the best interests of Medicare 

beneficiaries. Plans must comply with 

the appropriate marketing procedures 

for approval of forms, including CMSapproved model forms. 

Comment: A few commenters noted 

that adopting a single form for both 

coverage determinations and 

redeterminations could lead to 

confusion and erroneous or unnecessary 

submissions from enrollees and 

prescribers because of the oftendifferent rationales and necessary 

supporting documentation for these 

processes. This in turn would increase 

the burden on both enrollees and 

prescribers and cause delays in 

accessing prescription drugs. 

Response: We agree with the 

commenters, and as stated previously, 

intend to develop separate model forms 

for coverage determinations and 

redeterminations. 

Comment: We received a number of 

comments with recommendations that 

CMS work closely with stakeholders in 

developing standard forms. Some 

commenters also supported consumer 

testing and/or piloting standard forms 

before full implementation. 

Response: We thank the commenters 

for their suggestions. As noted 

previously, rather than require a 

standard form, we intend to revise the 

existing model coverage determination 

form and develop a new model 

redetermination form. Stakeholders will 

have an opportunity to comment on 

draft versions of these forms via the 

same process used to solicit stakeholder 

input on changes to manual guidance. 


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Comment: Several commenters urged 

CMS to require that all plan sponsors 

make standard forms available in 

multiple languages and make them 

widely available in plan materials and 

on plan Web sites. 

Response: The regulations in Subpart 

V of Part 423, and related subregulatory 

guidance, establish CMS’ marketing 

rules with respect to translated 

materials. Model coverage 

determination and redetermination 

notices are considered post-enrollment 

marketing materials, and therefore must 

be translated in accordance with CMS 

marketing requirements, consistent with 

the related discussion above. 

Comment: Although several 

commenters were supportive of the 

proposal related to providing instant 

access to the coverage determination 

and appeals process via an internet Web 

site, many commenters raised concerns 

about the administrative and 

technological burdens and costs 

associated with the development of a 

Web-based interface that would allow 

enrollees to access the coverage 

determination and appeals processes. 

Several commenters thought that the 

benefit to enrollees will be minimal 

compared with the additional costs and 

operational complexities. These 

commenters also claimed that plans will 

not be able to fully realize potential 

cost-savings in using such a system if 

they are also required to maintain 

processes for accepting requests via 

telephone and mail. CMS also received 

comments suggesting a pilot program, 

greater stakeholder input, delayed 

implementation, and making acceptance 

of electronic requests optional. 

Almost all commenters, whether they 

opposed or supported the proposal, 

raised questions about systems 

specifications and functionality, 

including whether plan systems for 

accepting electronic requests must: (1) 

Accept electronic attachments such as 

clinical documentation, prescriber 

supporting statements, enrollee receipts 

for out-of-pocket expenses, and 

Appointment of Representative (AOR) 

forms or, alternatively, be equipped to 

generate a bar code or other receipt to 

allow for the separate submission of 

supporting documents via fax; (2) 

generate an auto-reply acknowledging 

receipt of the request; (3) have a user 

authentication feature; and (4) include 

mandatory fields or other specifications 

(for example, font type/size). 

Response: As noted in the proposed 

rule, section 3312 of the ACA states that 

Part D plan sponsors shall provide 

instant access to the coverage 

determination (including exceptions) 

and appeals processes through an 

Internet Web site. In the proposed rule, 

we solicited comments on the viability 

of a Web-based electronic interface that 

would allow an enrollee (or an 

enrollee’s prescriber or representative) 

to immediately request a coverage 

determination or redetermination via a 

plan’s secure Web site. Our proposal 

indicated that the interface would be the 

‘‘electronic equivalent’’ of the paper 

coverage determination and appeals 

forms proposed at § 423.128(b)(7)(i). The 

proposed rule described a system that 

would provide some level of interactive 

functionality on a plan’s Web site, such 

as the ability to populate and submit an 

online request form. 

However, after reviewing all of the 

comments on this provision, we agree 

that requiring plans to develop an 

interactive Web-based system by the 

2012 plan year would impose 

significant costs and operational 

difficulties on many Part D plans. 

Therefore, although we are finalizing 

the regulatory language as proposed, we 

are clarifying that ‘‘immediate access’’ to 

the coverage determination and appeals 

processes can be satisfied through a 

variety of means. We strongly encourage 

plans to establish interactive, web-based 

systems to meet this requirement. At a 

minimum, however, plans must have a 

process for allowing an enrollee to 

initiate a coverage determination or 

appeal request by sending a secure email to an e-mail address that is 

prominently displayed on the plan’s 

Web site. In response to such requests, 

plans must provide notice of decisions 

in a timely manner, consistent with all 

existing requirements in Subpart M of 

our regulations. We believe that this 

approach takes into consideration the 

plans’ differing technological 

capabilities, while implementing the 

statutory requirement that plans provide 

access to the coverage determination 

and appeals processes via plan Web 

sites. Although plans that have the 

capability to deploy a more robust and 

sophisticated Web-based system are 

encouraged to do so, we do not intend 

to specify systems functionality for plan 

Web sites, beyond the requirement that 

an enrollee (and an enrollee’s prescriber 

or representative) be able to initiate a 

request by sending a secure e-mail via 

the plan’s Web site. 

Finally, we note that enrollees (and 

their prescribers and representatives) 

will retain the right to make requests for 

oral coverage determinations and 

expedited appeals which serve as 

another means of obtaining instant 

access to the coverage determination 

and appeals processes. 

Comment: We received some 

comments regarding the requirement 

that plans provide immediate access to 

the coverage determination and 

redetermination processes through a 

toll-free phone number. Commenters 

opposed to this requirement indicated 

that maintaining a toll-free line creates 

an undue burden on plans, provides 

minimal benefit to enrollees and 

increases confusion among enrollees. 

These commenters also requested a 

delayed implementation date. 

Commenters who support the proposed 

requirement requested that CMS require 

plans to disseminate the toll-free 

number and related information widely 

in plan materials, and support 

stakeholder input in the development of 

model scripts for customer service 

representatives (CSRs) who staff these 

toll-free lines. 

Response: The existing regulations at 

§ 423.128(d)(1) already require plan 

sponsors to maintain a toll-free 

customer call center, and existing 

subregulatory marketing guidance 

clarifies applicable call center coverage 

requirements for coverage 

determinations and redeterminations. 

The proposed change we intend to 

finalize adds the requirement that plans 

provide immediate access to the 

coverage determination and 

redetermination processes through their 

toll-free customer call centers. If using 

an existing toll-free number for 

receiving and processing oral coverage 

determination and appeals requests 

could potentially cause delays and/or 

missed time frames, plans may establish 

a dedicated toll-free customer service 

line for receiving these requests. We 

note that plans are currently required 

under § 423.568(a) and § 423.570(b) 

respectively, to accept oral requests for 

both standard coverage determinations 

(excluding reimbursement requests) and 

expedited coverage determinations, and 

under § 423.584(b), to accept oral 

requests for expedited redeterminations. 

In the proposed rule, we noted that a 

CSR could potentially access the plan’s 

web-based application for coverage 

determinations and appeals and enter 

information supplied by the enrollee via 

telephone. However, as discussed 

previously, we are scaling back our 

expectations with respect to plan 

capabilities for having an interactive 

web-based application for coverage 

determinations and appeals. As such, 

we expect that plans will continue to 

utilize existing mechanisms for 

receiving and processing oral coverage 

determination and appeal requests, 

including those received outside normal 

business hours. Requests made through 

the toll-free number would still be 

subject to existing processing guidelines 


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and timeframes outlined in Subpart M 

of the regulations. 

Comment: Several comments were 

received regarding the proposed 

requirement that Part D sponsors revise 

their payment systems to notify network 

pharmacies that they need to generate a 

printed notice containing information 

for enrollees about how to contact their 

plan to request a coverage 

determination, including an exception, 

when a prescription cannot be filled as 

written. Commenters indicated that 

because the POS notice would not 

provide enrollees with any more 

information than what is already 

provided on their member ID cards, it is 

an undue burden on pharmacies, and is 

not ‘‘green.’’ 

Response: We disagree with the 

commenters’ concerns regarding the 

lack of utility in the distribution of a 

POS notice. Other commenters have 

expressed concern that enrollees are not 

aware of their right to request a coverage 

determination and that having the 

notice posted at the pharmacy counter 

is only useful to the extent the enrollee 

is directed to it by his/her pharmacist. 

We also do not agree that the 

distribution of the POS notice is an 

additional burden on pharmacies. It is 

likely the POS notice will relieve 

pharmacy staff from being queried by 

enrollees as to why their prescriptions 

could not be filled as written, because 

the notice refers the enrollee directly to 

their plan to obtain a coverage 

determination. Furthermore, we believe 

that eliminating the current option of 

directing enrollees to a posted notice 

and requiring that they receive a printed 

notice strengthens enrollee access to the 

coverage determination process because 

the enrollee will leave the pharmacy 

with printed instructions about 

contacting the plan to request a coverage 

determination. 

Comment: Several of the comments 

regarding the proposed requirement to 

distribute POS notices incorrectly 

referred to the POS transaction at the 

pharmacy counter as a denial of 

prescription drug coverage (an adverse 

coverage determination). 

Response: We reiterate our position in 

previous rulemaking and existing 

subregulatory guidance that plan 

sponsors are not required to treat the 

presentation of a prescription at the 

pharmacy counter as a request for 

coverage determination. Accordingly, 

the plan sponsor is not required to 

provide the enrollee with a written 

denial notice at the pharmacy as a result 

of the transaction. 

Comment: Several commenters 

supported the requirement that a POS 

notice be distributed at the pharmacy, 

but stated that the notice should be 

tailored to each individual’s situation, 

including a description of why the 

prescription could not be filled as 

written. 

Response: We agree it would be useful 

for enrollees to have additional 

information such as the name of the 

drug and the specific reason(s) the 

prescription cannot be filled as written 

as part of the POS notice. However, 

such situation-specific messaging 

cannot be generated at this time. Until 

we have the opportunity to work with 

the industry, specifically the National 

Council of Prescription Drug Programs 

(NCPDP), to develop and standardize 

codes that will assist Part D sponsors, 

processors and pharmacies with 

generating this kind of information as 

part of the transaction, we cannot 

require Part D sponsors or their 

processors to code their systems to 

generate such a notice. 

We are finalizing the proposed 

language in § 423.128(b)(7) and 

§ 423.562, with the modifications to 

§ 423.128(b)(7)(i) described previously. 

Consistent with section 3312 of the 

ACA, these new requirements will be 

effective January 1, 2012. 

14. Including Costs Incurred by AIDS 

Drug Assistance Programs (ADAPs) and 

the Indian Health Service Toward the 

Annual Part D Out-of-Pocket Threshold 

(§ 423.100 and § 423.464) 

Section 1860D–2(b)(4)(C) of the Act 

provides protection against high out-ofpocket expenditures for Part D eligible 

individuals. Under the standard Part D 

benefit, a beneficiary is entitled to 

reductions in cost sharing under the 

catastrophic phase of the benefit once 

his or her true out-of-pocket (TrOOP) 

expenditures reach the annual Part D 

out-of-pocket threshold. Prior to 

enactment of the ACA, TrOOP 

expenditures represented costs actually 

paid by the beneficiary, another person 

on behalf of the beneficiary, or a 

qualified State Pharmaceutical 

Assistance Program (SPAP). 

Thus, prior to the passage of the ACA, 

supplemental drug coverage provided 

by the Indian Health Service (IHS), 

Indian tribes and organizations, and 

urban Indian organization facilities (as 

defined in section 4 of the Indian Health 

Care Improvement Act) were not 

considered to be TrOOP eligible because 

these entities fell under our definition of 

‘‘government-funded health program,’’ 

under § 423.100. Similarly, the Health 

Resources and Services Administration 

(HRSA) Ryan White HIV/AIDS Programfunded AIDS Drug Assistance Programs 

(ADAPs) cost sharing were not counted 

toward TrOOP for the purpose of 

meeting the out-of-pocket threshold at 

which catastrophic coverage under the 

Part D benefit begins. As explained in 

the preamble in the January 2005 final 

rule (see 70 FR 4240 and 4241) 

implementing the Part D program, 

ADAPs were not considered SPAPs 

because these programs received 

Federal funding. With the passage of the 

ACA, CMS regulations, as they relate to 

IHS/Tribes and ADAPs, have been 

superseded effective January 1, 2011. 

Section 3314 of the ACA amends 

section 1860D–2(b)(4)(C) of the Act to 

specify that costs borne or paid for by 

IHS, an Indian tribe or tribal 

organization, or an urban Indian 

organization, and costs borne or paid for 

by an ADAP will be treated as incurred 

costs for the purpose of meeting the 

annual out-of-pocket threshold. Based 

on these amendments, we proposed to 

revise the definition of incurred cost at 

§ 423.100(2)(ii) to include payments by 

the IHS (as defined in section 4 of the 

Indian Health Care Improvement Act), 

an Indian tribe or tribal organization, or 

an urban Indian organization (referred 

to as I/T/U pharmacy in § 423.100) or 

under an AIDS Drug Assistance Program 

(as defined in part B of title XXVI of the 

Public Health Service). We also 

proposed to amend § 423.464(f)(2) to 

specifically exclude expenditures made 

by IHS, an Indian tribe or tribal 

organization, or an urban Indian 

organization (referred to as I/T/U 

pharmacy in § 423.100) or under an 

AIDS Drug Assistance Program (as 

defined in part B of title XXVI of the 

Public Health Service) from the 

requirement to exclude such 

expenditures for the purpose of 

determining whether a Part D enrollee 

has satisfied the out-of-pocket 

threshold. 

Comment: We received a comment 

requesting that CMS revise regulations 

at § 423.100 and § 423.464(f)(2) to 

reference section 4 of the Indian Health 

Care Improvement Act in the 

parenthetical following the phrase 

‘‘urban Indian organization,’’ and replace 

the term ‘‘payments’’ in § 423.464(f)(2) 

with the phrase ‘‘costs borne or paid by’’ 

to more closely track the statutory 

language provided in 3314 of ACA. 

Response: We agree with this 

comment and revise the regulation text 

at § 423.100 to reference section 4 of the 

Indian Health Care Improvement Act. In 

addition, in response to this comment 

and to avoid confusion, we are 

removing the redundant reference to 

ADAPs and IHS/tribes/tribal 

organizations in § 423.464(f)(2)(i)(B). 

Because costs borne or paid by these 

organizations already are included in 

the definition of ‘‘incurred costs’’ as 


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referenced in § 423.464(f)(2)(i)(A), they 

need not be expressly referenced in 

§ 423.464(f)(2)(i)(B). We also revised 

§ 423.100(2)(ii) to remove the cross 

reference to § 423.464. 

Comment: Another commenter 

requests that CMS provide a list of 

ADAP BINs (bank identification 

numbers)/PCNs (processor control 

numbers) to ensure proper TrOOP 

calculation for ADAP members by the 

Part D sponsor. 

Response: Both CMS and the Health 

Resources and Services Administration 

(HRSA) have provided training and 

assistance to ADAP grantees about CMS’ 

coordination of benefits (COB) data 

exchange process and its relationship to 

the member’s TrOOP calculation. 

Participation in this process will allow 

ADAPs to provide the BIN and PCN 

directly to CMS’ COB contractor, who 

will then identify ADAPs as TrOOPeligible payers as part of transactions 

sent from our TrOOP facilitator to Part 

D sponsors. 

Except for the technical amendments 

to the proposed regulations text noted 

previously, we are finalizing the 

regulation as proposed. 

15. Cost Sharing for Medicare-Covered 

Preventive Services (§ 417.454 and 

§ 422.100) 

Effective January 1, 2011, sections 

4103 and 4104 of the ACA revised 

sections 1833 and 1861 of the Act to 

create new coverage of Personalized 

Prevention Plan Services (PPPS) or 

‘‘annual wellness visits’’ and establish a 

requirement that no cost sharing may be 

charged to beneficiaries under Original 

Medicare for the annual wellness visit, 

the initial preventive physical exam 

(IPPE) and Medicare-covered preventive 

services graded as an A or B by the U.S. 

Preventive Services Task Force 

(USPSTF). 

In light of the new legislative 

requirements for Original Medicare, and 

the importance of preventive services in 

managed and coordinated care, we 

included information related to 

coverage and cost sharing for preventive 

services in guidance issued via the 

Health Plan Management System 

(HPMS) on April 16, 2010 (‘‘Benefits 

Policy and Operations Guidance 

Regarding Bid Submissions; Duplicative 

and Low Enrollment Plans; Cost Sharing 

Standards; General Benefits Policy 

Issues; and Plan Benefits Package (PBP) 

Reminders for Contract Year (CY) 2011’’) 

and May 20, 2010 (‘‘Supplemental 2011 

Benefits Policy and Operations 

Guidance on Application of the 

Mandatory Maximum Out-of-Pocket 

(MOOP) for Dual Eligible SNPs, and 

Cost Sharing for Preventive Services’’). 

In this guidance, we strongly 

encouraged MA organizations to 

provide all in-network Medicarecovered preventive services without 

cost sharing charges under their MA 

plans in contract year 2011, indicated 

our intention to consider rulemaking to 

require that such preventive services be 

provided with no cost sharing, and 

provided instructions on how to reflect 

the zero cost sharing in their plan 

benefit package (PBP) submissions for 

contract year 2011. 

As required at section 1852(a)(1)(A) of 

the Act (except as provided in section 

1859(b)(3) of the Act for MSA plans and 

in section 1852(a)(6) of the Act for MA 

regional plans), each MA plan must 

provide to its members all Parts A and 

B benefits included under the Original 

Medicare fee-for-service program as 

defined at section 1852(a)(1)(B) of the 

Act. We agree that the utilization of 

preventive services should be 

encouraged by providing such services 

without cost sharing. Therefore, we 

believe it is necessary, and appropriate, 

to provide this same incentive to all 

Medicare beneficiaries, whether they 

receive their benefits through Original 

Medicare, under an MA plan, or under 

a section 1876 cost contract. 

Therefore, under our authority in 

section 1856(b)(1) of the Act to establish 

MA standards by regulation, and our 

authority in section 1857(e)(1) of the Act 

to establish requirements we find 

‘‘necessary and appropriate,’’ we 

proposed to add a new paragraph (k) to 

§ 422.100, and under our authority in 

section 1876(i)(3)(D) of the Act to 

impose ‘‘other terms and conditions’’ 

deemed ‘‘necessary and appropriate,’’ 

new paragraph (f) to § 417.101, to 

require MA organizations and section 

1876 cost plans to provide in-network 

Medicare-covered preventive benefits at 

zero cost sharing, consistent with the 

new regulations for Original Medicarecovered preventive benefits. 

For specific information about the list 

of preventive services covered under 

Original Medicare without cost sharing 

and information about what is included 

in the annual wellness visit, we directed 

plans to go to the following Medicare 

Web sites: https:// 

www.cms.HospitalOPPS/ and http:// 

www.cms.gov/PhysicianFeeSched/. 

Comment: Commenters expressed 

their support for our proposal to require 

MA organizations and section 1876 cost 

plans to provide in-network Medicarecovered preventive benefits at zero cost 

sharing, consistent with the new 

regulations for Original Medicarecovered preventive benefits. Some of 

those commenters also requested that 

CMS clarify that only in-network 

preventive services will be required to 

have zero cost sharing and that MA 

plans will be required to cover the same 

preventive services at zero cost sharing 

as are provided under Original Medicare 

without cost sharing. 

Response: We thank the commenters 

for their support. We clarify that the 

preventive services to be provided by 

MA plans without cost sharing are those 

provided in-network and that they are to 

be the same services that are covered 

under Original Medicare with zero cost 

sharing and will take into consideration 

the commenters’ concerns as we move 

forward with other guidance and 

educational materials. 

Comment: We received one comment 

requesting that we extend the 

requirement for preventive services’ 

zero cost sharing to out-of-network 

settings. The commenter believes that 

because preventive services are so 

important for beneficiary health CMS 

should provide equal access to them no 

matter where the beneficiary receives 

them. 

Response: Our policy for cost sharing 

is limited to in-network Medicare parts 

A and B services and we made no 

proposal to change that policy. 

Furthermore, we believe that the nature 

of the specified preventive services is 

such that there is not a need for 

beneficiaries to have the same access to 

them out-of-network as is provided innetwork. We believe that the services 

are most beneficial to an enrollee when 

provided in-network because 

communication among the enrollee’s 

providers is an integral part of a 

successful prevention plan. By receiving 

in-network preventive services the 

enrollee’s needs for any follow-on 

services will be identified and furnished 

and this is less likely to occur if 

individual preventive services are 

received elsewhere. 

Comment: We received a comment 

expressing concern that some of the 

policies related to implementation of 

zero cost sharing for Medicare-covered 

preventive benefits would create 

beneficiary confusion on specific 

elements and that such confusion would 

lead to complaints that could have an 

impact on plans’ quality bonus 

payments. 

Response: We appreciate the 

commenter’s concern and going 

forward, we will continue to make every 

effort to educate beneficiaries and 

providers about the services and 

situations in which zero cost sharing 

applies. 

Comment: We received a few 

comments requesting that additional 

services be included as MedicareVerDate Mar<15>2010 17:41 Apr 14, 2011 Jkt 223001 PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 E:\FR\FM\15APR2.SGM 15APR2

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covered preventive services with zero 

cost sharing. 

Response: We thank the commenters 

for their suggestions but they are beyond 

the scope of this proposed rule. 

Comment: Two commenters objected 

to our codification in the proposed rule 

of our proposal to extend the 

requirement for plans to charge zero 

cost sharing for CMS-specified innetwork preventive services to section 

1876 cost plans by adding new 

paragraph (f) to § 417.101, which 

otherwise does not govern cost plans. 

The commenters suggested that instead 

we may want to propose to add a new 

paragraph to § 417.454, Charges to 

Medicare Enrollees. 

Response: We thank the commenters 

for alerting us to this codification issue. 

In this final rule, we will not make a 

change to § 417.101 and will instead 

add new paragraph (d) to § 417.454 to 

require that no cost sharing may be 

charged by section 1876 cost plans for 

CMS-specified in-network preventive 

services. 

We have considered all of the 

comments received on this proposal and 

will finalize our proposed policy to 

amend § 422.100 by adding new 

paragraph (k) to require that there be no 

cost sharing for in-network Medicarecovered preventive services, as specified 

by CMS annually. In addition, we are 

adding new paragraph (d) to § 417.454 

as previously specified. 

16. Elimination of the Stabilization 

Fund (§ 422.458) 

Section 221(c) of the MMA added 

section 1858 of the Act to establish rules 

for MA Regional Plans. Section 1858(e) 

established an MA Regional Plan 

Stabilization Fund (the Fund) for the 

purpose of providing financial 

incentives to MA organizations that 

offered new MA Regional Plans 

nationally, or in each MA region 

without one. 

Section 10327(c) of the ACA repealed 

section 1858(e) of the Act, eliminating 

the Stabilization Fund. Therefore, we 

proposed to delete paragraph (f) from 

§ 422.458, since the statutory basis for 

the Fund no longer exists. We received 

no comments on this proposal and 

therefore are finalizing this provision 

without modification. We are also 

adopting § 422.258(f) as proposed in this 

final rule. 

17. Improvements to Medication 

Therapy Management Programs 

(§ 423.153) 

As required by section 1860D– 

4(c)(1)(C) of the Act, Part D sponsors 

must establish Medication Therapy 

Management Programs (MTMPs). 

Section 1860D–4(c)(2) of the Act 

requires MTMPs to be designed to 

ensure that, with respect to targeted 

beneficiaries described in section 

1860D–4(c)(2)(A)(ii) of the Act, covered 

Part D drugs are appropriately used to 

optimize therapeutic outcomes through 

improved medication use and to reduce 

the risk of adverse events. As noted in 

our November 2010 proposed rule, these 

requirements are codified in 

§ 423.153(d) of the Part D regulations. 

Effective January 1, 2013, section 

10328 of the ACA amends section 

1860D–4(c)(2) of the Act to require 

prescription drug plan sponsors to 

perform a quarterly assessment of all ‘‘at 

risk’’ individuals who are not already 

enrolled in an MTMP, establish opt-out 

enrollment for MTM, and offer 

medication therapy management 

services to targeted beneficiaries. These 

MTM services must include, at a 

minimum, an annual comprehensive 

medication review (CMR) that may be 

furnished person-to-person or via 

telehealth technologies and a review of 

the individual’s medications, which 

may result in the creation of a 

recommended medication action plan, 

with a written or printed summary of 

the results of the review provided to the 

targeted individual. The law also 

requires that the action plan and 

summary resulting from the CMR be 

written in a standardized format. 

In our November 2010 proposed rule, 

we noted that prior to the passage of the 

new legislation, we had already made 

several improvements to the MTM 

program. We also indicated that in 

comparing the requirements in section 

10328 of the ACA to those codified in 

the April 2011 final rule containing 

policy and technical changes under the 

Part C and Part D programs (see 75 FR 

19772 through 19776 and 19818 and 

19819), we found that a number of the 

provisions are consistent. Specifically, 

the April 2011 final rule requires the 

use of an opt-out method of enrollment 

for targeted beneficiaries, an annual 

comprehensive medication review 

(CMR) with a written summary, 

quarterly targeting of beneficiaries for 

enrollment into the MTMP, and 

quarterly targeted medication reviews 

for individuals enrolled in the MTMP 

with follow-up interventions when 

necessary. However, to ensure that our 

policies are fully consistent with the 

new requirements added by section 

10328 of the ACA, we proposed to 

amend the current regulations to clarify 

the Part D MTMP requirements relating 

to the required use of a standardized 

format for the written summary and 

action plan that may result from the 

CMR. Thus, in our November 2010 

proposed rule, we proposed to amend 

§ 423.153(d)(1)(vii) to add the 

requirement that Part D sponsors use a 

standardized format for the action plan 

and summary resulting from a review of 

the targeted beneficiary’s individual 

medications, and to provide the 

individual with a written or printed 

copy of the summary. We also noted our 

plan to award a contract to an outside 

entity, pending the availability of 

funding, to work in consultation with 

stakeholders in order to develop a 

standardized format for the action plan 

and summary which may result from 

annual or quarterly targeted medication 

reviews. 

In our November 2010 proposed rule, 

we also proposed to amend the MTMP 

requirements at § 423.153(d)(1)(vii) to 

explicitly permit the use of telehealth 

technologies to conduct the required 

annual CMR as referenced under the 

ACA, to allow the sponsors to attempt 

innovative techniques that provide care 

at a distance in order to better serve the 

beneficiary, especially beneficiaries who 

cannot travel to the provider’s location, 

or who reside in a remote location or in 

a different time zone. We emphasized as 

well that when using telehealth 

technologies, personal health 

information privacy and security must 

be ensured. This would involve the 

establishment of appropriate 

administrative, technical, and physical 

safeguards to protect the confidentiality 

of data and to prevent unauthorized use 

of, or access to, it. The safeguards must 

provide a level and scope of security 

that is not less than the level and scope 

of security requirements established by 

the Office of Management and Budget 

(OMB) in OMB Circular No. A–130, 

Appendix III—Security of Federal 

Automated Information Systems) as 

well as Federal Information Processing 

Standard 200 entitled ‘‘Minimum 

Security Requirements for Federal 

Information and Information Systems’’; 

and Special Publication 800–53 

‘‘Recommended Security Controls for 

Federal Information Systems.’’ The use 

of unsecured telecommunications, 

including the Internet, to transmit 

individually identifiable information 

would, therefore, be prohibited. 

In addition to the proposed regulatory 

changes required to implement the ACA 

provisions, in our November 2010 

proposed rule, we proposed to amend 

the MTMP requirements related 

specifically to MTM services furnished 

in LTC facilities. As provided under 

sections 1819(b)(4) and 1919(b)(4) of the 

Act, LTC facilities must provide, either 

directly or under arrangements with 

others, for the provision of 

pharmaceutical services to meet the 


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needs of each resident. In our November 

2010 proposed rule, we noted this 

requirement is codified in regulations at 

§ 483.60 which require LTC facilities to 

employ or obtain the services of a 

licensed pharmacist to provide 

consultation on all aspects of the 

provision of pharmacy services in the 

facility, including a drug regimen 

review at least once a month for each 

facility resident. We stated further that, 

although Part D sponsors are required to 

provide MTM services to all 

beneficiaries meeting the target criteria, 

it is not clear that these services are 

being made available to nursing home 

residents meeting these criteria. We 

noted our concern that if MTM is 

provided, in the absence of 

coordination, the MTMP and the 

consultant pharmacist’s drug regimen 

review could result in conflicting 

recommendations relating to medication 

management. Therefore, we proposed to 

amend § 423.153(d)(5) to require Part D 

sponsors to contract with LTC facilities 

to provide appropriate MTM services to 

residents in coordination with the 

monthly medication reviews and 

assessments performed by the LTC 

consultant pharmacist. We expressed 

our belief that this approach would 

enable beneficiaries to receive the full 

benefits of the sponsor’s MTMP and 

would also result in coordinated 

assessments that would be more likely 

to discover evidence of adverse side 

effects and medication overuse, and 

solicited comments from the public on 

how such coordination between 

sponsors and LTC facilities might work 

best. 

Comment: One commenter noted that 

much evidence has been provided over 

the years indicating the superior results 

of face-to-face encounters between 

patients and health care providers and 

asked that the regulation specifically 

identify pharmacists as face-to-face 

providers. 

Response: While we recognize that 

some MTM providers may prefer faceto-face encounters, section 1860D– 

4(c)(2)(C) of the Act requires the annual 

comprehensive medication reviews 

include either an interactive person-toperson or telehealth consultation. We 

believe that, given the variability of 

beneficiary circumstances and needs 

and the advances in technology such as 

telehealth, it is important that MTM 

providers take advantage of this 

flexibility in the methods of delivery of 

MTM services in order to maximize 

beneficiary access to these services. We 

note further that the proposed 

regulation at § 423.153(d)(1)(vii)(B) 

specifies that the annual comprehensive 

medication reviews must be performed 

by a pharmacist or other qualified 

provider. We will retain this 

requirement in the final rule. 

Comment: Several commenters 

expressed strong support for the use of 

telehealth technologies in conducting 

CMRs; one commenter emphasized the 

importance of face-to-face counseling in 

the MTM context; and another 

commenter opposed the use of remote 

MTM for long term care (LTC) 

beneficiaries. This latter commenter 

noted that many LTC residents have 

cognitive impairments and, thus, will 

rarely be able to interact with, or 

respond to, MTM services. 

Response: We appreciate the support 

commenters expressed for the use of 

telehealth technologies for CMRs, but 

note that use of these technologies is an 

option. The ACA amended section 

1860D–4(c)(2) of the Act to require an 

annual CMR ‘‘furnished person-toperson or using telehealth technologies’’ 

(emphasis added). We agree that the use 

of telehealth technologies for 

conducting CMRs may not be 

appropriate for all beneficiaries. We also 

recognize and agree with the commenter 

that beneficiaries residing in LTC 

facilities who have cognitive 

impairments may be unable to 

participate in an interactive CMR. The 

current regulations at 

§ 423.153(d)(1)(vii)(B) reflect this 

awareness by exempting sponsors from 

offering interactive CMRs to targeted 

beneficiaries in LTC settings. The Act, 

as amended by section 10328 of ACA, 

does not provide a basis for 

distinguishing the offering of MTM 

services based on setting. Since the ACA 

requirements are not effective until 

January 2013, we will undertake 

additional rulemaking to further amend 

the current regulations at 

§ 423.153(d)(1)(vii)(B) to clarify the 

requirement for MTM programs to offer 

CMRs to targeted beneficiaries in LTC 

settings. 

Comment: One commenter 

recommended that we ensure that when 

MTM services are provided by 

individuals who are not pharmacists 

and who have not received the 

extensive training in medications that a 

pharmacist receives, these individuals 

are qualified to provide MTM 

consultations. 

Response: We are not aware of 

consensus within the industry regarding 

the qualifications necessary to provide 

MTM consultations. As a result, we are 

not prepared at this time to establish 

requirements regarding MTM provider 

qualifications. However, we may 

perhaps do so in the future and would 

welcome information to assist us in 

defining the qualifications. 

Comment: Numerous commenters 

expressed support for a standardized 

format for the written summary and 

action plan resulting from an annual 

comprehensive medication review 

CMR). One commenter applauded our 

plan to work with stakeholders to 

develop the standardized formats. 

Another commenter asked how the 

stakeholders who would be included in 

the development of the standardized 

formats would be determined. Several 

more commenters recommended we 

consider input from all industry 

stakeholders, including plan sponsors, 

PBMs, pharmacy organizations, and 

current MTM providers. Two 

commenters expressed an interest in 

working on the development and testing 

of the formats. Two commenters noted 

that there may be substantial 

administrative costs associated with 

implementing these new standardized 

documents and recommended that we 

issue the formats in draft for comment 

and carefully review the comments 

received to minimize the 

implementation costs and burden. 

Response: We appreciate the support 

as well as the interest expressed by 

commenters in participating in the 

development process and we agree with 

the recommendation to provide 

opportunity for the industry to review 

and comment on the draft formats. The 

statute specifies that the standardized 

formats for the action plan and 

summary will be developed in 

consultation with relevant stakeholders. 

It is our intention to examine existing 

model summaries and action plans in 

current use and to create draft formats 

based on the existing models. We have 

already begun to solicit copies of the 

existing models in use today and are in 

the process of reviewing the documents 

received in response to our request. 

Once the draft standardized formats 

have been developed, we will issue 

them for industry review and comment. 

We will consider the input from all 

stakeholders and revise the draft 

standardized formats based on the 

comments received. Additional 

opportunities for public review and 

comment will be available as the revised 

formats undergo the OMB approval 

process required by the Paperwork 

Reduction Act (PRA). We believe our 

plan for developing the standardized 

formats by offering multiple 

opportunities for public review and 

comment will be adequate to permit all 

relevant stakeholders to provide input. 

We will carefully consider the 

comments received at all points in the 

process to ensure that the standardized 


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formats do not present an undue 

implementation burden. 

Comment: Several commenters 

suggested that the standardized formats 

should be limited and offer adequate 

flexibility for plan sponsors to tailor the 

summaries and action plans to meet the 

needs of beneficiaries, caregivers, and 

plan sponsors. 

Response: As we interpret the statute, 

Congress asked for standardized 

formats. Therefore, although the specific 

content of the summary or action plan 

will be tailored to the beneficiary, there 

will not be much variability in the style, 

organization, and general appearance of 

these documents. 

Comment: Two commenters noted 

that, with the exception of correcting his 

or her non-adherence, a beneficiary 

cannot make medication changes 

without a prescriber’s intervention and, 

as a result, suggested that a copy of the 

CMR summary also should be provided 

to all the beneficiary’s prescribers that 

are known to the plan. 

Response: We believe the results of 

the medication review should be shared 

with the prescribing physicians as 

necessary, based on the professional 

judgment of the reviewer and needs of 

the beneficiary. In our view, mandating 

that review summaries are always sent 

to all prescribers would add 

unnecessary administrative burden and 

cost. 

Comment: One commenter questioned 

whether the standardized format would 

require sponsors to use vendor software. 

This commenter also asked when the 

standardized formats would be available 

and if the formats would be required for 

the targeted medication reviews (TMRs) 

or only CMRs. 

Response: Use of the standardized 

summary and action plan formats will 

not require sponsors to use a specific 

vendor’s software. As noted previously, 

we expect to create draft formats based 

on existing models and issue the draft 

for review and comment. Since we have 

already begun the process of examining 

some of the existing models in use 

today, we hope to have a draft available 

for review within the next few months. 

With regard to the required use of the 

formats, the ACA amended section 

1860D–4(c)(2) of the Act to require that 

a CMR include the provision of a 

written or printed summary and may 

also result in the creation of an action 

plan. The statute expressly required the 

development of standardized formats for 

summaries and action plans that are 

provided as part of the CMR. However, 

we would encourage plans to use these 

formats for TMRs as well. 

Comment: One commenter requested 

that we define telehealth. 

Response: Section 1860D–4(c)(2) of 

the Act states that an annual CMR must 

be ‘‘* * * furnished person-to-person or 

using telehealth technologies (as 

defined by the Secretary) * * *’’ The 

U.S. Department of Health and Human 

Services’ Office of the National 

Coordinator for Health Information 

Technology (ONC) defines telehealth as 

‘‘the use of telecommunications 

technologies to deliver health-related 

services and information that support 

patient care, administrative activities 

and health education. The technology is 

a means to improve access to care, while 

reducing cost of transportation and 

increasing convenience to patients 

care.’’ This definition is available on the 

ONC Web site at http://healthit.hhs.gov/ 

portal/server.pt?open=

512&objID=1224&parentname=

CommunityPage&parentid=

27&mode=2&in_hi_userid=

11113&cached=true. 

The ONC Web site also includes 

descriptions of various telehealth 

applications that may be considered for 

performing a CMR, including for 

example— 

• Live videoconferencing: Audio and 

video feeds used to connect two or more 

geographically dispersed health care 

facilities to enable patients and 

physicians to consult in real time; and 

• E-visits/e-consults: Evolved from 

secure email or phone based encounters, 

e-visits can be offered by health insurers 

through a secure Web portal. 

Whatever telehealth technology is used 

for the CMR, it must enable the MTM 

provider to perform an interactive 

consultation with the targeted 

beneficiary. 

Comment: A few commenters 

suggested that we monitor the outcomes 

and methods for conducting CMRs, 

including tracking the technology used 

and outcomes for various telehealth 

technologies. 

Response: We agree that it is 

important to evaluate outcomes and 

identify best practices in MTM, 

including possibly the use of telehealth 

technologies. We will consider such 

monitoring in the future. 

Comment: A few commenters strongly 

supported our proposed requirement to 

coordinate MTM with LTC consultant 

pharmacist evaluation and monitoring. 

A large number of commenters, 

however, expressed concerns regarding 

the proposed requirement for Part D 

sponsors to contract with all the LTC 

facilities in which their Part D enrollees 

reside and many offered alternative 

contracting arrangements or approaches 

for ensuring that LTC beneficiaries 

receive the benefits of the sponsor’s 

MTM program and that evidence of 

adverse side effects or medication 

overuse is discovered and addressed. 

Several commenters suggested we delay 

implementation and work with industry 

stakeholders to identify and evaluate 

alternatives. 

Response: We appreciate the support 

expressed for our proposed requirement, 

but we also agree that there may be a 

less burdensome approach for achieving 

our goal. Therefore, we are not 

finalizing the proposed requirement in 

§ 423.153(d)(5) and will work with 

stakeholders to develop an alternate 

proposal. We thank the many 

commenters who suggested alternative 

arrangements and will consider these 

recommendations as we seek to identify 

the best approach for coordinating MTM 

and LTC consultant pharmacist 

monitoring. 

Based on the comments received, we 

are finalizing this provision with the 

amendments previously noted. This 

provision will be effective January 1, 

2013. 

18. Changes To Close the Part D 

Coverage Gap (§ 423.104 and § 423.884) 

In our November 2010 proposed rule, 

we noted that paragraphs (b)(3) and (d) 

of section 1101 of the ACA amended 

section 1860D–2(b) of the Act by adding 

provisions that revise the Part D benefit 

structure to close the gap in coverage 

that occurs between the initial coverage 

limit for the year and the out-of-pocket 

threshold. We noted that the new 

provisions not only will revise the 

amount of coinsurance for costs of 

covered drugs above the initial coverage 

limit and below the out-of-pocket 

threshold (that is, within the Part D 

coverage gap) for applicable 

beneficiaries, but also will reduce the 

growth in the annual out-of-pocket 

threshold from 2014 to 2019. 

As stipulated under the new 

provisions in section 1860D–2(b)(2)(C) 

and (D) of the Act, effective January 1, 

2011, cost sharing in the coverage gap 

for ‘‘applicable beneficiaries’’ will be 

determined on the basis of whether the 

covered Part D drug is considered an 

‘‘applicable drug’’ under the Medicare 

coverage gap discount program as 

defined at section 1860D–14A(g)(2). 

Section 1860D–14A(g)(2)(A) defines an 

applicable drug under the Medicare 

coverage gap discount program as a 

covered Part D drug that is either 

approved under a new drug application 

(NDA) under section 505(b) of the 

Federal Food, Drug, and Cosmetic Act 

or, in the case of a biologic product, 

licensed under section 351 of the Public 

Health Service Act (BLA) (other than 

under section 351(k)). Under standard 


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prescription drug coverage, coinsurance 

for applicable beneficiaries in the 

coverage gap for drugs that are not 

applicable drugs under the Medicare 

coverage gap discount program (that is, 

generic drugs) will be either: (1) Equal 

to the statutory generic gap coinsurance 

percentage for the year; or (2) actuarially 

equivalent to an average expected 

coinsurance for covered Part D drugs 

that are not applicable drugs under the 

Medicare coverage gap discount 

program at the statutory generic gap 

coinsurance percentage for the year, as 

determined through processes and 

methods established under section 

1860D–11(c) of the Act and 

implemented at § 423.265(c) and (d) of 

our regulations. In our November 2010 

proposed rule, we explained that for 

applicable drugs under the Medicare 

gap coverage discount program, 

coinsurance in the coverage gap for the 

actual cost of the drug as defined at 

§ 423.100 minus any applicable 

dispensing fees will be either: (1) Equal 

to the difference between the applicable 

gap percentage for the year and the 

discount percentage determined under 

the Medicare coverage gap discount 

program at section 1860D–14A(4)(A) of 

the Act; or (2) actuarially equivalent to 

an average expected payment of the 

coinsurance for applicable covered Part 

D drugs at the applicable gap percentage 

for the year, as determined through 

processes and methods established 

under section 1860D–11(c) of the Act 

and implemented at § 423.265(c) and (d) 

of our regulations. We stated that, as a 

result, when the applicable drug is 

purchased at a network pharmacy, the 

beneficiary will be fully liable for any 

dispensing fees, since the statute 

requires that the coinsurance apply only 

to the negotiated price of the drug 

minus dispensing fees. 

We proposed to codify these new 

requirements in § 423.104(d)(4). 

Additionally, since the terms applicable 

drug, applicable beneficiary, and 

coverage gap have not been previously 

defined in regulation, we proposed new 

definitions for these terms at § 423.100. 

Consistent with section 1101 of the 

ACA, these reductions in cost sharing 

during the coverage gap will apply only 

to applicable beneficiaries. In defined 

standard coverage, cost sharing during 

the coverage gap will remain unchanged 

at 100 percent coinsurance for all other 

Part D beneficiaries (prior to application 

of any low-income cost sharing 

subsidy). 

As provided under the new 

provisions in section 1860D– 

2(b)(4)(B)(i) of the Act, the rate of 

growth of the annual out-of-pocket 

threshold will be reduced from 2014 to 

2019. In our November 2010 proposed 

rule, we proposed to amend 

§ 423.104(d)(5)(iii) to state that the 

annual out-of-pocket threshold for years 

2014 and 2015 will be the amount 

specified for the previous year, 

increased by the ‘‘annual percentage 

increase’’ in the average expenditures for 

Part D drugs per eligible beneficiary 

currently specified in 

§ 423.104(d)(5)(iv), minus 0.25 

percentage point. Further, we proposed 

to amend § 423.104(d)(5)(iii) and (v) to 

reflect that for years 2016 through 2019, 

the annual out-of-pocket threshold will 

be the amount specified for the previous 

year, increased by the lesser of: (1) the 

annual percentage increase in the 

consumer price index specified in 

§ 423.104(d)(5)(v) for the year involved 

plus 2 percentage points; or (2) the 

‘‘annual percentage increase’’ specified 

in § 423.104(d)(5)(iv), rounded to the 

nearest $50. We also noted that the new 

provisions in section 1860D– 

2(b)(4)(B)(i) of the Act require us to 

calculate the annual out-of-pocket 

threshold for 2020 and later as if no 

change had been made to the 

calculation of the out-of-pocket 

threshold for 2014 through 2019 under 

the ACA. Thus, we proposed to amend 

§ 423.104(d)(5)(iii) to reflect this 

requirement. 

In our November 2010 proposed rule, 

we noted the ACA also amended section 

1860D–22(a)(2)(A) of the Act by adding 

a provision with regard to the actuarial 

equivalence of retiree prescription drug 

plan coverage to standard coverage. 

Specifically, the new provision requires 

that when attesting to the actuarial 

equivalence of the plan’s prescription 

drug coverage to defined standard 

coverage, qualified retiree prescription 

drug plans not take into account the 

value of any discount or coverage 

provided during the gap in coverage that 

occurs between the initial coverage limit 

during the year and the out-of-pocket 

threshold for defined standard coverage 

under Part D. We proposed to codify 

this new requirement in § 423.884(d). 

As indicated in section II.A. of this 

final rule, the regulations implementing 

these provisions are effective 60 days 

after the date of display of the final rule. 

Comment: Several commenters 

expressed support for this provision and 

the proposed new definitions for 

‘‘applicable drug,’’ ‘‘applicable 

beneficiary’’ and ‘‘coverage gap.’’ Two 

commenters urged us to provide 

stakeholders, including beneficiaries 

and independent pharmacists, with 

educational materials regarding program 

implementation as early as possible. 

Response: We appreciate the 

commenters’ support and we agree with 

those who encouraged us to provide 

educational materials to inform 

stakeholders of the changes to close the 

coverage gap for applicable 

beneficiaries. 

Comment: We received many 

comments regarding various aspects of 

the Medicare coverage gap discount 

program. 

Response: Since these comments 

pertain to the coverage gap discount 

program as specified in section 1860D– 

14A of the Act, rather than to the 

revisions to the Part D benefit structure 

specified in section 1860D–2(b) of the 

Act that were the subject of the 

November 2010 proposed rule, we 

believe these comments are outside the 

scope of the proposed rule. However we 

plan, to address the comments as 

appropriate in any future rulemaking 

regarding the coverage gap discount 

program. 

Comment: One commenter requested 

that the regulatory language define the 

amount that will be counted toward the 

beneficiary’s true out-of-pocket (TrOOP) 

cost when the ‘‘generic’’ gap cost-sharing 

is applied. 

Response: We do not believe there is 

a need to address this issue in 

regulation. The amount of the 

applicable beneficiary’s TrOOP for 

generic drugs in the coverage gap will 

be the coinsurance amount specified in 

§ 423.104(d)(4)(i) and paid by the 

beneficiary, another individual on the 

beneficiary’s behalf, or by a TrOOPeligible payer under § 423.100. 

Comment: Several commenters 

recommended revisions to our proposed 

definition of the term ‘‘applicable 

drugs.’’ Two commenters suggested we 

exclude all ‘‘authorized generics’’ from 

the term and one commenter 

recommended we clarify whether or not 

the term includes ‘‘authorized generics.’’ 

Another commenter requested we 

specify that a drug may be an 

‘‘applicable drug’’ for a particular 

applicable beneficiary if the drug is 

provided through an exception or 

appeal to that particular applicable 

beneficiary. 

Response: We believe ‘‘applicable 

drug’’ means all drugs approved under 

new drug applications (NDAs) and this 

includes those ‘‘authorized generics’’ 

licensed by sponsors of NDAs. It is our 

understanding that while most 

‘‘authorized generics’’ are approved 

under NDAs, others may be approved 

under abbreviated new drug 

applications (ANDAs). However, only 

those ‘‘authorized generics’’ licensed by 

sponsors of NDAs are applicable drugs. 

To avoid confusion, we are defining 

‘‘applicable drug’’ with respect to an 

applicable beneficiary as a Part D drug 


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that is approved under an NDA. We are 

also removing the superfluous 

parenthetical phrase that was 

inadvertently included in the proposed 

definition. 

We agree with the commenter 

requesting that we specify that drugs 

provided through an exception or 

appeal are applicable drugs only for that 

particular beneficiary. As a result, we 

are revising the final clause in the 

definition to state that the drug ‘‘is 

provided to a particular applicable 

beneficiary through an exception or 

appeal for that particular applicable 

beneficiary.’’ 

Comment: One commenter indicated 

the part of the proposed definition of 

‘‘applicable beneficiary’’ that addresses 

claims that straddle or span the benefit 

phases is confusing and should be 

deleted. 

Response: We believe it is important 

to reference straddle claims in the 

definition of an applicable beneficiary. 

However, we agree that the punctuation 

in the proposed definition was incorrect 

and the source of potential confusion. 

As a result, we are retaining the clause 

pertaining to claims that straddle or 

span the benefit phases and revising the 

punctuation to clarify that this clause is 

part of the definition. 

Comment: One commenter noted that, 

in the definition of ‘‘coverage gap’’ we 

should state that for purposes of 

applying the initial coverage limit, 

sponsors must apply their plan specific 

initial coverage limit under enhanced 

alternative benefit designs in addition to 

the basic alternative and actuarially 

equivalent benefit designs referenced in 

the proposed definition. 

Response: We agree with the 

commenter and will revise this 

definition in the final rule to include a 

reference to enhanced alternative 

benefit designs. 

Comment: One commenter suggested 

that we clarify that, in addition to 

dispensing fees, vaccine administration 

fees are not included in the definition 

of negotiated price and, therefore, 

should be excluded from the cost 

sharing reductions in the coverage gap. 

Response: We agree with the 

commenter. In prior subregulatory 

guidance, we expressed our belief that 

vaccine administration fees are 

analogous to dispensing fees for 

purposes of the coverage gap discount 

program and, therefore, must be 

excluded from the definition of 

negotiated price for purposes of 

determining the applicable discount. 

We noted that unlike sales tax, 

dispensing fees, and vaccine 

administration fees pay for services 

apart from of the applicable drug itself. 

This is made clear by the fact that a 

vaccine administration fee may be billed 

separately from the dispensing of the 

vaccine. Further, as the commenter 

points out, the definition of negotiated 

price would not include a vaccine 

administration fee billed by someone 

other than the pharmacy. 

Therefore, in finalizing the proposed 

rule, we will also exclude the vaccine 

administration fee from the cost sharing 

reductions and revise the regulatory 

language in § 423.104(d)(4)(ii) to specify 

coinsurance in the coverage gap is based 

on actual cost minus the dispensing fee 

and any vaccine administration fee. 

We also clarify that the reductions to 

cost sharing in the coverage gap 

specified in § 423.104(d)(4) apply only 

to ‘‘applicable beneficiaries’’ by revising 

the title of this paragraph to ‘‘Costsharing in the coverage gap for 

applicable beneficiaries.’’ 

Comment: One commenter 

recommended that when attesting to the 

actuarial equivalence of a qualified 

retiree prescription drug plan’s coverage 

to the defined standard coverage, the 

plan sponsor be permitted to account for 

the value of drug discounts and/or 

coverage provided during the coverage 

gap. 

Response: As noted in the preamble to 

our November 2010 proposed rule, the 

ACA amended section 1860D– 

22(a)(2)(A) by adding a new provision 

requiring that when attesting to the 

actuarial equivalence of the plan’s 

prescription drug plan coverage to 

defined standard coverage, qualified 

retiree prescription drug plans not take 

into account the value of any discount 

or coverage provided during the gap in 

coverage that occurs for defined 

standard coverage under Part D. Thus, 

this is a statutory requirement and we 

cannot accept the commenter’s 

recommendation. 

Comment: One commenter 

recommended that we permit Part D 

sponsors to use actuarially equivalent 

copayments as alternatives to the 

coinsurance amounts for generic drugs 

in the coverage gap as the enrollee costsharing is phased down to 25 percent in 

2020. 

Response: We agree with the 

commenter that § 423.104(d)(4)(ii)(B) of 

this regulation will permit actuarially 

equivalent cost sharing for generic drugs 

in the coverage gap. However, we 

believe that there is a high degree of risk 

associated with permitting actuarially 

equivalent copayments for generic drugs 

in the coverage gap. Due to significant 

variations in price for generic drugs and 

the coverage level for these drugs during 

the first few years of the transition to 25 

percent cost sharing, actuarially 

equivalent co-payments for these drugs 

will often be higher than the actual cost 

for commonly used generic drugs. As a 

result, we are concerned that the 

majority of beneficiaries will not benefit 

from the cost sharing reductions in the 

coverage gap if we permit actuarially 

equivalent co-payments for these drugs. 

We believe that the risk associated 

with permitting actuarially equivalent 

co-payments will be mitigated once 

coverage for generic drugs in the 

coverage gap reaches a reasonable 

coverage level for actuarial equivalence. 

We note that Chapter 4 of the Medicare 

Managed Care Manual Section 50.1 

provides that for an Original Medicare 

item or service to be considered a 

reasonable benefit, cost-sharing for that 

service cannot exceed 50 percent of the 

plan’s financial liability for the benefit. 

Consistent with this policy, we believe 

that 50 percent would be a reasonable 

benefit level at which to permit 

actuarial equivalence. Therefore, we 

anticipate permitting actuarially 

equivalent co-payments in the coverage 

gap for drugs that are not applicable 

(that is, generic drugs) starting in 2018 

when beneficiary cost sharing for these 

drugs will be below 50 percent. 

For these reasons, we will continue 

our current policy of not accepting 

actuarially equivalent co-payments in 

the coverage gap for drugs that are not 

applicable (that is, generic drugs) until 

2018. 

We are finalizing this provision with 

the amendments previously noted. 

19. Payments to Medicare Advantage 

Organizations (§ 422.308) 

In our November 2010 proposed rule, 

we proposed the revisions to the 

regulations described below in order to 

reflect changes in payment rules 

specified in statute and implemented in 

the Annual Announcement of MA 

Capitation Rates and MA and Part D 

Payment Policies. 

a. Authority To Apply Frailty 

Adjustment Under PACE Payment Rules 

for Certain Specialized MA Plans for 

Special Needs Individuals (§ 422.308) 

In our November 2010 proposed rule, 

we noted that section 3205 of the ACA 

provides the Secretary with the 

authority to apply a frailty adjustment to 

payments to certain Special Needs Plans 

(SNPs) that meet our definition of a 

fully integrated dual-eligible special 

needs plan at § 422.2, and have a similar 

average level of frailty as the PACE 

program, starting with plan year 2011. 

The statute permits the Secretary to 

apply the payment rules under section 

1894(d) of the Act (other than paragraph 

(3) of such section), rather than the 


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payment rules that would otherwise 

apply under this part, but only to the 

extent necessary to reflect the costs of 

treating high concentrations of frail 

individuals. 

We proposed that payments to Fully 

Integrated Dual Eligible SNPs that 

qualify for frailty adjusted payment 

continue to be calculated using the 

existing MA payment rules under which 

all SNPs are paid, with the sole 

exception of the application of a frailty 

adjustment. Further, we stated that the 

new law continued to allow us to use 

the same methodology to adjust 

payment to take into account the frailty 

of SNP enrollees as we use for the PACE 

program. 

As the Secretary determines the 

adjustment methodology for frailty, 

which frailty scores will be considered 

‘‘similar’’ to PACE program, and how to 

measure the ‘‘average level of frailty of 

the PACE program,’’ we noted that we 

will announce any changes to the 

methodology used to pay for frailty, as 

well as how we determine PACE 

program averages, and which SNPs have 

similar levels of frailty to the PACE 

program, in the Advance Notice and 

Rate Announcement for the plan year in 

question. 

In order to have a frailty score that 

can be compared to the PACE program, 

we proposed requiring MA 

organizations sponsoring a dual eligible 

SNP that meets our definition of a fully 

integrated dual-eligible SNP to fund any 

survey used by us to support the 

calculation of frailty scores. Moreover, 

we proposed requiring the survey to be 

fielded such that we can calculate a 

frailty score at the plan benefit package 

level for each SNP in question 

(currently the counts of limitations on 

activities of daily living (ADLs) used to 

calculate frailty scores are taken from 

the HOS or HOS–M), and to adhere to 

the methodological requirements of any 

such survey. 

Comment: A commenter suggested 

that CMS should either allow the frailty 

adjustment to all plans based on a given 

set of criteria or drop it for all plans. In 

addition, another commenter suggested 

that CMS consider applying frailty 

adjustment on an individual basis 

instead of at the plan level. 

Response: By law, we must use the 

same payment methodology for all MA 

plans, except as explicitly provided for 

in statute. Section 3205 of the ACA 

changed the law to permit CMS to make 

frailty-adjusted payments only to certain 

D–SNPs—those fully integrated dualeligible special needs plans, as defined 

in § 422.2., that have similar average 

levels of frailty as the PACE program. 

We have considered making frailty 

payments to all MA plans, but decided 

that, given the use of the survey-based 

data collection method, that calculating 

frailty scores for every PBP across the 

entire industry was prohibitive. Further, 

frailty would need to be applied on a 

budget neutral basis. Given the surveybased methodology used for measuring 

frailty, a method of reliably calculating 

individual level frailty scores is not 

possible. We have explored other 

methods of measuring frailty, all of 

which posed substantial challenges to 

calculating accurate payments. 

Comment: Several commenters 

requested that CMS provide specific and 

transparent criteria that would be used 

to determine those plans eligible for 

frailty in determining similar average 

frailty levels as PACE, including 

providing to plans actual frailty scores, 

the data to be used to calculate the 

scores and the source of the data, 

recommended criteria such as using a 

range of PACE frailty scores, using the 

same survey methods and data for both 

populations, and not basing the 

comparison on an average frailty across 

all PACE organizations, and requested 

that CMS provide plans with the 

eligibility criteria for frailty adjusted 

payments before plans are required to 

request participation in PBP level HOS 

surveys and before they submit their 

Notices of Intent to offer a Fully 

Integrated Dual Eligible SNP in the next 

contract year. 

Response: We appreciate these 

comments and concerns; however, as 

required by law, CMS provides 

information on our payment 

methodology in the Advance Notice and 

Rate Announcement for the plan year in 

question. 

Comment: A few commenters 

suggested that the intent of this 

provision in the ACA was to provide a 

frailty factor adjustment to all legacy 

SNPs (that is, the dully integrated plans 

in Minnesota, Wisconsin and 

Massachusetts that serve as models for 

SNP integration). 

Response: Section 3205 of the ACA 

permits CMS to make frailty-adjusted 

payments to certain D–SNPs—those 

fully integrated dual-eligible special 

needs plans, as defined in § 422.2, that 

enroll beneficiaries with similar average 

levels of frailty the PACE program, and 

does not refer to specific plans to which 

it is to be applied. 

Comment: One commenter expressed 

concerns regarding the requirement to 

have plans pay for the survey and urges 

CMS to be flexible in coordinating with 

and using ADL assessments from the 

states. 

Response: It is a contract requirement 

that plans are financially responsible for 

the surveys that support measurement 

of their performance and quality, 

including the Consumer Assessment of 

Health Plan Satisfaction (CAHPS) and 

Health Effectiveness Data and 

Information Set (HEDIS), and for 

reporting payment-related data. The 

responsibility to finance the HOS is 

similar. Since SNPs bid and are paid at 

the Plan Benefit Package (PBP) level, 

CMS must be able to calculate a frailty 

score at the PBP level. Further, our 

frailty payment methodology is based 

on surveying plan enrollees to 

determine the plan’s average frailty 

level and the use of assessments 

conducted by the plans was specifically 

ruled out in the development of this 

methodology. Therefore, we must 

require survey sampling at the PBP 

level, rather than coordinating with 

States. 

Comment: A few commenters agree 

with the clarification provided 

regarding which plans will be eligible 

for frailty adjusted payments because 

they meet the definition of ‘‘fully 

integrated dual eligible SNP’’ as well as 

the ‘‘similar average frailty levels’’ as 

PACE plans eligibility criteria. 

Response: We appreciate the support 

expressed for the proposed new 

provisions. 

Comment: Several commenters 

inquired about the methodology and 

implementation of the HOS and CHAPS 

surveys. 

Response: We appreciate these 

commenters’ concerns. We will take 

these comments under advisement in 

the next survey update. 

After considering the comments 

received, we are adopting § 422.308(a) 

as proposed into this final rule. 

b. Application of Coding Adjustment 

(§ 422.308) 

In our November 2010 proposed rule, 

we noted that the ACA adds new 

statutory language clarifying our 

existing authority to adjust risk scores 

for coding trends in the FFS sector, 

under CMS’s general authority to 

conduct risk adjustment in an 

actuarially equivalent manner under 

1853(a)(1)(C)(i) of the Act. Further, this 

new language extends the mandate that 

CMS adjust risk scores for differences in 

coding patterns between MA plans and 

FFS beyond 2010. 

Previously, in accordance with the 

Deficit Reduction Act of 2005 (DRA), 

the Secretary was expressly required to 

conduct an analysis of the differences in 

FFS and MA coding patterns in order to 

ensure payment accuracy, and that such 

analysis was to be completed in time to 

ensure that the results of such analysis 

were incorporated into the risk scores 


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for 2008 through 2010. The ACA made 

four modifications to this requirement 

for analysis: (1) The analysis must now 

be conducted annually; (2) the data used 

in the analysis is to be updated as 

appropriate; (3) the results of the 

analysis are to be incorporated into risk 

scores on a timely basis; and (4) the 

application of an adjustment for 

differences in coding patterns is 

extended until the Secretary 

implements risk adjustment using 

Medicare Advantage diagnostic, cost, 

and use data. 

Moreover, we mentioned that the 

ACA added two additional requirements 

to the DRA-mandated requirements. 

First, the ACA requires that the coding 

adjustment factor for 2014 be not less 

than the coding adjustment factor 

applied for 2010 plus 1.3 percentage 

points; for each of the years 2015 

through 2018, not less than the coding 

adjustment factor applied for the 

previous year plus 0.25 percentage 

points; and for 2019 and each 

subsequent year not less than 5.7 

percent. Second, the ACA requires the 

Secretary to apply the coding 

adjustment to risk scores until the 

implementation of risk adjustment using 

MA diagnostic, cost, and use data. 

Comment: A commenter suggested 

that the coding intensity adjuster should 

be modified each year using payment 

adjustments from the RADV audit 

process which could be used to 

determine industry wide averages to 

estimate industry-wide accuracy. After 

making this modification, the coding 

adjuster should then be adjusted 

downward given that plan payments 

will be adjusted for inaccuracy through 

the RADV audits. 

Response: As we have noted in 

previous guidance documents such as 

the Rate Announcements, the MA 

coding adjustment factor is not intended 

to adjust for inaccurate coding in a 

particular instance, and the specific 

affects on an individual’s risk score, but 

for the impact on risk scores of coding 

patterns that differ from FFS coding, the 

basis of the CMS–HCC model and the 

Part C normalization factor. RADV 

audits have the purpose of validating 

that diagnosis codes submitted for risk 

adjustment are documented in the 

medical record and, therefore, are 

correctly reported for the beneficiary in 

question. 

Comment: One commenter suggested 

that there should not be a minimum 

coding adjustment per year and that 

more detailed information should be 

released on the coding adjustment 

calculations for the industry to review. 

Response: The minimum adjustment 

factors are specified in law. For 

additional information regarding our 

coding adjustment methodology, please 

refer to the 2010 Advance Notice and 

Announcement, published on February 

20, 2009 and April 6, 2009, respectively. 

Any updates to our methodology will be 

published in the appropriate future 

Advance Notice. 

After considering the comments we 

received, we are adopting § 422.308 (b) 

as proposed into this final rule. 

c. Improvements to Risk Adjustment for 

Special Needs Individuals With Chronic 

Health Conditions (§ 422.308) 

In the November 2010 proposed rule, 

we proposed for 2011 and subsequent 

years, for purposes of the adjustment 

under section 1853(a)(1)(C)(i) of the Act, 

using a risk score for chronic SNP 

enrollees that reflects the known 

underlying risk profile and chronic 

health status of similar individuals, as 

the Secretary is required to use such risk 

score instead of using the default risk 

score that is otherwise used in payment 

for new enrollees in MA plans. 

The risk score developed for this 

purpose will be used in calculating 

payments for a special needs individual 

described in section 1859(b)(6)(B)(iii) of 

the Act who enrolls in a specialized MA 

plan for special needs individuals on or 

after January 1, 2011. 

We proposed for 2011 and 

periodically thereafter, for the Secretary 

to evaluate and revise the risk 

adjustment system under this 

subparagraph in order, as accurately as 

possible, to account for higher medical 

and care coordination costs associated 

with frailty, individuals with multiple, 

comorbid chronic conditions, and 

individuals with a diagnosis of mental 

illness, and also to account for costs that 

may be associated with higher 

concentrations of beneficiaries with 

those conditions. We also noted that we 

will publish in the Rate Announcement, 

as described under section 1853(b) of 

the Act, a description of any evaluation 

conducted during the preceding year 

and any revisions made under such 

clause as a result of such evaluation. 

Comment: Several commenters 

supported the provisions in the ACA 

that require the Secretary to evaluate 

and revise the risk adjustment system in 

order to, as accurately as possible, 

account for higher medical and care 

coordination costs associated with 

frailty, individuals with multiple 

comorbid chronic conditions, and 

individuals with a diagnosis of mental 

illness, and also to account for costs that 

may be associated with higher 

concentrations of beneficiaries with 

those conditions, as well as to publish 

as part of an announcement a 

description of any evaluation conducted 

during the preceding year and any 

revisions made as a result of such 

evaluation. In addition, several 

commenters pointed out that improving 

risk adjustment will decrease plan 

cherry-picking of healthier beneficiaries, 

improve the plans’ incentive to focus on 

costs, reduce unnecessary costs and stop 

overpaying for low risk beneficiaries 

and underpaying for high risk 

beneficiaries. 

Response: We appreciate the support 

expressed for the provision for an 

evaluation of the risk adjustment model. 

Comment: A few commenters urge 

CMS to implement some risk 

adjustment model changes in 2012 and 

more in 2013 in addition to 

implementing the methodologies 

announced in the 2011 Advance Notice. 

Response: We continually work to 

develop improvements to the risk 

adjustment model. Changes to the 

model for a particular year are discussed 

in that year’s Advance Notice. 

Comment: Several commenters 

recommended that we consider 

persistency of multiple comorbid 

chronic conditions and one suggested 

CMS use 2 years of data in the model 

beginning in 2012. 

Response: We do not believe that 

using 2 years of data in the risk 

adjustment model will improve the risk 

scores, largely because a model 

developed using 2 years of diagnostic 

data would lower the model values for 

chronic conditions and decrease the 

predictive power of the model for those 

with conditions under treatment. While, 

theoretically, such a model may help 

plans that do not code well, CMS 

prefers that plans enrollees are seen by 

providers and that current diagnoses are 

documented as part of those visits. 

Comment: One commenter 

recommended that CMS engage in 

active dialogue with MA organizations 

to permit CMS to consider MAO 

experience with these populations. 

Response: We appreciate these 

comments and look forward to working 

with MAOs on this issue. 

Comment: A few commenters 

expressed that they had no knowledge 

of any current evaluations performed by 

CMS evaluating the adequacy of the 

current risk adjustment methodology or 

of any CMS research exploring 

alternative methods of risk adjustment 

that would include methods such as 

frailty and disability factors, drug 

utilization information, or using 

multiple years of data to calculate risk 

scores, while a few other commenters 

expressed that they strongly support the 

provisions in the ACA, however, note 

that the proposed rule does not provide 


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any additional clarity about how CMS 

intends to implement these policies. 

Response: We evaluate the 

performance of the model regularly. 

Please refer to the following 

publications for information on model 

development and performance: http:// 

www.cms.gov/ 

HealthCareFinancingReview/ 

Downloads/04summerpg119.pdf. The 

ACA specified that the evaluation be 

published as part of the Announcement. 

We are planning to publish the 

evaluation in the 2102 Announcement, 

published on April 4, 2011. 

Comment: One commenter requested 

that no delays in the evaluation be 

caused by the collection of encounter 

data. 

Response: We appreciate the 

commenter’s concern. Evaluations of the 

risk models are ongoing and are not 

related to the collection of encounter 

data. 

Comment: A few commenters 

requested that CMS recognize problems 

in the 10 decile analysis for high risk 

chronically ill beneficiaries as the 

model inappropriately treats high 

spending chronically ill beneficiaries as 

healthy causing them to be assigned to 

a lower than ‘‘true’’ risk decile. 

Response: We measure model 

predictive strength by comparing 

predicted costs to actual costs. We 

typically group beneficiaries into risk 

deciles, meaning that we create ten 

equal-sized groups of beneficiaries, 

ranging from the group with the highest 

predicted costs to the group with the 

lowest predicted costs. For each riskbased group, we then create ratios of 

predicted costs to actual costs. Using 

predictive ratios, we find that the CMS– 

HCC model performs well. Comparing 

predictive ratios across beneficiaries 

grouped by actual costs (as the comment 

implies) is not an actuarially sound way 

to look at the ability of the model to 

accurately predict costs. If one looks at 

the cost data retrospectively (after the 

fact) the result will always be that high 

cost beneficiaries are under-predicted as 

high cost is largely due to random 

events. Determining whether the costs 

associated with beneficiaries predicted 

to be high, medium or low cost is the 

only actuarially sound way to evaluate 

the risk adjustment model. 

Comment: A commenter inquired as 

to whether the new C–SNP policy 

applies only to new Medicare 

Beneficiaries or to all existing Medicare 

beneficiaries who are newly enrolling in 

a C–SNP—and recommended that 

qualifying for the C–SNP should trigger 

the assumed payment adjustment. 

Response: Current law requires the 

implementation of the new enrollee 

model for C–SNPs to apply only to new 

Medicare beneficiaries. 

Comment: One commenter urged 

flexibility in expanding on the intent of 

the ACA in the area of risk adjustment 

for persons with chronic illness, and 

recommended that the process should 

apply to all SNPs, noting that persons 

under age 65 who become eligible for 

Medicare do so because of a disability 

and the duals under age 65 are even 

more likely to have a long history of 

chronic as well as disabling conditions. 

They are also more likely to have cooccurring mental health needs and the 

current risk adjustment system unfairly 

assumes these ‘‘new to Medicare’’ 

beneficiaries are healthier than their 

history shows. 

Response: We believe that absent 

explicit statutory authority we cannot 

pay Dual or Institutional SNPs 

differently from regular MA plans. 

Further, we are not considering 

applying differential new enrollee risk 

scores to all SNP enrollees. We believe 

that for Dual-eligible and Institutional 

SNPs’ our evidence shows that the new 

enrollee risk scores in the CMS–HCC 

model are adequate to address the 

aggregate risk faced by these plans 

because the current new enrollee risk 

score model captures the additional 

costs due to Medicaid and disabled 

status. In creating the C–SNP new 

enrollee model, we found that the new 

enrollee age/sex factors had a similar 

increment regardless of Medicaid status. 

This finding indicates that the costs for 

Medicaid and by age group (including 

the disabled) are fully accounted for in 

the current new enrollee model. 

Comment: A commenter 

recommended that prior claims data, 

currently available through the 

Medicaid program, be used to set 

payment upon entry to a SNP. 

Response: We disagree with the 

comment. New enrollee risk scores 

account for the average risk of the new 

enrollee population, and already 

account for additional costs attributable 

to Medicaid status with an explicit 

Medicaid status marker. Medicaid status 

for new enrollees is based on concurrent 

status in the payment year. This means 

that a dual Medicare/Medicaid enrollee 

to an MA plan (SNP or regular MA plan) 

receives an increment that is adjusted 

for their age/sex and Medicaid status in 

the payment year. 

After considering the comments we 

received, we are adopting § 422.308(c) 

as proposed into this final rule. 

20. Medicare Advantage Benchmark, 

Quality Bonus Payments, and Rebate 

(§ 422.252, § 422.258, and § 422.266) 

a. Terminology (§ 422.252) 

We proposed revising § 422.252 by 

adding two new terms and revising one 

term. We proposed adding the terms 

‘‘new MA plan’’ and ‘‘low enrollment 

contract.’’ A new MA plan means, for 

the purpose of quality ratings under 

§ 422.258(d)(7) (discussed below), with 

respect to a year, a plan offered by an 

organization or sponsor that has not had 

a contract as an MA organization in the 

preceding 3-year period. A low 

enrollment contract is a contract that 

could not undertake Healthcare 

Effectiveness Data and Information Set 

(HEDIS®) and Health Outcome Survey 

(HOS) data collections because of a lack 

of a sufficient number of enrollees to 

reliably measure the performance of the 

health plan. 

We also proposed revising the 

definition of Unadjusted MA areaspecific non-drug monthly benchmark 

amount. Effective for 2012, the MA areaspecific non-drug monthly benchmark 

amount is the blended benchmark 

amount determined according to the 

rules set forth under § 422.258(d). In 

addition, this revision clarifies that ratesetting rules for county capitation rates 

are specific to a time period, as set forth 

at § 422.258(a). Finally, this revision 

further clarifies that the term 

‘‘unadjusted’’ refers to a standardized 

amount, reflecting a risk profile based 

on the national average. 

We received no comments on these 

proposals and therefore are finalizing 

these provisions without modification. 

We are also adopting the definitions 

proposed for ‘‘new MA plan’’ and ‘‘low 

enrollment contract’’ in § 422.252 in this 

final rule. 

b. Calculation of Benchmarks 

(§ 422.258) 

Section 3201(b) of the ACA 

establishes a new blended benchmark as 

the MA county rate, effective 2012, and 

section 3201(c) of the ACA establishes 

quality-based increases to the blended 

benchmark. To implement these ratesetting rules, we proposed to amend 

§ 422.258(a) and § 422.258(c)(3), and 

add a new paragraph § 422.258(d), 

which sets forth the provisions for MA 

blended benchmarks, including 

increases to the benchmarks for quality 

bonuses at § 422.258(d)(7). 

Section 3201(b)(2) of the ACA 

introduces section 1853(n) of the Act, 

which creates a new type of county 

capitation rate, the ‘‘blended benchmark 

amount’’ for an area for a year, which 

also must be—used to determine MA 


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plans’ service area-level benchmarks. 

Effective 2012 onward, the blended 

benchmark will be set at some 

percentage of the county’s average FFS 

expenditure (the FFS rate). There are 

two components of the blended 

benchmark: the applicable amount 

determined under section 1853(k)(1) of 

the Act and described at § 422.258(d)(1); 

and the ‘‘specified amount’’ introduced 

at section 1853(n)(2) of the Act and 

described at § 422.258(d)(2). The two 

components must be combined using 

weights that are specific to the phase-in 

period assigned each area (county), 

according to rules set forth at sections 

1853(n)(1) and (n)(3) of the Act and 

implemented at paragraphs (d)(8) and 

(d)(9) of § 422.258 of the regulations. At 

the conclusion of an area’s phase-in 

period, the blended benchmark for the 

area for a year will be the area’s 

specified amount under section 

1853(n)(2) of the Act. 

Specified Amount. Section 1853(n)(2) 

of the Act, as implemented by proposed 

§ 422.258(d)(2), (d)(3), and (d)(4), sets 

forth the formula for the specified 

amount and the rules for tabulating the 

components of the formula. Specifically, 

the specified amount is the product of 

two quantities: the base payment 

amount defined at section 1853(n)(2)(E) 

of the Act (adjusted to carve-out the 

indirect medical education (IME) 

amount, as required at section 

1853(k)(4)) of the Act and implemented 

at § 422.306(c); and the applicable 

percentage defined at section 

1853(n)(2)(B) of the Act and 

implemented at § 422.258(d)(4). 

The base payment amount for an area 

for 2012 is the average FFS expenditure 

amount determined for 2012, as 

specified in § 422.306(b)(2). For 

subsequent years, the base payment 

amount for an area is the average FFS 

expenditure amount specified in 

§ 422.306(b)(2), which includes the 

requirement to rebase (update with 

more recent data) the FFS rates no less 

frequently than every 3 years. 

The applicable percentage is one of 

four values assigned to an area (a 

county) based on our determination of 

the quartile ranking for the previous 

year of the area’s average FFS 

expenditure amount (described at 

§ 422.306(b)(2)) relative to this amount 

for all counties. The FFS rate used for 

the quartile ranking must be net of the 

IME amount determined under 

§ 422.306(c) for the year. For the 50 

States or the District of Columbia, 

counties whose FFS rates (net of the 

IME amount for the year) fall in the 

highest quartile of all such amounts for 

the previous year receive an applicable 

percentage of 95 percent, while counties 

falling in the second highest quartile 

receive an applicable percentage of 100 

percent, counties falling in the third 

highest quartile receive an applicable 

percentage of 107.5 percent, and 

counties falling in the lowest quartile 

receive an applicable percentage of 115 

percent. 

After establishing the basic formula 

for the specified amount and setting the 

rules for calculating its components— 

the base payment amount and the 

applicable percentage, sections 1853(n) 

and (o) of the Act provide additional 

rules for determining the applicable 

percentage for a county for a year. There 

are four sets of rules: (1) When to rerank the county FFS rates to determine 

whether some counties receive quartile 

reassignments; (2) how to transition a 

county from one quartile assignment to 

another; (3) how to assign a county its 

transition period of 2, 4, or 6 years, 

whereby at the conclusion of the 

transition period, the county’s blended 

benchmark equals 100 percent of the 

specified amount; and (4) under what 

conditions the applicable percentage 

shall be increased to provide quality 

bonus payments to qualifying plans. 

The first three types of rules are 

discussed here, and the fourth rule on 

quality bonuses is discussed in the next 

section on paragraph § 422.258(d)(7). 

First, section 1853(n)(2)(C) of the Act, 

implemented at § 422.258(d)(5)(i), 

provides that the quartile ranking of all 

county FFS rates (net of the IME carveout) for a contract year must be reranked whenever the FFS rates for the 

year prior to the contract year are 

rebased FFS rates, per the rebasing rule 

set forth at § 422.306(b)(2). Second, 

section 1853(n)(2)(D) of the Act, 

implemented at § 422.258(d)(5)(ii), 

provides that for a year after 2012, if 

there is a change in a county’s quartile 

ranking for a contract year compared to 

the county’s ranking in the previous 

year, the applicable percentage for the 

area for the year shall be the average of 

the applicable percentage for the 

previous year and the applicable 

percentage that would otherwise apply 

for the area for the year in the absence 

of this transitional provision. Third, 

sections 1853(n)(2) and (n)(3) of the Act, 

implemented at § 422.258(d)(8) and 

(d)(9) respectively, establish the 

methodology that we must use to assign 

one of three transition periods to each 

county—a 2-year, 4-year, or 6-year 

transition to phase-in the blended 

benchmark amount to be equal to 100 

percent of the specified amount. 

Assignment of a phase-in period is 

determined by the size of the difference 

between the 2010 applicable amount 

under section 1853(k)(1) of the Act at 

paragraph (d)(1) and ‘‘the projected 2010 

benchmark amount’’ at (d)(8)(i), which is 

a quantity created at section 

1853(n)(3)(C) of the Act solely for the 

purpose of assigning a transition period 

to each county. The projected 2010 

benchmark amount is equal to one-half 

of the 2010 applicable amount and onehalf of the specified amount; the latter 

is calculated as if the 2012 effective date 

for the specified amount were instead 

2010. This modified specified amount 

for 2010 is the product of two 

quantities: The 2010 base payment 

amount adjusted as required under 

§ 422.306(c); and the applicable 

percentage, which is determined under 

the rules set forth at proposed paragraph 

(d)(8)(ii)(B). Specifically, all applicable 

percentages are increased as if all 

counties were in qualifying plans in 

2010 for the purpose of calculating the 

projected 2010 benchmark amount (thus 

adding 1.5 percentage points to each 

county’s applicable percentage). 

Further, we must determine a list of 

2010 qualifying counties using the 

criteria set forth for 2012 onward in 

proposed paragraph (d)(7)(ii), thus 

further increasing the applicable 

percentage of this subset of 2010 

counties an additional 1.5 percentage 

points. 

Once the special quantity ‘‘projected 

2010 benchmark amount’’ is compared 

to the 2010 specified amount under 

section 1853(k)(1) of the Act, the phasein assignments are made as follows. A 

county is assigned a 2-year phase-in 

period if the difference between the 

applicable amount and the projected 

2010 benchmark amount is less than 

$30, a 4-year phase-in period if the 

difference is at least $30 but less than 

$50, and a 6-year phase-in period if the 

difference is at least $50. 

Finally, section 1853(n)(3), 

implemented at § 422.258(d)(8), sets 

forth the rules for calculating the 

blended benchmark depending on the 

assigned phase-in period. For counties 

assigned the 2-year phase-in period, the 

blended benchmark for 2012 is the sum 

of one-half of the applicable amount at 

paragraph (1) and one-half of the 

specified amount at paragraph (2); and 

or subsequent years, the blended 

benchmark equals the specified amount. 

For counties assigned the 4-year phasein period, the blended benchmark is 

calculated as follows: For 2012 the 

blended benchmark is the sum of threequarters of the applicable amount for 

the area and year and one-fourth of the 

specified amount for the area and year; 

for 2013, it is the sum of one-half of the 

applicable amount for the area and year 

and one-half of the specified amount for 

the area and year; for 2014 it is the sum 


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of one-fourth of the applicable amount 

for the area and year and three-fourths 

of the specified amount for the area and 

year; and for subsequent years, the 

blended benchmark equals the specified 

amount. For counties assigned the 

6-year phase-in period, for 2012, the 

blended benchmark is the sum of fivesixths of the applicable amount for the 

area and year and one-sixth of the 

specified amount for the area and year; 

for 2013 it is the sum of two-thirds of 

the applicable amount for the area and 

year and one-third of the specified 

amount for the area and year; for 2014 

it is the sum of one-half of the 

applicable amount for the area and year 

and one-half of the specified amount for 

the area and year; for 2015 it is the sum 

of one-third of the applicable amount 

for the area and year and two-thirds of 

the specified amount for the area and 

year; for 2016 it is the sum of one-sixth 

of the applicable amount for the area 

and year and five-sixths of the specified 

amount for the area and year; and for 

subsequent years, the blended 

benchmark equals the specified amount. 

Comment: One commenter requested 

that CMS offer plans more information 

on how payments will be calculated, for 

example what years will be used for the 

calculations. Response: Detailed 

payment calculations are available in 

the Advance Notice of Methodological 

Changes for Calendar Year (CY) 2012 for 

Medicare Advantage (MA) Capitation 

Rates, Part C and Part D Payment 

Policies and 2012 Call Letter, published 

on February 18, 2011 and the 

Announcement of Calendar Year (CY) 

2012 Medicare Advantage Capitation 

Rates and Medicare Advantage and Part 

D Payment Policies and Final Call 

Letter, published on April 4, 2011. 

These documents are available on the 

CMS Web site at: http://www.cms.gov/ 

MedicareAdvtgSpecRateStats/. 

Comment: Several commenters 

asserted that while counties are 

distributed evenly across the 4 

quadrants, enrollment is skewed heavily 

toward the top 95 percent quartile. In 

order to address the inequities inherent 

in the new benchmark methodology, 

these commenters recommend that CMS 

examine alternative benchmark-setting 

formulas, such as re-stratifying the 

quartiles based on enrollment numbers, 

so as to address the disadvantaged plans 

in the 95 percent quartile that maintain 

a significant proportion of MA 

beneficiaries. Additionally, the 

commenters asserted that the FFS 

quartile rule causes problems at the 

cusps of the quartiles, due to the 

arbitrary drawing of a line between 2 

FFS rates that may only be $0.20 

different, with the result that gets 107.5 

percent of the FFS rate, and the other 

only 100 percent of the FFS rate. The 

commenters recommend that CMS 

study alternative benchmark 

methodologies to address inequities in 

the current formula. 

Response: The calculation of the 

blended benchmark and the quartiles 

are specifically laid out in 1853(n). Any 

changes to the calculation would 

require Congressional action. 

We are finalizing this provision 

without modification. We are also 

adopting § 422.258 as proposed in this 

final rule. 

c. Increases to the Applicable 

Percentage for Quality (§ 422.258(d)) 

We proposed regulations reflecting 

the new statutory requirements that, as 

of January 1, 2012, provided for 

increases in MA plan benchmarks based 

on an MA plan’s score under a star 

quality rating system. For the purposes 

of this preamble, we refer to these 

quality-based increases in MA 

benchmarks as quality bonus payments 

(QBPs) for MA plans. The 5 star rating 

system that serves as the basis for 

making the bonus payment must be 

based on quality information collected 

by us under authority of section 1852(e) 

of the Act. 

The blended benchmark for 2012 and 

future years reflects the level of quality 

rating at the organization or contract 

level that will be set forth in a notice to 

MA organizations for the calendar year 

in question. As discussed in section 

II.B.20.b of this final rule, the blended 

benchmark has two components—the 

applicable amount and the specified 

amount. Under the formula set forth in 

the ACA, a qualifying organization that 

receives 4 or more stars on a 5 star 

rating system would receive an increase 

in the specified amount component of 

the blended benchmark amount of 1.5 

percentage points in 2012, 3.0 

percentage points in 2013 and 5.0 

percentage points in 2014 and in 

subsequent years. A qualifying 

organization in a qualifying county will 

receive double the applicable 

percentage increase. A qualifying 

county is defined as a county that has 

an MA capitation rate that, in 2004, was 

based on the amount specified in 

subsection c1b for a Metropolitan 

Statistical Area (MSA) with a 

population of more than 250,000; has at 

least 25 percent of MA eligible 

individuals enrolled in MA 

organizations as of December 2009; and 

has a per capita fee-for-service spending 

that is lower than the national monthly 

per capita cost for expenditures for 

individuals enrolled under the Original 

Medicare fee-for-service program for the 

year. The ACA specified that a new MA 

contract will receive an increase in the 

specified amount component of the 

blended benchmark amount of 1.5 

percentage points in 2012; 2.5 

percentage points in 2013; and 3.5 

percentage points in 2014 and in 

subsequent years. The ACA provided 

that MA organizations that fail to report 

data as required by the Secretary would 

be counted as having a rating of fewer 

than 3.5 stars at the organization or 

contract level. 


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We proposed that the 5 star ratings 

system that will be used would be based 

on the Plan Rating system currently in 

place for beneficiary information and to 

identify contract performance issues. 

Under the Plan Rating system, if an 

MA–PD organization offers health and 

drug benefits, both Part C and Part D 

summary ratings scores are generated. In 

the Fall of 2010, MA–PDs received a 

combined Part C and D summary rating 

to summarize overall contract 

performance with respect to health and 

drug issues. This combined rating is 

used to determine the new QBPs based 

on quality for MA organizations offering 

prescription drug coverage. The Part C 

summary rating is used to determine the 

QBPs for MA only contracts. 

As previously discussed, under 

§ 422.252, we proposed definitions of a 

low enrollment contract and a new MA 

plan for the purpose of identifying 

qualifying organizations eligible to 

receive a bonus payment. Low 

enrollment contracts will be qualifying 

plans for 2012 and in subsequent years. 

For the purpose of awarding 2012 QBPs, 

we proposed to define low enrollment 

contracts as those that could not 

undertake HEDIS® and HOS data 

collections because of a lack of a 

sufficient number of enrollees to 

reliably measure the performance of the 

health plan. Under the ACA, new MA 

plans that meet criteria specified by the 

Secretary are also treated as qualifying 

organizations for the purposes of QBPs. 

We proposed to define a new MA plan 

as an MA contract offered by a parent 

organization that has not had another 

MA contract in the previous 3 years; 

these contracts will qualify for the QBP. 

Under our proposal, other MA contracts 

that open in a given year, but have had 

other contracts offered by the parent 

organization in the prior 3 years, would 

be assigned a star rating based on the 

average enrollment-weighted 

performance of the other contracts 

offered by the parent organization to 

reflect the overall performance of the 

organization. 

In the proposed rule we discussed our 

plan to transform the rating system in 

future years in order to advance more 

ambitious and comprehensive quality 

improvement objectives. These 

objectives will include greater emphasis 

on demonstrable improvements in 

beneficiary access to care, beneficiary 

health status and outcomes, beneficiary 

satisfaction and engagement, prevention 

and management of chronic conditions 

as well as coordination across the 

continuum of care. By designing the MA 

quality rating system around these types 

of objectives, we expect to encourage 

and incentivize MA plans and affiliated 

providers to transform their delivery 

systems and processes to provide 

beneficiaries with high-quality and 

efficient care. Ultimately, we seek to 

design the MA quality rating system to 

ensure that Medicare beneficiaries 

enrolled in MA organizations receive 

efficient, high quality care and services 

every time. Future quality agenda and 

measurement development will be 

designed to ensure that MA 

organizations lead the healthcare 

industry in providing cutting edge, 

integrated and coordinated care for our 

beneficiaries using evidence-based and 

demonstrable metrics. 

We also discussed potential guiding 

principles for the MA quality agenda. 

For instance, these principles could be 

based on aims from the 2001 Institute of 

Medicine (IOM) Report ‘‘Crossing the 

Quality Chasm: A New Health System 

for the 21st Century.’’ From this IOM 

Report, the six aims that have been 

described are a framework for the MA 

Quality Strategic Plan. The IOM Report 

provides the following definitions for 

the six aims: Safe is defined as avoiding 

injuries to patients from the care that is 

intended to help them. Effective refers 

to providing services based on scientific 

knowledge to all who could benefit, and 

refraining from providing services to 

those not likely to benefit. Patientcentered is providing care that is 

respectful of and responsive to 

individual patient preferences, needs, 

and values, and ensuring that patient 

values guide all clinical decisions. 

Timely is defined as reducing waits and 

sometimes harmful delays for both those 

who receive and those who give care. 

Efficient is avoiding waste, including 

waste of equipment, supplies, ideas, and 

energy. Equitable is providing care that 

does not vary in quality because of 

personal characteristics such as gender, 

ethnicity, geographic location, and 

socioeconomic status (IOM, 2001). 

As a part of developing our long-term 

quality strategy, we discussed our work 

to identify measures that can be 

implemented in the near term to further 

the MA quality agenda. Looking beyond 

the 2012 Plan Ratings, we are exploring 

using measures, such as reportable 

adverse events and hospital acquired 

conditions, which are submitted via the 

Part C reporting requirements, and allcause readmission rates. We are also 

examining the use of alternative 

measurement sets (for example, 

Assessing Care of Vulnerable Elders 

(ACOVE)), exploring the use of data 

collected in other settings (for example, 

data from the Hospital Inpatient Quality 

Reporting Program, formerly known as 

Reporting Hospital Quality Data for the 

Annual Payment Update (RHQDAPU)), 

considering incorporating encounter 

data into quality measures, and are 

considering development of additional 

outcome measures designed specifically 

for MA. The NCQA is also developing 

measures of ambulatory care sensitive 

conditions that we will look to 

implement as they become available. 

Further, beyond broadening the goals 

of the MA quality rating system, for 

instance by incorporating more 

outcomes-based measures, we also 

discussed our desire to continually raise 

performance targets, so as to incentivize 

continual quality improvement across 

established metrics of performance and 

quality. We invited public comment on 

appropriate performance and quality 

benchmarks, and what approach should 

be used for updating these benchmarks, 

including frequency of updates. 

Additionally, we invited public 

comment on what types of principles or 

objectives that we should adopt for the 

MA quality rating system over the 

longer term. For instance, are there 

specific frameworks or elements that we 

should adopt from the National Quality 

Forum (NQF), National Committee for 

Quality Assurance (NCQA), the Agency 

for Healthcare Research and Quality 

(AHRQ) or other experts in this field? 

How should these objectives evolve over 

time so the rating system rewards 

continual improvement and innovation 

on the part of MA organizations? 

Comment: Several commenters raised 

concern that the 5 star rating system for 

Plan Ratings is moving away from 

clinical measures and more towards 

regulatory compliance measures. 

Specifically, it was noted that the star 

rating system should be an appropriate 

mix of measures with an emphasis on 

giving greater weight to clinical or 

outcome measures that better reflect 

health outcomes. Another commenter 

was concerned that Part D measures 

inordinately weight the Part C and D 

summary calculations; the commenter 

suggested that CMS weight Part C and 

D measures based on the contribution 

towards health care quality. 

One commenter encouraged CMS to 

consider new and revised metrics that 

focus more on patient care and 

experiences and less on administrative 

segments. Items listed that should 

receive priority include patient safety 

and reduction in preventable medical 

errors, hospital infections and readmissions, to name a few. This 

commenter wants CMS to provide 

opportunities to comment on proposed 

measures on an annual basis. One 

commenter suggested that CMS refrain 

from adding additional measures to the 

star rating system at this time and 

recommended that CMS continue to rely 


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upon the existing indicators to allow 

plans to focus improvement efforts 

accordingly. Another commenter stated 

that many of the evaluation measures in 

the Staying Healthy domain focus on 

early detection instead of primary 

prevention. Also, this commenter 

suggested that measures should be used 

that emphasize patient safety and 

efficiency of care, consistent with the 

IOM’s Crossing the Quality Chasm 

report. 

Response: We are committed to 

continuing to improve the Part C and D 

quality performance measurement 

system to increase focus on improving 

beneficiary outcomes, beneficiary 

satisfaction, population health, and 

efficiency of health care delivery. To 

that end, CMS has been working on 

developing a more robust system to 

measure quality and performance of Part 

C and D contracts. As new measures are 

developed and adopted, they will be 

incorporated into the Plan Ratings 

published each year on the Medicare 

Plan Finder Web site. 

We view the MA quality bonuses also 

referred to as value-based payments as 

an important step to revamping how 

care and services are paid for, moving 

increasingly toward rewarding better 

value, outcomes, and innovations. As 

we add measures to the Plan Ratings 

over time, we will consider the 

following principles: 

• Public reporting and value-based 

payment systems should rely on a mix 

of standards, process, outcomes, and 

patient experience measures, including 

measures of care transitions and 

changes in patient functional status. 

Across all programs, we seek to move as 

quickly as possible to the use of 

primarily outcome and patient 

experience measures. To the extent 

practicable and appropriate, outcomes 

and patient experience measures should 

be adjusted for risk or other appropriate 

patient population or provider 

characteristics. 

• To the extent possible and 

recognizing differences in payment 

system maturity and statutory 

authorities, measures should be aligned 

across Medicare’s and Medicaid’s public 

reporting and payment systems. We 

seek to evolve to a focused core-set of 

measures appropriate to the specific 

provider category that reflects the level 

of care and the most important areas of 

service and measures for that provider. 

• The collection of information 

should minimize the burden on 

providers to the extent possible. As part 

of that effort, we will continuously seek 

to align its measures with the adoption 

of meaningful use standards for health 

information technology, so the 

collection of performance information is 

part of care delivery. 

• To the extent practicable, measures 

used by CMS should be nationally 

endorsed by a multi-stakeholder 

organization. Measures should be 

aligned with best practices among other 

payers and the needs of the end users 

of the measures. Our strategy is to 

continue to adopt measures that are 

nationally endorsed and are in 

alignment with the private sector as we 

do today through the use of measures 

developed by NCQA and the Pharmacy 

Quality Alliance (PQA), and the use of 

measures that are endorsed by NQF. 

As we modify the calculation 

approaches for the Plan Ratings, we are 

incorporating the following principles: 

• Contracts should be scored on their 

overall achievement relative to national 

or other appropriate benchmarks. In 

addition, scoring methodologies should 

consider improvement as an 

independent goal. 

• Measures or measurement domains 

need not be given equal weight, but over 

time, scoring methodologies should be 

more weighted towards outcome, 

patient experience and functional status 

measures. 

• Scoring methodologies should be 

reliable, as straightforward as possible, 

and stable over time and enable 

consumers, providers, and payers to 

make meaningful distinctions among 

providers’ performance. 

A high priority for the 2012 Plan 

Ratings is to weight the outcome and 

clinical measures more than 

performance measures such as call 

center measures. This change would 

limit the impact of performance 

measures as well as create more 

incentives for MA plans to improve 

their outcome measures. Additionally, 

we are exploring incorporating 

additional measures focusing on health 

outcomes in the Plan Ratings. Potential 

outcome measures currently under 

consideration for incorporation into the 

Plan Ratings include: all-cause 

readmission rates and MA mortality 

rates. We will provide opportunities for 

comment on proposed measures 

annually through the draft Call Letter. 

We believe that the current set of 

quality measures are not driving quality 

improvement as much as they could be. 

Many of the existing measures have 

been collected and reported to CMS for 

more than 10 years, such as HEDIS®, 

HOS, and CAHPS, so plans have had 

ample opportunity to focus on quality 

improvement. Given the increased focus 

on the star ratings, we are reevaluating 

the set of measures included in the star 

ratings. 

In determining whether additional 

measures will be added to the star rating 

system, we will consider the value of 

the proposed measure in improving the 

star ratings and how it supports the 

IOM’s six aims. These aims state that 

healthcare delivery should be safe, 

timely, effective, efficient, equitable and 

patient-centered. These aims will serve 

as a framework for selecting additional 

measures and making methodological 

enhancements to the Plan Ratings. The 

comment that new measures should 

focus on patient safety and efficiency of 

care is a good point, and one we need 

to consider in working with NCQA, 

PQA, and other consensus-building 

organizations in developing new 

measures. 

The MA quality agenda will also be 

coordinated with the national priorities 

for quality that are being set as part of 

the ACA. As the national priorities for 

quality are shaped, the MA quality 

agenda will be aligned with these 

priorities. We are working on the MA 

quality agenda and have also 

established an agency-wide Quality 

Working Group Advisory Panel. Senior 

CMS leadership has convened this 

panel to facilitate the coordination of 

the CMS quality initiatives in support of 

the development of the HHS National 

Strategy for Quality that is required by 

the ACA. This working group will 

ensure that the MA quality agenda 

aligns with other components within 

CMS and with HHS’ national goals. 

CMS’ participation in the HHS-wide 

Interagency Quality Measures 

Workgroup will also further ensure that 

MA quality measures are developed in 

a coordinated way across the 

Department. 

Accordingly, based on the preceding, 

we proposed to amend § 422.258 to add 

a new paragraph (d)(7) to reflect our 

authority to make bonus payments 

based on quality. Under § 422.252, we 

also proposed definitions of ‘‘low 

enrollment contract’’ and ‘‘new MA 

plan’’ for the purpose of identifying 

qualifying organizations eligible to 

receive a bonus payment. 

While the regulations in this section 

will implement the QBP provisions 

specified in the ACA on a permanent 

basis, for CYs 2012 through 2014, MA 

payment will be determined under the 

terms of the national QBP 

demonstration project. Details on the 

demonstration are provided on CMS’ 

Web site. During the demonstration, the 

rules for determining QBPs set forth in 

the ACA and in this final regulation will 

be waived, and QBPs will instead be 

determined under the terms of the 

demonstration. 


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Comment: We received a number of 

comments on the QBP Demonstration. 

Response: Because this rulemaking 

establishes permanent regulations 

implementing the QBP system provided 

for in the ACA, the proposed regulations 

did not reflect the terms of the QBP 

Demonstration. Information on this 

demonstration project was made 

available for comment in the Advance 

Notice of Methodological Changes for 

Calendar Year (CY) 2012 for Medicare 

Advantage (MA) Capitation Rates, Part C 

and Part D Payment Policies and 2012 

Call Letter, which was published on 

February 18, 2011. We responded to 

comments in the Announcement of 

Calendar Year (CY) 2012 Medicare 

Advantage Capitation Rates and 

Medicare Advantage and Part D 

Payment Policies and Final Call Letter, 

published on April 4, 2011. Both 

documents are available on the CMS 

Web site at: http://www.cms.gov/ 

MedicareAdvtgSpecRateStats/. 

Comment: Numerous commenters 

supported and encouraged CMS to 

develop the QBPs, including the current 

nationwide demonstration program in a 

fully transparent manner, while 

emphasizing patient-reported 

information in the star rating system. 

The commenters request information 

regarding the measures used to assess 

performance, including the method 

used to weight, score, determine cut 

points and four-star thresholds, identify 

benchmarks, and other details be fully 

disclosed to the public. Further, 

commenters recommended that CMS 

continue to include beneficiaries and 

their representatives in conversations 

regarding QBPs. 

Response: The measures used to 

assess performance for MA plans are 

derived from four sources: (1) CMS 

administrative data; (2) surveys of 

beneficiaries; (3) plan-reported data; and 

(4) CMS contractor data. For each 

contract, and each individual measure, 

CMS groups the range of actual contract 

scores for each measure into one of the 

5 star groupings and assigns a star-rating 

score based on a 5 star scale. In 

establishing individual measure star 

ratings, we consider whether the 

measure is intended to achieve a 

specified regulatory performance 

standard; if not, we examine the 

contract’s performance on a measure 

relative to all other contracts’ 

performance on the same measure. The 

segmentation of scores into groups is 

based on statistical techniques that 

minimize the distance between scores 

within a grouping and maximize the 

distance between scores in different 

groupings. Once the star rating of 1 

through 5 for each measure is known, a 

summary score for the contract is 

computed by calculating a simple 

average of the individual measure 

ratings, and adding small consistent 

bump-up amounts to the average if a 

contract demonstrates consistency in 3, 

4, or 5-star ratings among measures. 

More details on the methodology to 

calculate the star ratings are available 

through the technical notes that are 

available at http://www.cms.gov/ 

PrescriptionDrugCovGenIn/ 

06_PerformanceData.asp. The technical 

notes describe in detail how the star 

ratings are derived for each of the 

individual measures, domains, 

summary ratings, and the overall rating. 

To ensure contracts are fully aware of 

future enhancements to the Plan Ratings 

and have an opportunity to comment on 

the changes, we will include in the draft 

and final Call Letter expected changes 

in the star ratings 1 to 2 years in 

advance. We will also provide 

additional information through HPMS 

memos and presentations to the plans 

on User calls. 

Comment: Some commenters 

recommended creating a separate star 

rating system for SNPs with SNPspecific measures that more accurately 

reflect the quality of care delivered by 

SNPs. The commenters argued that this 

will place more focus on the needs of 

their targeted populations. Some 

specific suggestions were to create 

‘‘transitional star ratings’’ for SNPs until 

the current star ratings can be modified 

and to add one-half stars to SNPs that 

attain thresholds on SNP-specific 

measures. 

Response: We understand that SNPs 

would like to be rated using SNPspecific measures and would like to be 

judged using different standards to 

account for their special populations. 

We anticipate adding some SNP-specific 

measures in the 2012 Plan Ratings. As 

part of the ‘‘Advance Notice of 

Methodological Changes for Calendar 

Year (CY) 2012 for Medicare Advantage 

(MA) Capitation Rates, Part C and Part 

D Payment Policies, and 2012 Call 

Letter,’’ published on February 18, 2011, 

CMS sought comment on the feasibility 

of creating a methodology to incorporate 

SNP-specific measures into Plan 

Ratings. We are taking into 

consideration feedback we received as 

we continue to study SNP-specific 

measures. 

In terms of using different standards 

for the SNPs, we do not agree and want 

to ensure performance standards are 

consistent across all contracts. That 

said, we typically case-mix adjust 

measures when the data originate from 

beneficiary surveys and we will 

continue to determine the need for casemix adjustments of any outcome 

measures added over time. We do not 

believe a transitional system is needed 

as we are moving towards adding SNPspecific measures in the coming year. 

Comment: Some commenters 

expressed concerns about the 

appropriateness and reliability of the 

HOS data in the star rating system. One 

commenter urged CMS to work with 

health plans, providers, and patients to 

reconsider the best mix of measures for 

the star rating system. 

Response: There has been a 

published, peer-reviewed independent 

evaluation of the HOS in 2004 that 

found that it provides a rich and unique 

set of reliable data http:// 

www.hqlo.com/content/2/1/33. For all 

measures, we will continue to examine 

the quality of the data and measure 

accuracy, validity, and stability. For 

those measures that are not proven to be 

reliable and valid, we will determine 

whether they are appropriate ‘‘display 

measures,’’ which would appear on 

www.cms.gov but not be used in the 

plans’ star ratings. 

Comment: A few commenters 

recommended that the star ratings be 

made more equitable by taking 

geographic and demographic variations 

into account. One commenter 

recommended incorporating measures 

of care coordination, care transitions, 

readmissions, shared decision-making, 

health literacy, patient activation, and 

FFS/MA comparison into the star rating 

system. 

Response: As we pursue more 

outcome measures, we will ensure that 

measures are case-mix adjusted. 

Currently, measures that originate from 

beneficiary surveys are case-mix 

adjusted. CMS does not consider 

geographic differences by themselves as 

sufficient reasons for adjusting Plan 

Ratings so every state or region may 

have a 5 star plan. However, CMS is 

exploring the feasibility of adjusting for 

provider shortages, such as Health 

Professional Shortage Areas (HPSAs). 

We are also currently exploring the 

feasibility of incorporating potential 

survey measures of care coordination, 

care transitions and patient activation as 

well as an all-cause readmissions 

measure into the star rating system. In 

terms of the FFS and MA comparisons, 

we are working internally to identify 

additional FFS comparison measures. 

Comment: Several commenters 

recommended that CMS periodically 

evaluate the star rating system and the 

measures selected for inclusion in the 

star rating system in order to reflect 

ongoing evolution of measures and to 

ensure that the system is more accurate, 

consistent, and transparent. 


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Response: We strongly agree with the 

need to periodically evaluate the star 

rating system. Given the need for the 

star ratings to adapt quickly to changes 

in clinical practices and the state-of-theart in quality measurement, we plan to 

each year evaluate the measurement set. 

We will provide information in the draft 

and final Call Letters about specific 

expected changes in the star ratings 

system. 

Comment: One commenter urged 

CMS not to factor Part D measures into 

the benchmarks. They argue that since 

benchmarks are established based on 

healthcare services provided, adding 

Part D measures into the benchmarks 

will not reveal an accurate reflection of 

the contracts’ performance. 

Response: Drug services are part of 

the continuum of care provided by MA 

organizations so are included in the 

overall rating. 

Comment: A few comments expressed 

concern about how Medicare Cost 

contract organizations that convert to 

MA contracts will be treated for star 

rating and QBP purposes. It was 

suggested that instead of treating such 

converted organizations like other new 

MA organizations, CMS should 

recognize the star rating track record the 

organization earned as a Medicare Cost 

contractor and use this rating as the 

basis for the QBP until the converted 

organization can generate an MA track 

record. 

Response: The contract number of a 

Medicare Cost contract which converts 

to an MA organization does not change. 

Since these cost contracts are required 

to collect and report the same data as 

MA contracts, they should have the data 

needed to continue to receive a star 

rating. The only difference is that they 

will be included in the list of contracts 

that receive a QBP rating because of 

their new organization type designation. 

Comment: One commenter supported 

the implementation of enhanced, highquality Medication Therapy 

Management (MTM) programs as a 

component of the quality rating system. 

Response: For the 2013 Plan Ratings, 

we are developing MTM-specific 

measures. 

Comment: A commenter asked for an 

explanation of the rationale for a new 

and small plan receiving enhanced 

payments prior to proving that 

corresponding level of performance. 

Response: Under the ACA, the 

Secretary is required to consider a low 

enrollment contract that does not have 

sufficient data to compute a quality 

rating to be a ‘‘qualifying plan’’ and 

receive the QBP and that a new MA 

plan, defined as a plan offered by an 

organization or sponsor that has not had 

an MA contract in the prior 3-year 

period, would qualify for the QBP. 

Comment: One commenter expressed 

concern that HEDIS® specifications for 

certain measures are inappropriate, 

irrelevant, potentially harmful and/or 

not validated by medical literature. For 

example, self-reported measures when 

the beneficiary is cognitively impaired 

or mentally ill were noted. 

Response: Each HEDIS® measure does 

have specific exclusions relevant for 

that measure that NCQA has determined 

by the standards of care for that 

condition and each measure has gone 

through rigorous clinical review. 

Additionally, proxy respondents are 

allowed for the beneficiary surveys. 

More information about HEDIS®

specifications can be found in the 

HEDIS® 2011 Technical Specifications, 

Volume 2. 

Comment: One commenter questioned 

whether Plan D sponsors are rated using 

old data that may not be statistically 

accurate. 

Response: We use the most recent 

data available in updating each 

measure. These data represent the best 

available measures of a plan’s 

performance or quality of care. Some of 

the data we collect are based on 

statistical sampling. When samples are 

used, the sample sizes are chosen to 

ensure that we produce reliable 

estimates of true performance. 

Comment: A few commenters stated 

that Part D plans achieve very different 

star ratings for identical services that are 

performed by the same Pharmacy 

Benefits Manager (PBM). 

Response: The star ratings assigned to 

each contract are based on the service or 

performance in the specific measures, 

and therefore may differ across contracts 

associated with the same PBM or other 

entity. For example, the measures 

within the Drug Pricing and Patient 

Safety domain utilize each contract’s 

enrollees’ prescription drug event (PDE) 

data; this is separate and independent of 

a PBM’s function as a Pharmacy & 

Therapeutics (P&T) committee, claims 

adjudicator, or exceptions/appeals 

processor for multiple Part D contracts. 

Enrollees’ utilization patterns differ 

among contracts, thus the resulting star 

ratings for contracts will differ. 

Comment: One commenter was 

concerned that the demonstration 

project would award low performing 

contract a QBP. The same commenter 

asked if the weighting can produce 

anomalous results. 

Response: The demonstration project 

builds on the QBPs authorized in the 

ACA by providing stronger incentives 

for contracts to improve their 

performance thereby accelerating 

quality improvements during the 3-year 

period of the demonstration. Since the 

star ratings we are using for QBPs are 

the overall rating which combines both 

Part C and D measures, there are some 

contracts that have done poorly in Part 

C or Part D for each of the past 3 years 

(2.5 stars or below), but their overall 

rating was a 3. In most cases the Part D 

measures brought up the overall 

summary rating to a 3. This is an issue 

for the demonstration, but not for the 

ongoing QBP program since contracts 

after the demonstration will not receive 

a bonus if they have 3 stars. As changes 

are made in the weighting of clinical 

and outcome measures, these anomalies 

are likely to lessen. 

Comment: One commenter suggested 

that CMS develop outcome measures 

relevant to Program of All-Inclusive 

Care for the Elderly (PACE) and institute 

QBPs for PACE programs. 

Response: PACE programs are not MA 

plans and according to statute do not 

qualify for QBPs. 

After consideration of the public 

comments we received, we are 

finalizing § 422.258(d) as proposed. 

d. Beneficiary Rebates (§ 422.266) 

The final rule for calculation of 

beneficiary rebates implements section 

3202(b)(1) of the ACA, which reduces 

the amount of beneficiary rebate, and 

ties the level of rebate to a plan’s star 

rating for quality of performance. 

Section 3202(b)(1) of the ACA 

changes the share of savings that MA 

plans must provide to enrollees as the 

beneficiary rebate specified at 

§ 422.266(a). Specifically, this provision 

mandates that the level of rebate is tied 

to the level of a plan’s star rating for 

quality of performance. Under the new 

provisions, the highest possible rebate, 

for plans with a 4.5 star rating or higher, 

is set at 70 percent of the average per 

capita savings. The rebate is reduced 

further for plans with lower star ratings 

for a year. These new provisions are 

phased-in from 2012 through 2014. The 

demonstration project mentioned in 

section II.B.20.(c). of this final rule will 

not affect the rebate percentages 

associated with a particular star rating, 

under the terms of the ACA. 

We revised § 422.266 by first 

redesignating paragraph (a) as paragraph 

(a)(1), and amending it to apply to years 

2006 through 2011. We further added 

paragraph (a)(2), which sets forth the 

rebate determination rules for 2012 and 

subsequent years. Section 

422.266(a)(2)(ii) states that for 2014 and 

subsequent years, the final applicable 

rebate percentage (the percentage 

applied to the savings amount to 

determine the rebate amount) is 70 


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percent in the case of a plan with a 

quality rating under such system of at 

least 4.5 stars; 65 percent in the case of 

a plan with a quality rating of at least 

3.5 stars and less than 4.5 stars; and 50 

percent in the case of a plan with a 

quality rating of less than 3.5 stars. 

Section 422.266(a)(2)(i) describes the 

transition period during which the old 

75 percent rule at paragraph (a)(1) will 

be phased-out and the (a)(2)(ii) rules 

phased in. For 2012, the rebate 

percentage equals the sum of: two-thirds 

of the old proportion of 75 percent of 

the average per capita savings; and onethird of the new proportion assigned the 

plan or contract under paragraph (ii), 

based on the plan’s star rating for the 

year. For 2013, the rebate percentage 

equals the sum of: 1⁄3 of the old 

proportion of 75 percent of the average 

per capita savings; and two-thirds of the 

new proportion assigned the plan or 

contract based on the plan’s star rating 

for the year. 

Section 422.266(a)(2)(iii) describes the 

rules for low enrollment contracts. For 

2012, the ACA requires that low 

enrollment contracts shall be treated as 

having a rating of 4.5 stars for the 

purpose of determining the beneficiary 

rebate amount. Section 422.266(a)(2)(iii) 

describes the rules for new MA plans. 

For 2012 or a subsequent years, a new 

MA plan defined at § 422.252 that meets 

the criteria specified by us for purposes 

of § 422.258(d)(7)(v) must be treated as 

a qualifying plan under paragraph (7)(i), 

except that plan must be treated as 

having a rating of 3.5 stars for purposes 

of determining the beneficiary rebate 

amount. 

Comment: One commenter 

recommended that CMS allow part of 

the bonus to be reinvested into the 

carrier’s quality program. 

Response: The rebate amount must be 

credited to one of the uses described in 

section 1854(b)(1)(C) of the Act, as 

described in the Advance Notice of 

Methodological Changes for Calendar 

Year (CY) 2012 for Medicare Advantage 

(MA) Capitation Rates, Part C and Part 

D Payment Policies and 2012 Call 

Letter, published on February 18, 2011 

and the Announcement of Calendar 

Year (CY) 2012 Medicare Advantage 

Capitation Rates and Medicare 

Advantage and Part D Payment Policies 

and Final Call Letter, published on 

April 4, 2011. These documents are 

available on the CMS Web site at: 

http://www.cms.gov/ 

MedicareAdvtgSpecRateStats/. Quality 

improvement program costs are 

legitimate administrative costs and can 

be added as such to the plan’s bid. 

Comment: One commenter urged 

CMS to analyze the effect of rebate 

reduction on duals. The commenter 

believes that since the quality metrics 

are not scaled in any way by the risk of 

the population, beneficiaries in plans 

with high concentrations of complex 

needs will see a downward trend of 

available benefits. 

Response: We will consider analyzing 

the effect of rebate reduction on duals. 

However, as stated previously, the 

statute at 1854(b)(1)(C) explicitly sets 

out the savings that MA plans can 

provide and star rating that the rebate is 

tied to. Any change to this formulation 

would require Congressional action. 

We are finalizing this provision 

without modification. We are also 

adopting § 422.266 as proposed in this 

final rule. 

21. Quality Bonus Payment and Rebate 

Retention Appeals (§ 422.260) 

As noted in the proposed rule, while 

the ACA provisions establishing the 

QBP system do not specify a process for 

requesting an administrative review of 

the star ratings, historically, we have 

made an administrative review process 

available to MA organizations for 

certain payment determinations. 

Pursuant to our statutory authority to 

establish MA program standards under 

section 1856(b)(1) of the Act, we 

proposed to implement a process 

through which MA organizations may 

request an administrative review of their 

star rating (‘‘QBP status’’) for QBP 

determinations. We proposed that this 

review process would also apply to the 

determinations made by us where the 

organization’s Plan Rating sets its QBP 

status at ineligible for rebate retention. 

For calendar years 2012 through 2014, 

we proposed that QBP payments would 

be awarded under the terms of a 

demonstration project; thus, we 

proposed these regulations would not 

take effect until after the demonstration 

project has terminated. We requested 

comment regarding our proposal to 

delay the effective date of the appeals 

process set forth in this final rule until 

after the end of the demonstration. 

We received no comments on this 

specific proposal; however, based on 

other comments regarding the appeals 

process we are aligning the appeals 

process in the regulation with the 

administration review process that will 

be used under the demonstration 

project. 

While we proposed to reserve the 

right to use the same star rating that 

applies to the Plan Rating for QBP 

determinations, we will provide MA 

organizations notice each year regarding 

their QBP status. QBP determinations 

would be considered made, subject to 

the appeal rights described in this 

section, when the notice of QBP status 

is released. We proposed MA 

organizations would have 5 calendar 

days from the date of CMS’ release of 

QBP determinations to request from 

CMS a technical report explaining the 

development of their QBP status. As 

stated in the proposed rule, if, after 

reviewing the technical report, the MA 

organization believes that we were 

incorrect in its QBP determination, the 

MA organization may request an appeal 

to be conducted by a hearing officer 

designated by CMS. The organization 

would be required to make such a 

request within 7 calendar days of the 

MA organization’s confirmed receipt of 

the technical report. We proposed the 

scope of the hearing would be limited 

to challenges of CMS’ application of its 

QBP determination methodology to the 

appealing MA organization and, in very 

limited instances, the accuracy of the 

data we used to make the QBP 

determination. As a result, the appeals 

process would not be used as a means 

to challenge the validity of the adopted 

methodology. We also proposed limiting 

the scope of the hearing officer’s 

consideration to data sets that have not 

been previously subject to independent 

validation. We solicited comments on 

whether this is an appropriate limitation 

on the scope of a QBP status appeal. 

Comment: One commenter would like 

to be able to appeal audited data. 

Response: The auditor and contract 

work together throughout the entire 

audit. Any questions about the data or 

the auditor’s assessment of the plan are 

discussed and documented during the 

audit, and all resolutions are 

documented. A contract should raise 

any concerns with respect to audited 

data during their audit process. HEDIS® 

audits, for example, ensure accurate, 

reliable and publicly reportable data. 

For this reason, NCQA encourages the 

organization to collect data 

simultaneously with the audit. A 

concurrent audit lets the auditor detect 

errors in the organization’s data 

collection process while there is time 

for the organization to correct its 

methods and minimize the possibility of 

Not Reportable rates. 

As provided in the proposed rule, the 

hearing officer’s decision would be final 

and binding on both the MA 

organization and CMS. In the event that 

the hearing officer finds that CMS’ QBP 

determination was incorrect, we would 

be obligated to recalculate the 

organization’s QBP status based on the 

hearing officer’s findings. We proposed 

to maintain the right to revise an MA 

organization’s QBP status at any time 

after the initial release of the QBP 

determinations through May 15 of each 


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year. We indicated that we may take this 

action on the basis of any credible 

information, including the technical 

report issued pursuant to the process 

identified here, which demonstrates that 

the initial QBP determination was 

incorrect. We are revising the date that 

CMS may, on its own initiative, revise 

an MA organization’s QBP status after 

the initial release of the QBP 

determinations. While changes may 

occur after this date based on appeals of 

QBP status, CMS, on its own initiative, 

will only have through April 1 of each 

year to make changes to an MA 

organization’s QBP status. This change 

will afford MA organizations more time 

to incorporate their QBP status into 

their plan bids, due to us by the first 

Monday in June. Additionally, we did 

not propose another level of 

administrative review beyond the 

hearing officer. We solicited comment 

on the need for an independent 

contractor-level review prior to an 

appeal to be conducted by a hearing 

officer designated by CMS or an 

Administrator-level review. 

Comment: One commenter 

recommended that CMS have a threelevel appeals process to ensure contracts 

have a robust mechanism to appeal 

(such as, Level 1 would be a request for 

reconsideration, Level 2 would be a 

request for a hearing, and Level 3 would 

be a request for CMS Administrator 

review). Another commenter 

recommended a second level of appeal 

for QBP determinations. 

Response: Based on these comments, 

we are strengthening the administrative 

review process for MA organizations 

that appeal their star ratings for QBP. 

We are aligning the process in the 

regulation with the process used during 

the demonstration. We will modify 

§ 422.260(d) to create a two-step 

administrative review process that 

includes a request for reconsideration 

and a request for an informal hearing on 

the record. MA organizations will no 

longer be requesting a technical report 

from CMS detailing the data and 

measures used to determine the QBP; 

however, as part of the reconsideration 

determination, MA organizations will 

receive information about how their star 

rating for the given measure in question 

was calculated and/or what data was 

included in the measure. The MA 

organization may appeal the 

reconsideration official’s decision 

regarding its QBP status by requesting 

an informal hearing. The informal 

hearing will be conducted by a CMS 

hearing officer on the record. 

Comment: A number of commenters 

requested more than 5 calendar days to 

submit a request for a technical report 

and additional days to request the 

appeal. Some commenters requested 

extension of the 5 calendar day window 

to 7 to 15 days, with clarification of 

calendar or business days. 

Response: The timeframes are tight 

given we want to resolve any issues 

prior to contracts submitting their bids 

to CMS. However, in order to be 

responsive to this concern, we are 

revising the timeframes. MA 

organizations will have 10 business 

days from the time we issue the notice 

of QBP status to submit a request for 

reconsideration. MA organizations will 

have 10 business days after the issuance 

of the reconsideration determination to 

request an informal hearing on the 

record. 

Comment: One commenter expressed 

concern that the appeals process is not 

fully transparent. 

Response: The appeals process is 

outlined in this regulation. Also, each 

year MA contracts will receive 

additional details through HPMS 

memos about the timing for submitting 

an appeal. 

Comment: A few commenters 

requested that CMS send technical 

reports to all contracts, without them 

having to request one. 

Response: The technical notes 

published at http://www.cms.gov/ 

PrescriptionDrugCovGenIn/ 

06_PerformanceData.asp have detailed 

information about how each of the star 

ratings is calculated. Also, contracts 

may request information about how 

their scores were calculated at any time 

by e-mailing CMS at 

PartCratings@cms.hhs.gov. 

Comment: A commenter requested 

that Medicare Cost contracts be 

permitted to submit requests for 

Technical Reports and have appeal 

rights. 

Response: Medicare Cost contracts 

may request any additional information 

during the plan preview for Plan Ratings 

or at any time by e-mailing CMS at 

PartCratings@cms.hhs.gov. The appeals 

rights under this regulation are related 

to using the star ratings for payment for 

QBPs. Medicare cost contracts are not 

eligible for QBPs since they are not 

considered MA contracts. 

Based on the comments, we are 

revising the proposed § 422.260(c) and 

§ 422.260(d) to create a two-step 

administrative review process that 

includes a request for reconsideration 

and a request for an informal hearing on 

the record. We are also extending the 

timeframes for requests. 

C. Clarify Various Program Participation 

Requirements 

The provisions in this section of the 

final rule clarify existing regulations or 

implement new requirements consistent 

with existing policy guidance to assist 

sponsoring organizations with attaining 

the goals of the Medicare Advantage and 

Prescription Drug Benefit programs. 

These clarifications are detailed in 

Table 5. 

BILLING CODE 4120–01–P 


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BILLING CODE 4120–01–C 

1. Clarify Payment Rules for NonContract Providers (§ 422.214) 

In our November 2010 proposed rule 

(75 FR 71223), we proposed adding a 

new paragraph (c) to § 422.214 to clarify 

that a request for payment from an MA 

organization by a non-contracted 

provider who is paid using a 

prospective payment system (PPS) 

methodology under Original Medicare is 

deemed to be a request to be paid at the 

Original Medicare payment rate unless 

the provider has notified the MA 

organization in writing that it wishes to 

bill less than the Original Medicare 

payment amount. We proposed this 

provision to codify the guidance for 

plans and out-of-network providers in 

CMS’ Out-of-Network Payment Guide 

released February 25, 2010. This 

guidance, which was responsive to 

questions we had received about this 

issue, reflects CMS’ longstanding policy 

that if a non-network facility such as a 

hospital, skilled nursing facility, or 

home health agency renders services 

which were not arranged by the plan, a 

non-private-fee-for-service MA 

organization may pay the lesser of the 

Original Medicare amount or a lower 

billed amount if it is clear that the 

provider is billing for less than the 

Original Medicare rate. The guidance 

also clarified that when a provider of 

services that is paid under a PPS system 

under Original Medicare submits the 

same information to an MA organization 

that it would submit to Original 

Medicare for the services in question, 

this should be considered a bill for the 

PPS amount (and not the ‘‘billed’’ or 

‘‘charge’’ amount from the claim) that 

Original Medicare would pay in the case 

of the same submission. 

We also proposed adding a new 

paragraph (d) to § 422.214 to clarify that 

an MA organization offering a regional 

PPO MA plan must always pay noncontracted providers at least the 

Original Medicare payment rate in those 


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portions of its service area where it is 

meeting access requirements by nonnetwork means under § 422.111(b)(3)(ii). 

This is consistent with the Medicare 

access requirements at section 

1852(a)(2)(A) of the Act—which specify 

that an MA plan may meet access 

requirements if it pays providers at the 

Original Medicare payment rate. 

After considering the comments 

received, we are finalizing these 

provisions as proposed. 

Comment: One commenter asked 

CMS to clarify that our proposed policy 

that a non-contracted provider’s request 

for payment be deemed to be a request 

for the Original Medicare payment rate, 

unless the provider expressly notifies 

the MA organization in writing that it is 

billing a lesser amount, does not 

preclude health plans from negotiating 

payment terms with contracted 

providers. Another commenter 

requested clarification that MA plans 

can negotiate payment terms with 

providers for more than Original 

Medicare rates. Another commenter 

recommended that our proposed policy 

be applied in the Medicaid program 

such that non-contracted provider 

payments are limited to no more than 

what the provider would receive under 

the State’s Medicaid fee-for-service 

program. 

Response: Our proposed policy does 

not preclude MA plans from negotiating 

payment terms with providers. It 

implements section 1866(a)(1)(O) of the 

Act, which applies only where no 

agreement on payment levels is in place. 

Extending our proposed policy to the 

Medicaid program would be beyond the 

scope of this regulation, which only 

addressed payments to non-contracted 

providers for Medicare services 

provided to MA enrollees. 

2. Pharmacist Definition (§ 423.4) 

Pursuant to our authority under 

section 1860D–4(b)(3)(A)(i) and 1860D– 

4(c)(2)(A)(i) of the Act, we proposed to 

codify our understanding that, for 

purposes of the Part D program, a 

pharmacist is an individual with a 

current, valid license to practice 

pharmacy issued by the appropriate 

regulatory authority of any of the states 

or territories of the United States or the 

District of Columbia (DC) (collectively 

referred to as United States authorities). 

We proposed adding a definition for the 

word pharmacist to § 423.4 in Subpart A 

to reflect this understanding. 

The change was prompted by recent 

Medicare Part D sponsor audit findings 

in which we found that at least some 

Part D sponsors were relying on 

pharmacists not licensed by United 

States authorities to make clinical 

judgments associated with the 

administration of the Part D benefit. As 

Medicare provides coverage for services 

throughout the United States, 

beneficiaries should be able to expect 

that individuals making clinical 

decisions related to their access to 

pharmaceuticals are experts in United 

States pharmaceutical practice. 

Requiring pharmacists to be licensed by 

United States authorities will help 

guarantee that Part D sponsors meet 

these expectations. 

Comment: CMS received support for 

codifying this definition from numerous 

pharmacy associations, industry, and 

patient/beneficiary advocacy 

organizations. 

Response: We agree with these 

commenters and appreciate the 

widespread stakeholder support for this 

definition. We received only supportive 

comments for this proposal; therefore, 

we are finalizing this provision without 

modification. 

3. Prohibition on Part C and Part D 

Program Participation by Organizations 

Whose Owners, Directors, or 

Management Employees Served in a 

Similar Capacity With Another 

Organization That Terminated Its 

Medicare Contract Within the Previous 

2 Years (§ 422.506, § 422.508, § 422.512, 

§ 423.507, § 423.508, and § 423.510) 

In the April 2010 final rule (75 FR 

19678), we modified § 423.508 by 

adding two paragraphs stating that: (1) 

As a condition precedent to CMS’ 

consent to a mutual termination, CMS 

requires language in the termination 

agreement prohibiting the sponsor from 

applying for new contracts or service 

area expansions for a period of up to 2 

years absent special circumstances 

warranting special consideration; and 

(2) that as a necessary condition to 

contract as a Part D sponsor, an 

organization must not have terminated a 

contract by mutual consent within the 2 

years preceding the application. Similar 

modifications were made for the MA 

regulations at § 422.508. These changes 

ensured consistency across all situations 

in which a sponsor elects— through 

non-renewal, termination, or mutual 

termination— to discontinue its 

participation in the Part C or Part D 

programs. 

In the proposed rule, we proposed to 

amend the 2-year new contract 

prohibition in both § 422.508 and 

§ 423.508 by adding a new paragraph 

entitled ‘‘Prohibition against Part C [and 

Part D] program participation by 

organizations whose owners, directors, 

or management employees served in a 

similar capacity with another 

organization that terminated its 

Medicare contract within the previous 2 

years.’’ We also proposed similar 

clarifying language to the existing 

language at § 422.506, § 422.512, 

423.508, and § 423.510. We stated our 

belief that to carry out the intentions of 

the 2-year exclusion we would need to 

ensure that new contracting 

organizations are not actually 

repackaged versions of the same 

organizations that elected to discontinue 

their participation in the Part C and Part 

D programs. Therefore, we proposed to 

implement a requirement which would 

allow us to determine whether the 

primary players in the organization 

submitting the new application are the 

same as those in an organization that 

has recently non-renewed, terminated, 

or mutually terminated a Medicare 

contract. 

We noted that the proposed 

requirement would assist CMS in 

prohibiting and preventing such 

organizations from gaming the Medicare 

program by reapplying for a contract as 

a new organization during the 2-year 

ban, when the applying organization has 

common ownership and management 

control. This proposed requirement 

would help to ensure that the provisions 

of the 2-year application prohibition are 

given full effect. 

Therefore, we proposed that the 2- 

year ban on new Part C or Part D 

sponsor contracts to which nonrenewing, terminating, or mutually 

terminating organizations are currently 

subject under the regulation be 

expanded to include organizations 

owned or managed by an individual 

(referred to as a covered person) who 

served in a similar capacity for a 

previously terminated or non-renewed 

Part C or Part D organization. To 

implement this provision, we proposed 

to require as part of the contract 

application process, that applicants 

supply CMS with full and complete 

information as to the identity of each 

covered person associated with the 

organization. In the proposed rule we 

defined covered persons to include— 

• All owners of applicant 

organizations who are natural persons 

(other than shareholders who: (1) Have 

an ownership interest of less than 5 

percent; and (2) acquired the ownership 

interest through public trading). In 

addition, is a natural person who is an 

owner in whole or part interest in any 

mortgage, deed of trust, note or other 

obligation secured (in whole or in part) 

by the entity or any of the property 

assets thereof, which whole or part 

interest is equal to or exceeds 5 percent 

of the total property, and assets of the 

entity; or 


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• An officer or member of the board 

of directors or board of trustees of the 

entity, if the entity is organized as a 

corporation. 

We solicited comments on whether 

plan sponsors, or other stakeholders 

consider the definition of 5 percent or 

more as truly representing current 

market conditions. We requested 

comment on this section because we do 

not want to arbitrarily decide on the 

percentage of interest the previously 

mentioned persons could have in an 

organization, especially if this 

percentage does not reflect standard 

business practices. 

We proposed to amend § 422.508 and 

§ 423.507 to make the 2-year exclusion 

applicable to organizations for which 

any covered persons were also covered 

persons for the excluded organization. 

We also proposed to make similar 

amendments to § 422.506, § 422.512, 

§ 423.508, and § 423.510. 

Comment: Several commenters stated 

that the definition of covered persons 

was too broad, and that it should not 

encompass senior executives of the 

excluded organization. They noted that 

in many instances, these executives 

were not responsible for the 

organization’s decision to terminate or 

non-renew a Medicare contract, but 

were simply honoring their fiduciary 

duty to carry out the instructions of the 

sponsor’s ownership. The regulation as 

proposed would unfairly limit the 

opportunities for these senior executives 

to obtain employment with other 

Medicare Advantage organizations or 

PDP sponsors as those employers may 

not want limit their ability to apply for 

new Medicare business by hiring such 

individuals. Also, the proposed 

language may also prompt senior 

executives to seek other employment 

when Medicare contract termination or 

non-renewal is even discussed within 

their organization to ensure that they 

preserve their eligibility for employment 

with the broadest possible range of other 

Medicare Advantage organizations or 

PDP sponsors. 

Response: We agree that the definition 

of covered person, as proposed, is too 

broad. CMS’ intention in drafting the 

provision was to make certain that 

organizations subject to the two-year 

application prohibition did not evade 

the restriction by simply forming a new 

corporation. Based on these comments, 

we have further clarified our thinking to 

conclude that the focus of the restriction 

should be on those individuals with 

absolute responsibility for control of 

and an ownership stake in the business 

decisions of the terminating and nonrenewing sponsors—the owners of more 

than 5 percent of the shares of the 

sponsor and the members of the board 

of directors. Therefore, we have decided 

to modify the definition of covered 

person to delete the term ‘‘officer * * * 

of the entity’’ in the final rule. 

Comment: One organization 

commented that the inclusion of 

individuals who own less than 5 

percent of the total number of shares of 

a sponsor’s stock acquired other than 

through public trading in the definition 

of covered person was unnecessarily 

broad and would unfairly include 

individuals who receive shares through 

an organization’s employee stock 

ownership program. 

Response: This comment is based in 

part on a typographical error in the 

proposed rule as published at 

§ 422.506(a)(5)(i)(A), § 422.508(d)(1)(i), 

and § 422.512(e)(2)(i)(A). We intended 

for the prohibition to apply to 

individuals who own more than 5 

percent of the shares of the sponsoring 

organization. However, in some parts of 

the proposed rule, the standard was 

mistakenly stated as less than 5 percent. 

In the final rule, we have corrected the 

error to make more than 5 percent the 

standard for stock ownership. Also, we 

acknowledge that making a distinction 

between stock shares obtained through 

public trading and shares obtained 

through all other means, as we 

proposed, would create an irrelevant 

and confusing distinction. This 

proposed provision was intended to 

restrict the ability to resume 

participation in the Medicare Advantage 

and Part D programs of individuals who 

could exercise control over a 

terminating or non-renewing 

organization through their ownership of 

a significant portion of the organization. 

We believe the level of an individual’s 

control is established by the percentage 

of shares owned, not by the source of 

those shares. Therefore, we are also 

modifying the proposed rule to delete 

the language excluding shareholders 

who acquired their stock through public 

trading from classification as covered 

persons. 

Comment: One organization 

expressed its concern that the inclusion 

of members of a terminating or nonrenewing sponsor’s board of directors in 

the definition of covered person would 

unfairly restrict organizations with 

overlapping board membership from 

eligibility to submit applications. The 

commenter noted that this could be a 

problem especially for subsidiaries of 

the same parent organization where this 

kind of arrangement is common. 

Response: We believe that the 

arrangement the commenter described 

represents one of the situations we 

intended to address through this 

regulatory change. In drafting this 

provision, we are trying to make certain 

that the parties that were responsible for 

a decision to terminate or non-renew a 

Part C or D sponsor contract do not 

subvert the 2-year application 

prohibition by submitting a new 

application through the use of a 

different legal entity over which they 

similarly exert control. As the 

commenter has not presented a 

justification as to why an organization 

controlled by many or all of the same 

individuals who controlled a 

terminating or non-renewing 

organization should not be subject to the 

two-year application ban, we are making 

no change in the final rule to reflect this 

comment. 

Comment: Two commenters asked 

that we clarify whether the new 

provision concerning covered 

individuals will apply to terminations 

only at the plan benefit package (PBP) 

level. 

Response: The regulation change we 

make here is intended simply to define 

which individuals related to an 

organization already determined to be 

subject to the 2-year application 

restriction may cause a second 

organization to be similarly restricted 

when it has the same relationship with 

those individuals. The methodology 

CMS uses to determine whether 

organizations are subject to the two-year 

application restriction is outside the 

scope of the proposed regulatory 

change. 

In summary, we received several 

comments on this proposal. In response 

to the comments opposing the inclusion 

of a contracting organization’s senior 

management in the definition of a 

covered person, we have deleted the 

reference to officer from 

§ 422.506(a)(5)(iii), § 422.508(d)(3), 

§ 422.512(e)(2)(iii), § 423.507(a)(4)(iii), 

§ 423.508(f)(3), and § 423.510(e)(2)(iii). 

Also, in response to the comments 

opposing the inclusion in the definition 

of covered person owners of small 

amounts of stock acquired other than 

through public trading, we deleted the 

phrase ‘‘acquired the ownership through 

public trading’’ from the proposed 

§ 422.506(a)(5)(i)(B), § 422.508(d)(1)(ii), 

§ 422.512(e)(2)(i)(B), 

§ 423.507(a)(4)(i)(B), § 423.508(f)(1)(ii), 

and § 423.510(e)(2)(i)(B). We also 

corrected our typographical errors by 

replacing the statement ‘‘more than 5 

percent with less than 5 percent’’ at the 

proposed § 422.506(a)(5)(i)(A), 

§ 422.508(d)(1)(i), and 

§ 422.512(e)(2)(i)(A), as we intended 

only to exclude from the definition of 

covered persons individuals whose 

ownership stake is less than 5 percent. 


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We received no responses to our request 

for comments concerning whether the 

use of the 5 percent ownership 

threshold for covered persons reflected 

current marketing conditions or 

standard business practices and have 

therefore otherwise made final this 

provision of the proposed rule. 

4. Timely Transfer of Data and Files 

When CMS Terminates a Contract With 

a Part D Sponsor (§ 423.509) 

Federal regulations at § 423.509(a) (1) 

through (a) (12) clearly define the 

circumstances under which we have the 

authority to terminate a Part D sponsor’s 

contract. When we terminate a contract, 

we must have assurances that the 

terminated Part D sponsor will maintain 

sufficient staff and operations to make a 

smooth transition of the sponsor’s 

enrollees to new Part D coverage in a 

fashion that facilitates continuity of care 

and fiscal responsibility. These 

responsibilities include providing 

timely documentation requested by 

CMS, retaining all documents for the 

periods specified in the Federal laws 

and CMS regulations (see § 423.505(d) 

and (e)) and otherwise providing the 

resources necessary for an orderly 

transition of Medicare beneficiaries to 

their newly assigned or selected plan. 

In order for a timely and orderly 

transition to occur, the terminated Part 

D sponsor must provide us with certain 

critical Medicare beneficiary data 

including information to identify each 

affected beneficiary, pharmacy claims 

files, true out-of-pocket (TrOOP) cost 

balances, and information concerning 

pending grievances and appeals. Data 

such as TrOOP balances are necessary to 

place the beneficiary in the correct drug 

benefit phase and provide the 

catastrophic level of coverage at the 

appropriate time. 

The requirement to provide such data 

and files is already clearly articulated 

for voluntarily non-renewing Part D 

plan sponsors (§ 423.507(a) (4)); for 

contracts terminated by mutual consent 

(§ 423.508(d)); and for contracts 

terminated by the plan sponsor for 

cause (§ 423.510(f)). However, the 

regulation is currently silent regarding 

contracts terminated by CMS. Therefore, 

in order to protect both Medicare 

beneficiaries and CMS and to ensure 

that the requirement to provide such 

data and files is clear for all types of 

contract non-renewals and terminations, 

we proposed to add a new section (e) 

Timely transfer of data and files to 

§ 423.509 (Termination of Contract by 

CMS) to state that should the Part D 

plan sponsor’s contract be terminated by 

CMS, the Part D sponsor must ensure 

the timely transfer of any data or files. 

This language would inform Part D 

sponsors being terminated by CMS that 

they are required by Federal regulation 

to timely transfer all requested data and 

files to CMS or its designee for the 

required time as specified under 

§ 423.505(d) and (e). Because the failure 

to provide this information directly 

harms beneficiaries, plans that fail to 

comply with this requirement may be 

subject to a Civil Monetary Penalty as 

defined in § 422.752(c) and § 423.753(c). 

Comment: Several commenters 

expressed their support for this 

provision. One commenter 

recommended that we go even further 

by specifying through regulations the 

time period which terminated Part D 

sponsors have to transfer data and files. 

Response: We appreciate the 

commenters’ support of our proposal. 

Further specifying the time period for 

transfer of data in regulation is not 

possible because circumstances vary 

from one CMS-initiated termination to 

the next. We will provide timeframes in 

guidance to the affected sponsor upon 

termination. 

Comment: One commenter wanted 

CMS to specify through regulations a 

plan for the smooth transfer of 

beneficiaries to a new Part D plan to 

ensure that patients retain access to 

needed medications, and that 

pharmacies and other downstream 

entities receive the reimbursement for 

which they are entitled once a Part D 

plan sponsor is terminated. 

Response: As explained in the 

proposed rule this provision merely 

adds § 423.509(e) to the existing 

regulations conforming the rules 

regarding the timely transfer of critical 

beneficiary data for Part D sponsors 

being terminated under any 

circumstance, and does not address the 

transfer of beneficiaries nor 

reimbursement. While these are 

important concerns, they are outside the 

scope of these proposed revisions. We 

do, in fact, have protocols in place to 

ensure the smooth transfer of 

beneficiaries to other Part D coverage 

with minimal interruption in access to 

medications. With regard to 

reimbursement of pharmacies, the 

statute and regulations governing Part D 

provide for CMS to contract with 

entities that apply to be Part D sponsors 

and are determined qualified as 

provided in § 423.503. Once we evaluate 

and determine an applicant is qualified 

to be a Part D sponsor, that sponsor 

retains the ultimate legal responsibility 

for adhering to and otherwise fully 

complying with all terms and 

conditions of its contracts with 

downstream providers, such as 

pharmacies. Nevertheless, we have 

recently strengthened its ability to 

ensure that sponsors promptly pay 

pharmacies by codifying at § 423.520 a 

requirement that the contract between 

CMS and all Part D sponsors contain 

provisions obligating the sponsor to 

promptly pay claims. As a result, Part D 

sponsors that do not meet the prompt 

payment requirements of § 423.520 may 

be subject to contract compliance 

actions by CMS. 

Having received only support for this 

proposal, we are therefore finalizing this 

provision without modification. 

5. Review of Medical Necessity 

Decisions by a Physician or Other 

Health Care Professional and the 

Employment of a Medical Director 

(§ 422.562, § 422.566, § 423.562, and 

§ 423.566) 

Based on sections 1852(g) and 1860D– 

4(g) of the Act, we have established 

procedures for making organization 

determinations and reconsiderations 

regarding health services under Part C, 

and for making coverage determinations 

and redeterminations regarding covered 

drug benefits under Part D. These 

requirements are codified in our 

regulations at part 422 subpart M and 

part 423 subpart M, respectively. In the 

proposed rule, we noted that although 

the Part C and Part D regulations require 

physician review of appeals of adverse 

organization determinations or coverage 

determinations, respectively, that 

involve medical necessity, the 

regulations do not specify who must 

conduct the initial determinations 

involving medical necessity. We 

proposed to modify our requirements in 

§ 422.566 by adding a new paragraph (d) 

which would require organization 

determinations that involve medical 

necessity to be reviewed by a physician 

or other appropriate health care 

professional with sufficient medical and 

other expertise, including knowledge of 

the Medicare program. We also 

proposed to require the physician or 

other health care professional to have a 

current and unrestricted license to 

practice within the scope of his or her 

profession in a State, Territory, 

Commonwealth of the United States 

(that is, Puerto Rico), or the District of 

Columbia. 

As noted in the proposed rule, section 

1860D–4(g) of the Act requires Part D 

plan sponsors to meet the requirements 

for processing requests for coverage 

determinations and redeterminations in 

the same manner as such requirements 

apply to Part C organizations with 

respect to organization determinations 

and reconsiderations. Consistent with 

the proposed changes to the Part C 

organization determination process, we 


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21496 Federal Register / Vol. 76, No. 73 / Friday, April 15, 2011 / Rules and Regulations 

proposed similar changes to the Part D 

coverage determination process in new 

§ 423.566(d). 

Comment: Many commenters 

expressed strong support for this 

proposal as it relates to the Part C and 

Part D programs, but several of those 

commenters conditioned their support 

for the proposal on its applicability to 

only those cases where the plan’s initial 

review (for example, by a non-clinician 

claims specialist) will result in an 

unfavorable decision. In other words, 

the commenters argued that if the initial 

review of the request will result in a 

favorable coverage decision for the 

enrollee, there is no need to involve a 

physician or other health care 

professional in reviewing the case. 

These commenters believe that the 

additional safeguards of this provision 

are only necessary if, based on the 

initial review of the request, the plan 

expects to issue an unfavorable 

decision. 

Response: We acknowledge that it is 

common practice for an MA 

organization or Part D plan sponsor to 

use a claims specialist (who may not be 

a clinician) to conduct initial reviews of 

requests for organization and coverage 

determinations. We agree that if the 

initial review of an organization or 

coverage determination request will 

result in a fully favorable decision for 

the enrollee, the request does not 

require review by a physician or other 

appropriate health care professional. 

However, if the initial review of the 

request will result in the plan issuing a 

partially or fully unfavorable decision 

based on medical necessity, a physician 

or other appropriate health care 

professional must be involved in 

reviewing the request prior to the plan 

issuing a final decision. We believe this 

approach strikes an appropriate balance 

between ensuring that organization and 

coverage determination requests 

involving medical necessity decisions 

are subject to review by appropriate 

health care professionals and allowing 

MA organizations and Part D plan 

sponsors to appropriately and efficiently 

utilize health care professional staff 

resources. We revised proposed 

§ 422.566 and § 423.566 to reflect this 

change. 

Comment: Some commenters 

requested that CMS clarify that the 

statement appropriate health care 

professional includes a pharmacist for 

purposes of reviewing Part D coverage 

determinations involving medical 

necessity. A few commenters suggested 

that pharmacists be explicitly listed as 

health care professionals capable of 

reviewing medical necessity 

determinations. 

Response: We do not believe it is 

necessary or advisable to explicitly list 

specific health care professionals who 

may appropriately review organization 

or coverage determinations involving 

medical necessity. The type of health 

care professional who may be 

appropriate to review a particular 

request will depend on the type of 

services being requested, related 

medical necessity issues, and whether 

the review is consistent with the health 

care professional’s scope of practice 

under State law. 

Comment: Some commenters asked 

that CMS clarify that the proposed 

change does not impose a requirement 

on plans to employ a particular number 

of physicians or other health care 

professionals for purposes of reviewing 

organization or coverage 

determinations. One commenter noted 

that the new requirement will result in 

undue increased cost to plans. 

Response: We are not specifying the 

number or mix of physicians and other 

health care professionals MA 

organizations or Part D plan sponsors 

must employ or otherwise engage to 

review initial coverage decisions 

involving medical necessity. Plans are 

responsible for ensuring adequate 

staffing levels based on caseload mix 

and volume and other business factors. 

We believe that this flexibility, coupled 

with our clarification in the final rule 

that a physician or other appropriate 

health care professional must be 

involved in a medical necessity review 

only if the plan expects to issue an 

unfavorable decision significantly 

reduces or eliminates any potential 

burden to plan sponsors. We do not 

believe it is unreasonable or excessively 

burdensome for an MA organization or 

Part D plan to utilize the services of 

physicians and other health care 

professionals for medical review 

activities. 

Comment: One commenter noted that, 

instead of requiring knowledge of the 

Medicare program as stated in the 

proposed rule, reviewers need only have 

knowledge of Medicare coverage 

requirements. 

Response: We agree with the 

commenter that requiring knowledge of 

the Medicare program is unnecessarily 

broad, and that our primary expectation 

is based on reviewers having knowledge 

of Medicare coverage requirements. We 

are revising the proposed language 

accordingly. However, reviewers are 

expected to follow all applicable 

Medicare requirements, such as 

adjudication timeframes, in the 

performance of their duties. Plan 

sponsors are responsible for having 

adequate internal controls in place to 

ensure that their reviewers follow all of 

these requirements. Thus, this change 

does not in any way negate a plan 

sponsor’s responsibility for ensuring 

compliance with Medicare’s program 

requirements. 

Based on our review and 

consideration of the comments received 

on this proposal, we are finalizing both 

§ 422.566 and § 423.566 by revising 

them to include a new paragraph (d). 

Under new § 422.566(d) and 

§ 423.566(d), if a plan expects to issue 

a partially or fully adverse medical 

necessity decision based on the initial 

review of the request, a physician or 

other appropriate health care 

professional with sufficient medical and 

other expertise, including knowledge of 

Medicare coverage criteria, must review 

the request before the plan issues its 

decision. We also require the physician 

or other health care professional to have 

a current and unrestricted license to 

practice within the scope of his or her 

profession in a State, Territory, 

Commonwealth of the United States 

(that is, Puerto Rico), or the District of 

Columbia. 

In a related proposal to enhance the 

plans’ clinical decision making process, 

we also proposed to revise § 422.562(a) 

by adding paragraph (4) and to revise 

§ 423.562(a) by adding paragraph (5) to 

require MA organizations and Part D 

plan sponsors, respectively, to employ a 

medical director who is responsible for 

ensuring the clinical accuracy of all 

decisions involving medical necessity. 

We also proposed that the medical 

director must be a physician with a 

current and unrestricted license to 

practice medicine in a State, Territory, 

Commonwealth of the United States 

(that is, Puerto Rico), or the District of 

Columbia. As noted in the proposed 

rule, we believe the requirement to 

employ a medical director will enhance 

the coordination and accountability of 

plan operations and strengthen quality 

assurance activities within these 

organizations. We received many 

comments on these proposed revisions. 

Comment: One commenter sought 

clarification on whether the medical 

director must review all medical 

necessity determinations and appeals or 

whether plans will be required to 

establish a process for elevating reviews 

to the medical director. Other 

commenters sought clarification that the 

medical director would only review 

adverse organization determinations 

and would not review favorable 

organization determinations. 

Response: Under our proposal, the 

medical director would have overall 

responsibility for the clinical accuracy 

of plan decisions. In this oversight role, 


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we expect there to be a process for 

elevating issues of concern to the 

medical director, but we do not expect 

that a plan’s medical director will 

review each and every decision 

involving medical necessity. The 

medical director should collaborate 

with appropriate staff with respect to all 

plan operations that involve medical 

and utilization review, benefits and 

claims management, and quality 

assurance activities. 

Comment: Some commenters argued 

that the proposed regulatory language 

should be revised to permit MA 

organizations and Part D plans sponsors 

to retain a medical director who is not 

directly employed by the MA 

organization or Part D plan sponsor, but 

rather performs this function under a 

contractual arrangement. A few 

commenters stated that plans may prefer 

to utilize physicians through a 

physician organization, or physicians 

who spend part of their time in clinical 

practice. One commenter strongly 

supported direct employment of a 

medical director, but sought 

clarification on whether a plan can 

fulfill this requirement by retaining 

multiple medical directors (such as, one 

for Part C and one for Part D). 

Response: We acknowledge that plans 

utilize a variety of subcontracting 

arrangements to perform some or most 

of their functions, including 

subcontracting with physician groups to 

perform medical review activities. 

Proper claims adjudication and accurate 

clinical decision-making in organization 

and coverage determinations, 

reconsiderations, and redeterminations 

are integral to the successful 

performance of a plan’s contract. Those 

decisions all involve items, services, or 

medications ordered or performed by a 

physician or other health care 

professional. In that vein, it is not 

unreasonable to expect a plan to employ 

a medical director to ensure that the 

decision-making process is clinically 

accurate, appropriate, and comports 

with Medicare coverage guidelines. We 

have already clarified that we do not 

expect that a medical director would 

review all decisions issued by the plan, 

but instead would have the primary 

responsibility of providing oversight for 

plan operations that involve medical 

and utilization review, benefit, 

formulary and claims management, and 

quality assurance activities. 

It should be noted that all other 

entities that adjudicate Medicare cases 

are already required to employ a 

medical director, including the 

Medicare Part C and Part D Independent 

Review Entities (IREs). All Medicare 

Administrative Contractors (MACs) in 

the Original Medicare Program are 

required to employ a Medical Director, 

as are all of the IREs, known as 

Qualified Independent Contractors 

(QICs) in the Original Medicare 

program. The intent of imposing such a 

requirement on MA organizations and 

Part D plan sponsors is the same as it 

is for those entities—that is, to ensure 

that such decisions are clinically 

accurate, appropriate, and comport with 

Medicare coverage guidelines. 

We note that plans are ultimately 

responsible for the clinical accuracy and 

appropriateness of their processes and 

decisions, which includes oversight of 

their first tier, downstream and related 

entities. Without a medical director 

employed by the plan to review 

decision making processes of contracted 

entities (such as IPAs or PBMs), the plan 

would be unable to ensure the decisions 

were clinically accurate or appropriate. 

A medical director employed by a 

contracted entity is ultimately 

responsible to that entity and is in no 

position to inform the plan if they 

believe their employer’s procedures or 

decisions are inappropriate. MA 

organizations and Part D plan sponsors 

must evaluate CMS’ requirements and 

make staffing arrangements that will 

ensure compliance with our 

requirements. Therefore, we will move 

forward with implementing the 

requirement that MA organizations and 

Part D plan sponsors employ a medical 

director. We will not, however, specify 

the staffing level needed for this 

position. Instead, we will allow plans 

the discretion to retain a medical 

director that works less than full time or 

multiple medical directors as they deem 

appropriate to comply with our 

requirements. 

Comment: One commenter noted that 

CMS’ rationale in support of the 

requirement that plans employ a 

medical director does not support the 

accompanying requirement that the 

medical director be a physician. 

Response: We disagree with the 

commenter. In the proposed rule, we 

noted that MA organizations and Part D 

plan sponsors will be required to 

employ a medical director who would 

be responsible for ensuring the clinical 

accuracy of all decisions involving 

medical necessity. This physician 

oversight requirement is consistent with 

the existing statutory and regulatory 

requirements at 1852(g)(2)(B) of the Act 

and § 422.590(g)(2) and § 423.590(f)(2) 

that all medical necessity 

redeterminations and reconsiderations 

be reviewed by a physician with 

expertise in the field of medicine that is 

appropriate for the services at issue. We 

also noted that, with respect to the Part 

D program, the proposal to require the 

employment of a medical director who 

is a physician would enhance the 

performance of other critical plan 

functions such as formulary 

administration and application of plan 

coverage rules, and assist in the early 

identification and correction of 

potential quality concerns. Given this, 

we continue to believe that the role of 

a medical director requires the expertise 

of a physician, and are retaining the 

associated requirement. 

After consideration of the comments 

on this proposal, and for the reasons 

noted previously, we are finalizing the 

proposal to require MA organizations 

and Part D plan sponsors to employ a 

medical director by adding paragraph 

(4) to § 422.562(a) and by adding 

paragraph (5) to § 423.562(a). 

6. Compliance Officer Training 

(§ 422.503 and § 423.504) 

Pursuant to our authority under 

section 1857(d) of the Act for Part C, 

and sections 1860D–4(c)(1)(D) and 

1860D–12(b)(3)(C) of the Act (the latter 

of which incorporates section 1857(d) 

by reference), we proposed that MA 

organization and Part D sponsor 

compliance officers be required to 

complete annual MA and/or Part D 

compliance training starting in 2013. 

Organizations applying for the 2013 

contract year that are new to the MA or 

Part D programs would have been 

required under this proposal to have 

their compliance officers obtain training 

in 2012 to prepare for the upcoming 

contract year. We proposed to add 

§ 422.503(b)(4)(vi)(B)(1)(i) and (ii) to 

subpart K of Part 422 and 

§ 423.504(b)(4)(vi)(B)(1)(i) and (ii) to 

subpart K of Part 423 to reflect this 

change. We proposed these training 

clarifications because our reviews have 

found that many MA and Part D 

compliance officers lack basic 

knowledge about the requirements of 

the MA and Part D programs. Our 

reviews have also found that many 

compliance officers do not seem to 

understand that we expect sponsors to 

actively ensure compliance with 

Medicare program requirements; that 

those requirements are distinct from any 

commercial health or drug plan benefits 

they may administer; and that they 

should not solely rely on subcontractors 

or CMS to identify and resolve Part C 

and Part D contract compliance matters 

for them. We stated our belief that 

requiring annual training for 

compliance officers would help to 

address the knowledge gap by 

emphasizing the necessity of 

compliance officer training and the 

compliance officer’s critical role in 


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maintaining and ensuring program 

compliance. However, based upon the 

comments received, CMS will not be 

codifying these provisions at this time. 

Comment: Most commenters 

supported CMS’ proposal to require 

compliance officer training. 

Response: We agree with these 

commenters that compliance officer 

training would address our 

aforementioned concerns about the level 

of knowledge compliance officers have 

about the Medicare Part C and D 

programs, but for reasons discussed 

below, we are not finalizing our 

proposals at this time. 

Comment: The vast majority of 

comments regarding compliance officer 

training were requests for clarification 

from industry regarding who should 

take the training and the content, forum, 

format, and duration of the training. 

Specifically, commenters were unsure if 

CMS intended for the organization’s 

corporate compliance officer or for its 

Medicare compliance officer to attend 

training. Other commenters suggested 

that only plan sponsors with poor audit 

results or significant compliance 

problems should be required to take 

training. Nearly all commenters wanted 

more details about the content or 

curriculum for the training. Some 

thought that training should be designed 

to allow the compliance officer to focus 

on areas or issues that presented the 

most risk to their organization. Other 

commenters wanted to know if the 

content would focus on compliance 

programs and plans or if it would focus 

on Medicare Part C and D programs and 

compliance with those requirements. 

With respect to the format of the 

training, some plan sponsors wanted 

only CMS to provide the training either 

in-person or via the Internet, while 

other plan sponsors wanted compliance 

courses and conferences offered by nonCMS entities to be counted towards the 

annual training requirement. Lastly, one 

commenter suggested that the training 

should not exceed 12 hours per year. 

Response: We agree that more 

clarification is warranted regarding the 

audience, content, forum, format, and 

duration of proposed compliance officer 

training. Therefore we will not be 

codifying the proposed rule regarding 

compliance officer training at this time. 

We will carefully consider whether to 

propose a similar rule in the future that 

will address the clarifications suggested 

by industry. 

Accordingly, we have not included 

Paperwork Reduction Act (PRA) 

paperwork burden or regulatory impact 

analysis estimate for this provision. 

7. Removing Quality Improvement 

Projects and Chronic Care Improvement 

Programs From CMS Deeming Process 

(§ 422.156) 

Under section 1852(e) of the Act, we 

have delegated our authority to evaluate 

whether an MA organization is in 

compliance with certain Medicare 

requirements to three private 

accrediting organizations. Currently, 

MA organizations may be deemed to 

meet requirements in a number of areas, 

including quality improvement (QI), as 

specified in § 422.156(b). 

We currently require all MA 

organizations to submit their quality 

improvement projects (QIPs) and 

chronic care improvement programs 

(CCIPs) on an annual basis. In our 

November 2010 proposed rule (75 FR 

71227), we proposed to amend 

§ 422.156(b) to specify that, while QI 

would still be a component of the 

deeming process, QIPs and CCIPs would 

be excluded from the deeming process 

for QI. We also clarified that the QIPs 

and CCIPs would instead be reviewed 

and evaluated by CMS or an appropriate 

CMS contractor. After considering 

comments we received on this proposal, 

we are finalizing this provision without 

modification. 

Comment: One commenter supported 

the removal of QIPs and CCIPs from the 

deeming process, to the extent that CMS 

intends to collect QIPs and CCIPs for 

review on an annual basis. This 

commenter recommended that, in order 

to avoid redundancy and unnecessary 

burden for plans, deeming authorities 

should not be allowed to request the 

submission of QIPs and CCIPs as part of 

the deeming process. 

Two commenters stated that removing 

the QIPs and CCIPs from the deeming 

process would negatively impact 

staffing resources for health plan 

medical management, since both are 

reviewed by NCQA during site visits. 

These commenters believed that 

maintaining two unique reporting 

formats for the same quality programs 

would be duplicative. 

Response: We appreciate commenters’ 

concerns about duplication of efforts. In 

our proposed rule, we proposed to 

exclude the QIPs and CCIPs as 

components of the deeming process for 

QI precisely because we were aware of 

the duplication of effort associated with 

submission of this information to both 

CMS and NCQA, as well as auditing 

efforts by both entities. As we stated in 

our proposed rule, removing the QIPs 

and CCIPs from the deeming process for 

QI will avoid redundancy and reduce 

burden for MA organizations. We 

believe removal of QIPs and CCIPs from 

the deeming process for QI is essential 

to improving consistency in the 

evaluation and assessment of the QIPs 

and CCIPs, especially given that some 

elements therein may be incorporated 

into future plan ratings. Therefore, we 

are finalizing our proposal without 

modification. 

Comment: One commenter advised 

that removing two important elements 

of the overall QI program would make 

it almost impossible for NCQA to 

provide a balanced and comprehensive 

assessment of the overall QI program 

and recommends that CMS reconsider 

this proposal. 

Response: We disagree with the 

commenter’s assertion that removal of 

QIPs and CCIPs will result in NCQA’s 

inability to assess the QI program plans 

of its deemed entities. There are a 

number of quality performance 

measures that an accreditation 

organization may use to measure QI for 

purposes of deeming. Therefore, we are 

finalizing our proposal without 

modification. 

Comment: Several commenters 

recommended that CMS consider 

allowing MA plans the flexibility to 

focus on QIPs and CCIPs that meet the 

unique needs of their target populations. 

Response: Irrespective of whether or 

not CMS identifies a list of specific 

clinical and/or non-clinical topics for 

QIPs and CCIPs, MA plans will retain 

the flexibility to develop their own 

special projects. Furthermore, plans’ 

QIPs and CCIPs must always address the 

target population for a specific plan in 

order to demonstrate QI under their 

plans. Identification of the appropriate 

target population is a key component for 

ensuring QI and is the first element 

CMS assesses when reviewing the QIPs 

and CCIPs. 

Comment: One commenter 

recommended that CMS release 

standards that will be used in 

determining if QIP and CCIP program 

standards are met. 

Response: We appreciate the 

commenter’s interest in this issue. The 

submission of QIPs and CCIPs will be an 

ongoing annual QI assessment activity 

for all MA organizations and SNPs. In 

an effort to improve consistency, we are 

reviewing the current QIP and CCIP 

program standards in an effort to 

determine where improvement is 

necessary. Guidance regarding changes 

to the QIP and CCIP program standards 

will be provided in separate guidance 

such as an HPMS memoranda and 

annual call letters. 

Comment: Several commenters 

recommended that CMS continue to 

permit MA organizations that currently 

use the deeming process to continue to 


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do so, and apply our proposed 

requirement only to MA organizations 

that avail themselves of the deeming 

process in the future. 

Response: We disagree that our 

proposed requirement should apply 

only to MA organizations not currently 

using the deeming process. While MA 

organizations may continue to utilize 

the deeming process for areas specified 

in § 422.156, including QI, we are 

finalizing our proposal without 

modification and clarify that it will 

apply to all MA organizations including 

SNPs. 

Comment: One commenter 

recommended that CMS should 

consider allowing plans with a high star 

rating on quality measures the option to 

use the deeming process. 

Response: We clarify that the goal of 

our proposal in our November 2010 

proposed rule was not to eliminate 

deeming, or even deeming for QI 

requirements but, rather, to exclude 

QIPs and CCIPs as deemable QI 

elements. 

8. Definitions of Employment-Based 

Retiree Health Coverage and Group 

Health Plan for MA Employer/UnionOnly Group Waiver Plans (§ 422.106) 

In our November 2010 proposed rule 

(75 FR 71227), we stated our concern 

that, since enactment of the MMA, MA 

organizations have been contracting 

with entities that cannot properly be 

characterized as employment-based 

group health plan coverage (for 

example, professional or group 

associations) to provide coverage to MA 

beneficiaries via employer group waiver 

plans (EGWPs) or individual MA plans. 

Specifically, some MA organizations 

have characterized contracts with 

professional or group associations as 

employment/union coverage. We stated 

we believed that this was inconsistent 

with the requirement in section 1857(i) 

that such waivers facilitate a contract 

between an MA organization and 

employers, labor organizations, or the 

trustees of a fund established by one or 

more employers or labor organizations 

(or a combination thereof) to furnish 

benefits to the entity’s employees, 

former employees (or combination 

thereof) or members or former members 

(or combination thereof) of the labor 

organizations, as this language is 

interpreted in guidance in Chapter 9 of 

the Medicare Managed Care Manual 

(http://www.cms.gov/manuals/ 

downloads/mc86c09.pdf), entitled 

‘‘Employer/Union Sponsored Group 

Health Plans. This guidance clearly 

restricts employer/union group health 

plan enrollment in EGWPs and 

individual MA plans to beneficiaries 

who are Medicare eligibles of an 

employer/union sponsored group health 

plan. Such a plan is one that is 

employment-based health coverage 

through an employer/union group 

health plan that has entered into a 

contractual arrangement with an MA 

organization to provide coverage or that 

has contracted directly with CMS to 

provide coverage for its Medicare 

eligibles. To clarify our requirements for 

offering employment-based retiree 

coverage via an MA plan, we proposed 

to codify definitions of the terms 

employer-sponsored group MA plan, 

employment-based retiree health 

coverage, and group health plan at 

§ 422.106(d)(4) through (6). We also 

proposed to change the reference to an 

MA plan at § 422.106(d) to a reference 

to an employer-sponsored group MA 

plan. In proposing these definitions, we 

noted that they were consistent with 

those provided for Part D sponsors at 

§ 423.454 and § 423.882. We solicited 

comment on our proposals to revise 

these definitions. 

After considering comments received 

on these proposed changes, we are 

finalizing these provisions without 

modification. 

Comment: One commenter agreed 

with CMS that membership in an 

association would by itself not have a 

sufficient employment nexus to qualify 

as employment-based coverage and also 

noted that our proposed definitions of 

the terms employer-sponsored group 

MA plan, employment-based retiree 

health coverage, and group health plan 

are consistent with the comparable 

definitions for Part D sponsors at 

§ 423.454 and § 423.882. 

Two commenters believed that our 

proposed definitions of the terms 

employer-sponsored group MA plan, 

employment-based retiree health 

coverage, and group health plan would 

unintentionally exclude coverage by 

associations that is truly tied to 

employment in such associations, and 

that a wholesale exclusion of 

associations and similar entities from 

the definition of employment-based 

retiree coverage would be overly broad 

and inconsistent with coverage in the 

commercial market. One of these 

commenters explained that there are a 

variety of types of associations, 

including (but not limited to) an 

association of farm bureaus, for which 

eligibility for health coverage is tied to 

membership in the association or 

bureau. 

Response: We do not believe that 

Congress envisioned granting access to 

EGWP waivers based on membership in 

an association or any entity that did not 

meet the definition of a group health 

plan, as defined under the Employee 

Retirement Income Security Act 

(ERISA). Our intent in defining an 

employer-sponsored group MA plan, 

employment-based retiree health 

coverage, and a group health plan was 

not to preclude all associations from 

enrolling Medicare beneficiaries in 

EGWPs and individual MA plans, but, 

rather, to ensure that a beneficiary’s 

enrollment in one of these MA plans is 

based on his/her receipt of employmentbased health coverage from and 

employer/union group health plan 

sponsor. To the extent that membership 

in an association is based on 

employment, that association could 

meet the definition employment-based 

retiree coverage. For example, an 

association may elect to provide 

coverage via an EGWP or individual MA 

plan to retirees who were formerly 

employed by the association. We also 

clarify that we believe that employers 

such as school districts could form an 

association for the purpose of 

purchasing employer coverage on behalf 

of retirees from the school districts and 

that this would be acceptable because, 

independently, each school district 

would be eligible to enroll its retirees in 

an EGWP or individual MA plan. 

Therefore, two or more school districts 

could combine to form an association 

for the purpose of purchasing retirement 

coverage for their retired employees. 

However, an association of farm bureaus 

would not meet this test if membership 

in a farm bureau were not exclusively 

based on former employment by these 

farm bureaus. 

Comment: Two commenters 

expressed concern that our proposed 

definitions of employment-based retiree 

coverage and a group health plan at 

§ 422.106(d)(5) and § 422.106(d)(6), 

respectively, would preclude employers 

that do not contribute financially to 

retirees’ health care costs—including 

cases where an employer plan is 

provided at no cost to the employer or 

the employer furnishes a pension in lieu 

of payment for health care coverage for 

its retirees—from enrolling retirees in an 

employer-sponsored group MA plan. 

This commenter recommended that 

CMS revise its proposed regulatory 

language to ensure that the definition of 

employment-based coverage is not tied 

to a financial contribution from the 

employer. 

Another commenter stated that 

employers that are not contributing 

financially to retirees’ health care costs, 

which is an increasing trend in the 

marketplace, can still meaningfully 

contribute to their retirees’ health care 

coverage by bargaining with an MA 

organization on behalf of its retirees for 


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the best possible deal on premium and 

benefit design. This commenter also 

noted that employers may choose to 

assist their retirees by administering the 

MA plan premium payment process. 

Response: Our proposed definitions 

would require that employment-based 

retiree coverage include coverage of 

health care costs in accordance with the 

ERISA definition of a group health plan. 

While there is not a minimum amount 

an employer must contribute toward 

such employment-based retiree 

coverage, we believe it is important that 

an employer make both a financial 

contribution toward coverage and 

negotiate on behalf of its retirees for a 

benefit package and cost sharing levels 

which are as favorable as possible for 

them. We are therefore finalizing our 

proposed revisions to § 422.106(d) 

without modification. 

Comment: One commenter requested 

that CMS ensure that coverage offered 

by a union or trust is considered 

employment-based as recognized by the 

section 1857(i) of the Act. 

Response: We agree that members or 

former employees of unions and trusts, 

as recognized under section 1857(i) of 

the Act, generally meet the definition of 

employment-based retiree coverage and 

could offer MA coverage to retirees who 

are Medicare eligible individuals 

through an EGWP or individual MA 

plan. 

D. Strengthening Beneficiary Protections 

This section includes proposed 

provisions aimed at strengthening 

beneficiary protections under Parts C 

and D. Some of the provisions affecting 

both Parts C and D include proposed 

regulations codifying the requirement 

that MA organizations and Part D 

sponsors provide interpreters for nonEnglish speaking and limited English 

proficient callers, and periodically 

disclose to each beneficiary specific 

data for enrollees to use to compare 

utilization and out-of-pocket costs in the 

current plan year to the following plan 

year. Changes affecting only Part C 

include an extension of the mandatory 

maximum out-of-pocket (MOOP) 

amount requirements to regional PPOs, 

and under Part D, we address the 

delivery of adverse coverage 

determinations. 

In the area of Parts C and D marketing, 

proposed provisions include a proposal 

requiring MA organizations’ and Part D 

sponsors’ agents and brokers to receive 

training and testing via a CMS endorsed 

or approved training program and a 

proposal to extend annual training and 

testing requirements to all agents and 

brokers marketing and selling Medicare 

products. 

This information is detailed in Table 

6. 

1. Agent and Broker Training 

Requirements (§ 422.2274 and 

§ 423.2274) 

a. CMS Approved or Endorsed Agent 

and Broker Training and Testing 

(§ 422.2274 and § 423.2274) 

In the November 2010 proposed rule, 

in implementing sections 1851(h)(2), 

1860D–1(b)(1)(B)(vi), 1851(j)(2)(E), and 

section 1860D–4 (l)(2) of the Act, we 

proposed revising § 422.2274(b) and (c) 

and § 423.2274(b) and (c) to require MA 

organizations’ and Part D sponsors’ 

agents and brokers to receive training 

and testing via a CMS-endorsed or 

approved training program. We 

proposed this revision to move toward 

greater standardization of agent broker 

training and testing and ensure that 

agents and brokers selling Medicare 

products have a comprehensive and 

consistent base of understanding of 

Medicare rules. 

In addition, we proposed that 

following the implementation of the 

final rule, we would review and endorse 

or approve one or more entities to 

provide annual testing and training to 

Medicare agents and brokers. We 

specifically requested comments and 

suggestions on alternatives to using a 

competitive request for proposals (RFP) 

process under the Federal Acquisition 

Rules to effectuate this effort. 


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We further proposed that these new 

requirements also be applicable to 

section 1876 cost contract plans, since 

in our April 2010 final rule (75 FR 

19784 through 19785), we extended the 

MA marketing provisions in part 422 to 

section 1876 cost contract plans. 

Comment: Many of the comments 

received supported the proposal and 

responded to our request for 

suggestions. The suggestions offered in 

conjunction with the approval were (1) 

provide a low-cost option to the public 

or non-profit sector; (2) provide uniform 

training and testing materials that can 

be graded by an outside independent 

entity; (3) create a separate test for the 

general Special Needs Plan (SNP); and 

(4) include information regarding 

SPAPs, COB rules and eligibility in the 

training. 

Response: The purpose of 

standardizing the training and testing is 

to ensure continuity, accuracy and 

quality of training and testing vehicles. 

We will evaluate and approve vendor 

products by developing specific criteria 

against which training and testing 

programs will be assessed. We will take 

into consideration and evaluate the 

options for lower cost offerings to the 

public and non-profit sector and will 

also consider the suggestions for 

developing training and testing 

modules. 

Comment: One commenter requested 

clarification of our use of the terms CMS 

‘‘endorsed’’ training program and CMS 

‘‘approved’’ program. 

Response: Although the intent of the 

language was to use the two terms 

interchangeably, we note that the final 

selections of the developed vendor 

products will first be approved by our 

agency and subsequently certified or 

endorsed. 

Comment: One commenter 

recommended that CMS apply the same 

bid process as we apply to the plans 

using the training portal. They 

expressed full support for having a 

certified company provide the training 

and a certification that they can accept 

without having to provide that training 

themselves. 

Response: We believe this commenter 

was referring to our pilot agent/broker 

training and testing module in 2009. We 

do not believe the development 

approach taken for that module is 

appropriate for the current effort, given 

that we developed the training under 

that approach and solicited volunteer 

plan sponsors to train and test their 

agents via the pilot training and testing 

module. We will consider all access and 

value options prior to and throughout 

the solicitation of training and testing 

information and technical proposals. 

Comment: One commenter supported 

CMS’s proposal to require specific 

training for agents and brokers and also 

recommended that CMS training be 

specific to the plan the agent/broker is 

actually selling. Other commenters 

requested that plan sponsors be allowed 

the option of continuing to develop and 

administer training and testing that 

complies with CMS specified criteria. 

Specifically, the commenter stated that 

plans should continue to be responsible 

and held accountable for adequate 

training regimens, and requested that 

CMS continue to impose training 

obligations on plans rather than 

contracting with third-party entities to 

provide such training to plan employees 

and contractors. 

Response: We do not have the 

resources at this time to initiate 

development by vendors of training and 

testing vehicles that would contain 

plan-specific details for each plan type 

for which organizations contract with 

CMS. Plan sponsors will continue to be 

responsible for administering plan 

specific training and testing to brokers 

and agents. Our development of an 

‘‘approved or endorsed’’ training and 

testing program will ensure consistency 

and accuracy across plan sponsors. 

Comment: One commenter proposed 

that we allow plans to review training 

and testing products before they are 

finalized and to make further 

recommendations regarding the specific 

companies and organizations that would 

develop the specific products. The 

commenter urged that CMS provide a 

transparent process and agreed with 

using the RFP process to develop an 

‘‘approved or endorsed’’ training and 

testing curriculum. The commenter 

stated that the curriculum and its 

development should not be considered 

proprietary, even if it is developed by a 

private contractor. 

Response: We will not consider a plan 

preview of products prior to finalizing 

our decisions. We will develop specific 

requirements and implement a process 

for reviewing proposals to ensure 

participants meet the requirements and 

develop a training and testing program 

as specified in future guidance. 

Furthermore, we believe that allowing 

plans to review the training and testing 

proposals and recommend approval of 

specific organizations might interfere 

with our ability to ensure a level playing 

field. 

Comment: One commenter noted that 

it is not a practice of PACE programs to 

utilize agents and brokers in their efforts 

to inform the public about their 

program. The commenter requested the 

CMS clarify that the training and testing 

requirements to not supersede or modify 

the requirements currently applicable to 

PACE programs. 

Response: PACE plans are governed 

by separate requirements which are not 

included in these provisions. These 

requirements do not supersede or 

modify the current requirements 

applicable to PACE programs. 

b. Extending Annual Training 

Requirements to All Agents and Brokers 

(§ 422.2274 and § 423.2274) 

In the November 2010 proposed rule, 

we proposed a change in the regulations 

text that would correct an omission in 

our current regulations at § 422.2274(b) 

and (c) and § 423.2264(b) and (c). These 

regulations currently require MA 

organizations and Part D sponsors to 

ensure that independent agents selling 

Medicare products are trained and 

tested annually on Medicare rules and 

regulations specific to the plan products 

they intend to sell. Consistent with our 

statutory authority at sections 

1851(j)(2)(E) and 1860D–4(l)(2) of the 

Act, we proposed to revise § 422.2274 

and § 423.2274 to correctly apply these 

requirements to all agents and brokers 

marketing and selling Medicare 

products, whether independent agents 

or employees. 

In addition, we also noted that these 

new requirements would be applicable 

to section 1876 cost contract plans, 

since in our April 2010 final rule (75 FR 

19784 through 19785), we extended the 

MA marketing provisions in Part 422 

requirements to section 1876 cost 

contract plans. 

After considering the comments we 

received, we are finalizing our proposal 

without further modification. 

Comment: One commenter expressed 

support for correcting the error in 

§ 422.2274(b) and (c) and § 423.2264(b) 

and (c) that applied training 

requirements only to independent 

agents and brokers. 

Response: We agree that all agents 

and brokers, including those employed 

by MA and Part D plans, should be 

subject to the same training and testing 

requirements. Therefore, we are 

adopting as final our proposed 

correction to § 422.2274(b) and (c) and 

§ 423.2264(b) and (c). 

2. Call Center and Internet Web site 

Requirements (§ 422.111 and § 423.128) 

a. Extension of Customer Call Center 

and Internet Web site Requirements to 

MA Organizations (§ 422.111) 

Under the authority of section 1852(c) 

of the Act, which requires MA 

organizations to disclose MA plan 

information upon request, as well as the 

authority of section 1857(e) of the Act 


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to specify additional contractual terms 

and conditions the Secretary may find 

necessary and appropriate, we proposed 

to extend call center and Internet Web 

site requirements to MA organizations 

to parallel to those applicable to Part D 

sponsors. We proposed to amend 

§ 422.111 by adding a new paragraph (g) 

to expressly require MA organizations to 

operate a toll-free customer call center 

that is open during usual business hours 

and provides customer telephone 

service in accordance with standard 

business practices, as well as to provide 

current and prospective enrollees with 

information via an Internet Web site and 

in writing (upon request). We proposed 

this amendment to ensure that current 

and prospective enrollees of MA plans 

have the same access to customer 

service call centers and information via 

an Internet Web site as current and 

prospective enrollees of a Part D plan in 

order to obtain more information about 

plan coverage and benefits. We also 

noted that although similar call center 

and Internet Web site requirements were 

never codified for MA plans, we have 

required through subregulatory 

guidance (the Medicare Marketing 

Guidelines at http://www.cms.gov/ 

ManagedCareMarketing/Downloads/ 

R91MCM.pdf) that MA organizations 

comply with the same requirements 

regarding customer service call centers 

as Part D sponsors, and, for those 

offering Part D benefits through MA–PD 

plans, all Part D sponsor Internet Web 

site requirements. 

As part of the proposed rule, we also 

proposed removing paragraph 

§ 422.111(f)(12), which requires that 

certain information—including the 

evidence of coverage, summary of 

benefits and information about network 

providers—be posted to an Internet Web 

site in the event that an MA 

organization has a Web site or provides 

MA plan information through the 

Internet, and moving these requirements 

to § 422.111(g)(2)(i). 

After considering comments on our 

proposal, we are adopting these 

provisions as final with one 

modification, proposed paragraph (g) is 

redesignated as paragraph (h). 

Comment: Several commenters 

expressed their support of our extending 

the call center and Web site 

requirements to MA plans. One 

commenter that supported our proposal 

believed that these requirements will 

serve to ensure beneficiaries receive the 

information needed to make informed 

decisions on their healthcare options. 

Response: We thank the commenters 

for their response. We believe this 

change will allow MA enrollees the 

same access to customer service call 

centers services as a current or 

prospective members of a Part D plan. 

Therefore, we are finalizing our 

proposal without modification. 

Comment: One commenter noted that 

regulations governing the PACE 

program provide for a waiver of the 

requirement to maintain customer call 

centers as well as the requirement to 

provide information via an Internet Web 

site. 

Response: PACE plans are governed 

by separate requirements that are not 

included in these provisions. These 

requirements do not supersede or 

modify the current requirements 

applicable to PACE programs. 

Comment: One commenter 

recommended that since the open 

enrollment period that existed for the 

first 3 months of the year has been 

replaced with a period during which an 

MA enrollee may disenroll from an MA 

plan, CMS should allow extended call 

center hours to coincide with the new 

45-day annual period. Additionally, the 

commenter indicated that there is no 

need for continued weekend call center 

coverage by live agents after the 45-day 

period ends. 

Response: We have taken these 

comments into consideration and will 

be proposing revisions to our Medicare 

Marketing Guidelines for contract year 

2012 that would require all plan 

sponsors to have extended call center 

hours during the 45-day annual 

disenrollment period (January 1 to 

February 14 of each contract year). 

b. Call Center Interpreter Requirements 

(§ 422.111 and § 423.128) 

Pursuant to our authority under 

sections 1857(e)(1) and 1860D– 

4(a)(3)(A) of the Act to specify 

additional contractual terms and 

conditions the Secretary may find 

necessary and appropriate, we proposed 

to codify Medicare Part C and D 

requirements regarding current and 

prospective enrollee toll-free customer 

call centers. Specifically, we clarified 

that MA organizations and Part D 

sponsors must provide interpreters for 

all non-English speaking and limited 

English proficient (LEP) callers. We 

proposed to add new paragraphs 

§ 422.111(g)(1)(iii) (redesignated as 

paragraph (h)) and § 423.128(d)(1)(iii), 

respectively, to reflect this clarification. 

This clarification is a result of 

findings from our call center 

monitoring, which revealed that a 

significant percentage of MA 

organizations and Part D sponsors were 

not providing foreign language 

interpreters for non-English speaking 

callers. This clarification addressed the 

problem by explicitly codifying the 

requirement to provide interpreters for 

LEP callers in regulations. 

Comment: Several commenters from 

advocacy groups and industry 

supported codification of CMS’ 

requirement that MA organizations and 

Part D sponsors must provide 

interpreters for non-English speaking 

and LEP individuals. 

Response: We agree with these 

commenters because requiring 

interpreters ensures LEP beneficiaries 

have access to Medicare Part C and D 

benefit information. 

Comment: A few commenters asked 

for clarification regarding the 

requirement that interpretation services 

should be available for ‘‘all’’ languages. 

Commenters offered alternatives such as 

providing interpreters for languages that 

meet a 10 percent threshold or require 

plan sponsors to provide interpreters for 

all languages spoken by more than 10 

percent of the plan’s membership. 

Response: We agree with commenters 

who noted that ‘‘all’’ may be too 

inclusive, as there are more than 6,000 

languages spoken world-wide. As such, 

we are striking the word ‘‘all’’ from the 

proposed language. Based on data 

collected during the 2000 U.S. Census, 

more than 300 languages are spoken in 

the United States. We revised the 

regulatory language to read as follows, 

‘‘Provides interpreters for non-English 

speaking and limited English proficient 

(LEP) individuals.’’ Our expectation is 

that MA organizations and Part D 

sponsors’ call centers will provide 

interpretation services for all languages 

that are served in common by the largest 

commercial interpretation service 

providers in the U.S., as these 

organizations are experts in assessing 

the languages for which interpretation 

services are needed. Currently these 

large organizations provide 

interpretation services for 

approximately 150 to 180 languages, 

which accommodates the vast majority 

of interpretation needs. Our Medicare 

Marketing Guidelines have long 

established the expectation that MA 

organizations and Part D sponsors 

provide interpretation services to any 

LEP caller. Our monitoring of this area 

has demonstrated that MA organizations 

and Part D sponsors’ call centers are 

capable of providing interpreters to 

meet the needs of LEP callers when they 

use commercial interpretation service 

providers. 

We do not accept the suggested 

alternatives, that is, to require that plan 

sponsors only provide an interpreter for 

languages that meet a 10 percent 

threshold or require plan sponsors to 

provide interpreters for all languages 

spoken by more than 10 percent of the 


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plan’s membership. Because 

beneficiaries are not required to indicate 

their primary or preferred language 

when they enroll in a plan, it would be 

impossible for a plan sponsor to know 

all the languages they would need to 

interpret. Moreover, the availability of 

commercial interpretation service 

providers for these 150–180 languages is 

a cornerstone of CMS’ effort to establish 

the widest practical safety net for 

providing access to those individuals 

who are outside of the translation 

threshold requirement for translating 

marketing materials found in § 422.2264 

and § 423.2264. 

Comment: One commenter asked 

CMS to clarify whether MA 

organizations and Part D sponsors are 

required to have interpreters on-site. 

Response: We clarify that MA 

organizations and Part D sponsors may 

use on-site interpreters, contract with a 

commercial interpretation service 

provider, or employ some combination 

of both approaches. For instance, many 

MA organizations and Part D sponsors 

provide Spanish language interpretation 

on-site while using one of the numerous 

and readily available commercial 

interpreter services to providers for 

other languages. 

Comment: One commenter requested 

clarification as to whether the Program 

of All-inclusive Care for the Elderly 

(PACE) program is subject to the 

requirement that plan sponsors 

maintain toll-free customer call centers. 

Response: Although this comment is 

not within the scope of the proposed 

rule, we clarify that PACE programs are 

not subject to this requirement. 

Comment: One commenter suggested 

that CMS provide best practices for plan 

sponsors regarding interpretation 

services. The commenter also asked 

CMS to discuss methods for preventing 

long wait times for non-English 

speaking callers. 

Response: We agree with this 

comment, and we have made a 

concerted effort to disseminate best 

practices on this topic. In a Health Plan 

Management System (HPMS) memo 

published to all plan sponsors on 

January 2, 2008 entitled ‘‘Best Practices 

for Addressing the Needs of NonEnglish Speaking and Limited English 

Proficient (LEP) Beneficiaries,’’ We 

provided guidance to plans, which 

addressed, among other topics, call 

center phone systems and customer 

service representative staffing, training, 

and oversight. Additionally, when we 

issue informational memos or 

compliance letters to plan sponsors 

regarding our call center monitoring 

results, we include a special section that 

lists tips for how an organization can 

improve its service to LEP beneficiaries. 

With regard to concern about long 

wait times for LEP callers, data collected 

during our call center monitoring study 

indicated that the average hold time for 

an interpreter was one minute and 

sixteen seconds. This hold time is below 

our existing 2 minute hold time 

standard in the Medicare Marketing 

Guidelines. 

In summary, we are finalizing this 

provision, and the only change from the 

proposed version is to strike the word 

‘‘all.’’ 

3. Require Plan Sponsors To Contact 

Beneficiaries To Explain Enrollment by 

an Unqualified Agent/Broker 

(§ 422.2272 and § 423.2272) 

Current regulations (§ 422.2272 and 

§ 423.2272) require plan sponsors that 

use independent agents and brokers for 

their sales and marketing to only use 

State licensed and appointed agents or 

brokers. Under these provisions, plan 

sponsors must also report the 

termination of agents or brokers to the 

State. Based on information uncovered 

during program audits, we proposed 

revisions to § 422.2272(c) and 

§ 423.2272(c) to require MA 

organizations and Part D sponsors to 

terminate unlicensed agents upon 

discovery and notify any beneficiaries 

who were enrolled in their plans by 

unqualified agents. Since beneficiaries 

rely heavily on information they receive 

from agents regarding plan benefits and 

costs, we believe they should have the 

opportunity to ask additional questions 

or reconsider their enrollment when 

they have been enrolled in a plan by an 

unqualified agent. 

In addition, we noted that these 

requirements would be applicable to 

section 1876 cost contract plans, since 

in our April 2010 final rule (75 FR 

19784 and 19785), we extended the MA 

marketing provisions in part 422 to 

section 1876 cost contract plans. 

After considering the comments we 

received, we are modifying the proposal 

as described below. 

Comment: Several commenters were 

concerned that the requirement to notify 

beneficiaries when they have been 

enrolled by an unqualified agent is 

duplicative of the outbound enrollment 

verification call requirement and is 

unnecessary. 

Response: The intent of this provision 

is not to duplicate the outbound 

enrollment verification process. Rather, 

it is to ensure that beneficiaries are fully 

informed of the circumstances of their 

enrollment and to allow them the 

opportunity to reconsider their options 

given the new information about the 

agent. While we do not anticipate that 

many beneficiaries will want to make 

plan changes based on notification that 

the agent is unqualified, especially 

considering that the plan sponsor likely 

would have already conducted the 

required outbound verification call, we 

believe that it is important that 

beneficiaries are fully informed of the 

details of their enrollment in the event 

the agent misrepresented the package of 

benefits in any way. Additionally, to 

ensure that we do not confuse 

beneficiaries with duplicative 

information, we have modified our 

original proposal at § 422.2272(c) and 

§ 423.2272(c) to indicate that plan 

sponsors are required to provide 

affected enrollees with information 

about their options to confirm 

enrollment or make a plan change 

(including a special election period) at 

the beneficiary’s request. 

Comment: A few commenters 

requested clarification of our proposal, 

since plan sponsors are not allowed to 

use unlicensed agents. 

Response: In the proposed rule, we 

used the term ‘‘unlicensed’’ and 

‘‘unqualified’’ interchangeably. 

However, there is an important 

difference between the two terms. Being 

unlicensed is just one criterion for 

determining whether an agent or broker 

is qualified to sell Medicare plans. In 

addition to having a license (in States 

that require one), agents and brokers 

must also be trained annually, pass a 

Medicare test annually (with a score of 

85 percent or better), and be appointed 

in States with appointment laws. 

The final provisions would require 

plan sponsors to terminate unlicensed 

agents and report them to the State upon 

discovery. However, we have modified 

our original proposal at § 422.2272(c) 

and § 423.2272(c) to replace the term 

‘‘unlicensed’’ with ‘‘unqualified’’ with 

respect to the beneficiary notification 

requirement. We did not propose 

terminating all unqualified agents or 

brokers because there may be 

circumstances in which an unqualified 

licensed agent should not be 

terminated—for example, an agent who 

takes an automated test, but a software 

bug notifies the agent that he has passed 

the entire test when he only passed the 

first component of the test. In this case, 

the plan sponsor would not be required 

to terminate the agent or report him/her 

to the State upon discovery; however, 

the plan sponsor would be required to 

notify individuals enrolled by that agent 

of his/her unqualified status. 

Comment: One commenter suggested 

that CMS sanction plans that have 

repeated instances of unlicensed agents 

selling for them, and that agents be 


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required to include their national 

producer number (NPN) on the 

application. 

Response: Due to the fact that some 

States do not participate with the 

National Insurance Producer Registry 

(NIPR), we are not considering requiring 

the agent NPN on the enrollment 

application. However, we will continue 

to evaluate ways to better monitor agent 

behavior, as part of our current 

surveillance, compliance, and 

enforcement processes. We will also 

monitor plan compliance with this new 

requirement. 

Comment: A couple of commenters 

stressed the importance that 

beneficiaries not be pressured to enroll 

in another plan offered by the plan 

sponsor during the notification call. 

Response: The purpose of the call is 

to notify beneficiaries that an 

unqualified agent was involved in their 

enrollment, not to persuade them to join 

other plans. We anticipate that most 

beneficiaries will appreciate the notice 

and may have some questions, but we 

do not anticipate that the majority of 

them will want to make a plan change. 

Plan sponsors will be expected to take 

the lead from the beneficiary, rather 

than initiate conversation about plan 

changes. We will provide more specific 

instructions for plans in subregulatory 

guidance. 

Comment: One commenter asked 

whether a special election period (SEP) 

would apply when a beneficiary is 

enrolled by an unqualified agent, if the 

requirement would apply only during 

the AEP or throughout the year and 

what should a plan sponsor do if it is 

unable to reach the beneficiary. 

Response: There will be no SEP 

specifically tied to enrollment by an 

unqualified agent; however, these 

circumstances will be treated just like 

any other complaint regarding 

marketing misrepresentation by an 

agent. The requirement will apply 

throughout the plan year because 

beneficiaries eligible for an SEP (for 

example, dual eligibles and those who 

move outside their plan’s service area) 

can enroll in a new plan at other times 

during the year, and plans can market 

to these individuals. The contact 

requirements will be similar to the 

contact requirements for outbound 

enrollment verification calls. We will 

provide more direction through 

subregulatory guidance. 

Comment: One commenter asked 

whether this requirement applied to 

family, friends, or others presenting 

themselves as agents. 

Response: This requirement does not 

apply to situations in which family 

members or friends (who are not agents) 

give advice or recommendations to 

beneficiaries. However, plan sponsors 

should report individuals impersonating 

agents to the State Department of 

Insurance as unlicensed agents. 

4. Customized Enrollee Data (§ 422.111 

and § 423.128) 

In our November 2010 proposed rule 

(75 FR 71230), we discussed our 

concern that information that MA 

organizations and Part D provide their 

enrollees annually in the annual notice 

of change/evidence of coverage (ANOC/ 

EOC) document may not be enough to 

prompt enrollees to actively evaluate 

their plans annually with respect to 

plan costs, benefits, and overall value. 

Therefore, we proposed to require MA 

organizations and Part D sponsors to 

periodically provide each enrollee with 

enrollee specific data to use to compare 

utilization and out-of-pocket costs in the 

current plan year to projected utilization 

and out-of-pocket costs for the following 

plan year. We proposed to add new 

paragraphs (12) and (11) to § 422.111(b) 

and § 423.128(b), respectively, to specify 

this requirement. Plans would disclose 

this information to plan enrollees in 

each year in which a minimum 

enrollment period has been met, in 

conjunction with the ANOC/EOC. 

We discussed several options for 

implementing this data disclosure 

requirement (75 FR 71230 through 

71233), and we noted that the proposed 

rule only specified our authority to 

require such a disclosure. We sought 

suggestions and comments from MA 

organizations, Part D sponsors, the 

beneficiary community, and other 

external stakeholders related to the 

design, content, and the cost 

calculations to assist us in 

implementing these provisions. In 

addition, we noted that we were 

considering implementing a pilot 

program for CY 2012 with a few MA 

organizations and Part D sponsors to test 

approaches to conveying customized 

beneficiary data, based on the comments 

and suggestions that we received. 

We also solicited comments on the 

possibility of exempting dual eligible 

special needs plans (D–SNPs) from the 

requirement to provide such customized 

enrollee data through a customized outof-pocket cost statement or an 

explanation of benefits (EOB), since 

enrollees in these plans generally do not 

incur out-of-pocket costs. We sought 

comment on exempting D–SNPs from 

this requirement. 

After considering the comments we 

received, we are modifying our original 

proposal, as described below. 

Comment: Many commenters 

expressed appreciation for our effort to 

identify the best ways to provide useful 

information to beneficiaries. However, 

while a few commenters supported 

requiring a customized statement that 

would provide an estimate of future 

costs, most commenters opposed this 

model, citing the administrative and 

financial burden on plans. 

Many commenters stated that a 

customized estimate of future costs 

would create more significant 

administrative, financial and IT 

resource burdens on MA plans and Part 

D sponsors than CMS anticipated in its 

proposal. These commenters stated that 

the expense and operational burden of 

the proposal could not be justified 

relative to its value to beneficiaries, 

considering the potential for beneficiary 

confusion and dissatisfaction that may 

result from any projection of future 

costs. Other commenters stated that 

such a requirement would likely result 

in the need for additional funding of 

audits as well as rigorous quality 

assurance programs consistent with 

HIPAA requirements related to the 

dissemination of this type of document 

with the ANOC/EOC. Several 

commenters expressed concerns that 

such a requirement would result in a 

need to significantly increase call center 

or 1–800–Medicare staffing to handle 

the questions resulting from the 

documents; or that it would also result 

in more complaints to monitor in the 

Complaints Tracking Module. One 

commenter suggested that the 

significant costs of producing and 

distributing a custom statement would 

increase administrative costs that, in 

turn, might increase plan bids and result 

in a negative impact on benefits and or 

premiums. 

Several commenters suggested that 

providing these reports for Part D 

benefits would be very burdensome, 

even assuming that drug prices will not 

change in the following year. They 

stated that it would be difficult to 

estimate future expenses related to the 

initial coverage limit and coverage gap. 

Several commenters also stated that 

since enrollees already receive Part D 

EOBs, a customized out-of-pocket cost 

statement would be redundant and 

confusing for beneficiaries. Another 

commenter asked how plans would be 

expected to coordinate between the 

medical and prescription drug portions 

of their benefit to the extent that we 

required a customized out-of-pocket 

cost statement to include information 

about Parts C and D costs. 

Many stated that requiring a 

customized out-of-pocket cost statement 

to be ‘‘bundled with’’ the ANOC and 

EOC presents an insurmountable timing 

problem due to the change in the annual 


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enrollment period (AEP). They 

expressed concern that, due to the 

timing of bid approvals, usually in 

August, that the remaining four-to-six 

week period would be much too short 

to prepare these data and mail a 

customized statement to each 

beneficiary with his/her ANOC/EOC. 

Several commenters stated that it is an 

expensive and time consuming process 

to place an extra customized document 

into an envelope package with a 

standard ANOC/EOC. However, one 

commenter recommended that any 

customized enrollee data be based on 

current year utilization only and that 

data should be included in the ANOC 

instead of a separate document to save 

on costs associated with development, 

printing, and fulfillment of an 

incremental document while creating 

just one document for beneficiaries to 

read. 

One commenter stated that a 

standard, CMS-designed report would 

eliminate the existing flexibility that 

plans have to tailor enrollee 

communications to their particular 

needs. 

A few commenters expressed 

concerns related to the ability of 

network providers receiving capitated 

payments for medical services to 

calculate out-of-pocket costs. Several 

commenters noted that some plans have 

established limited mechanisms to 

calculate the MOOP, but that these 

systems may not incorporate necessary 

utilization data such as the specific 

service the enrollee received and that 

this information would have to be 

extracted from multiple sources. 

Response: We appreciate the many 

thoughtful and detailed responses 

submitted by commenters. As we noted 

in our proposed rule (75 FR 71230), we 

have been concerned that the ANOC/ 

EOC information alone may not be 

enough to prompt enrollees to actively 

evaluate their plans annually with 

respect to plan costs, benefits, and 

overall value. We also acknowledged 

receiving requests from the beneficiary 

advocacy community to require that MA 

organizations and Part D sponsors 

provide enrollees with a personalized 

dollar estimate of their out-of-pocket 

costs in the coming contract year based 

on their use of services in the current 

contract year. We noted in the proposal 

that we are aware of the inherent 

difficulties in accurately estimating 

future year plan costs, especially the 

unknown variable of specific service 

utilization, and presenting that 

information to beneficiaries in a clear, 

concise, and useful way. We also 

recognized the impact of an earlier 

annual election period (AEP) beginning 

in CY 2011, as well as plans’ ability to 

gather a sufficient amount of utilization 

data to make useful and accurate 

projections of costs for the following 

contract year. 

Based on the comments we have 

received, we are modifying our original 

proposal and finalizing § 422.111(b)(12) 

to state that CMS may require an MA 

organization to furnish directly to 

enrollees, in the manner specified by 

CMS and in a form easily 

understandable to such enrollees, a 

written explanation of benefits, when 

benefits are provided under Part 422. 

We do not plan to test a customized outof-pocket cost statement that estimates 

future costs in CY 2012. Rather, we 

intend to work with MA organizations, 

Part D sponsors and beneficiary 

advocates to develop an EOB for Part C 

benefits modeled after the EOB 

currently required for Part D enrollees at 

§ 423.128(e), and we will test that model 

through a small pilot program with 

volunteer organizations in CY 2012. We 

will consider integration of Part C and 

Part D EOBs, level of detail, and 

frequency of EOB dissemination as part 

of the pilot program. Our goal is to 

finalize a model EOB document in the 

future based on the pilot program and 

to require all MA organizations to 

periodically send an EOB to enrollees 

for Part C benefits. In addition, since an 

EOB requirement already exists for Part 

D enrollees, we will not finalize the 

language proposed for § 423.128(b)(11). 

We believe that delaying full 

implementation of this requirement will 

provide MA organizations with 

sufficient time to prepare for periodic 

dissemination of a Part C EOB. 

Comment: Many commenters 

expressed concerns that a customized 

statement, especially with future 

projections, would not be meaningful or 

useful for beneficiaries. Some stated that 

it would create significant confusion in 

relation to Part C costs and Part D costs 

as medical and medication requirements 

change over time or their Low Income 

Subsidy (LIS) status changes. One 

commenting organization stated that it 

has encountered problems with 

beneficiary understanding of the 

maximum out-of-pocket (MOOP) limit, 

believing that it is a financial obligation 

on the beneficiary. This commenter was 

concerned that a similar 

misunderstanding would accompany a 

customized EOB or statement with 

estimated future costs. Other 

commenters believed that it would 

create a false assurance of future costs 

as well as an expectation of what their 

costs will be in the following year, and 

significant dissatisfaction if their actual 

costs are higher than projected. They 

stated that if the beneficiary’s costs are 

materially higher, beneficiaries are 

likely to be alarmed, dissatisfied or 

confused. Some commenters also 

expressed concern about beneficiaries’ 

expectations of plan liability if their 

costs are higher than the estimate. 

Another commenter was concerned 

about perceived credibility of the plans 

to their enrollees if inadequate or 

confusing information was to prompt 

beneficiaries to move to a plan that 

turns out to be of lesser value. 

Some commenters also stated that any 

information projecting future costs only 

for an enrollee’s current plan would be 

of limited use to beneficiaries because it 

would provide no similar data for any 

alternative plan. They expressed 

concern that such a statement using 

partial year data would not provide 

information that is comparable to the 

annual cost estimates available through 

the Medicare Plan Finder (MPF) tool. 

These commenters disagreed that CMS 

would improved an enrollee’s ability to 

compare plans to make better 

enrollment choices from year to year 

with a customized statement including 

estimated future costs. 

In addition, many commenters raised 

concerns that fluctuations in utilization 

of services per year and past utilization 

of ‘‘one-time’’ services would mislead a 

beneficiary with respect to his/her 

decision. Some stated that beneficiaries 

would not consider what would happen 

if their health needs change. Another 

commenter stated that enrollee-specific 

information based on past utilization 

has the potential to de-emphasize the 

value of considering future needs. 

Another commenter suggested that any 

comparison of expenses should include 

a comparison to Medicare FFS and 

Medicare FFS with the most popular 

Medigap plan (Plan F) as benchmarks in 

order to give the data context and to 

facilitate informed choice. 

Response: We agree with commenters’ 

concerns that the information presented 

to beneficiaries must be clear, concise 

and useful, without creating a false 

expectation of costs. We had similar 

concerns and therefore requested 

comments about the types of 

information as well as the format plans 

could use to provide customized 

utilization data. We also agree that the 

data that is presented to beneficiaries 

should be of a type that it would lend 

itself to comparisons with Medicare 

FFS, as well as other plans’ information, 

and could be understandable to 

beneficiaries with a range of levels of 

health literacy. As previously discussed, 

we intend to consider these issues in 

our CY 2012 pilot program. 


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Comment: Several commenters 

provided comments on the example 

tables we included in our proposed rule. 

A few commenters stated that Table 7 

(75 FR 71232), which breaks out 

Medicare Part C services by inpatient 

care, outpatient care and supplemental 

services, would provide the most useful 

information to beneficiaries with respect 

to services. Several commenters 

suggested that this table should present 

premium data for the entire year instead 

of six months. Several other 

commenters recommended that Table 6 

in our proposed rule (75 FR 71232), 

presenting an average monthly cost and 

combining all Medicare Part A and B 

services, but excluding supplemental 

services, would be the best choice. 

Several commenters contended that 

data for a 6-month period does not 

generally accurately reflect the 

enrollee’s year-long utilization or out-ofpocket cost-sharing. One of these 

commenters recommended that CMS 

use at least nine months of data and 

allow the out-of-pocket cost information 

to be sent after the ANOC/EOC to give 

beneficiaries a more complete picture 

and to reduce burden on MA 

organizations during the ANOC 

timeframes. Many commenters were 

also concerned about errors in 

estimating future costs and the limited 

value of these estimates due to future 

changes in beneficiary health status or 

one-time high expenditure items (such 

as a power wheelchair). 

One commenter suggested that CMS 

study the feasibility of requiring plans 

to use a minimum of 12 months of data 

over 2 or more contract years and 

whether this would provide more 

reliable data. This commenter also 

suggested that CMS incorporate more 

information from the ANOC into the 

estimate, such as page references for 

more information about cost sharing for 

specific services. 

Another commenter suggested that 

CMS implement procedures to ensure 

that the systems and calculations 

developed by plan sponsors are 

uniform, especially in regard to 

estimating future costs to minimize the 

potential for fraudulent and misleading 

practices by plans in order to retain 

members. 

Response: We appreciate the detailed 

responses provided by commenters 

concerning the type and amount of data, 

the presentation of the data, and 

procedures to ensure uniform 

calculations and data population. As 

previously discussed, we believe that 

requiring an EOB that summarizes 

incurred costs but does not project 

future costs will address a number of 

these concerns. We will continue to take 

data calculation and presentation issues 

into consideration as we develop a 

model EOB. 

Comment: Many commenters 

supported the use of an EOB to give 

enrollees ongoing information 

throughout the year about their Part C 

utilization and their cost-sharing and to 

help them in decision making during 

the AEP. One commenter recommended 

that a Part C EOB should clearly 

distinguish between in- and out-ofnetwork costs and supplemental 

benefits, as well provider and date of 

service. Others commenters opposed an 

EOB and considered it too costly and 

burdensome to plans without clear 

value to beneficiaries in comparing 

utilization or costs from year to year. 

Commenters supporting an EOB model 

supported different frequencies of 

distribution, including monthly, 

quarterly, bi-annually and annually. 

One commenter recommended 

requiring an annual EOB that contains 

utilization data for the months of 

January through September, to be 

received at the start of the annual 

election period, so that it would provide 

important information at the most 

appropriate time for the beneficiary. 

This commenter also stated that 

requiring a monthly EOB would not 

provide any additional benefit to 

beneficiaries beyond that of an annual 

EOB, but it would add significantly to 

plans’ administrative expenses through 

printing, postage and increased volume 

of customer service calls. 

One commenter recommended that 

instead of enrollee out-of-pocket 

expenses, CMS develop a list of 

common services for which plan 

sponsors would calculate out-of-pocket 

costs under the current plan year and 

the upcoming plan year. The commenter 

believed that this would create a 

comparable format, consistent across all 

plans, that would be a more 

economically viable option and could 

be produced in the limited time frame 

of the new AEP dates. 

Another commenter asked that CMS 

consider allowing MA organizations to 

provide enrollees with comparison 

information upon request only. This 

commenter suggested that plans could 

advise members via their websites or in 

a notice with premium bills of the 

opportunity to receive this comparison. 

Response: We agree with commenters 

that a Part C EOB without future 

projections would be a useful tool for 

beneficiaries, allowing them to keep 

track of costs throughout the plan year. 

While it would not achieve the goal of 

specifically linking utilization to 

projected costs, we do believe that it 

would be a valuable tool in annual plan 

choice decisions. We will also continue 

to consider commenters’ suggestions for 

the development of a list of common 

services tied to utilization and the 

option of plans providing comparison 

information to beneficiaries upon 

request. 

Comment: Several organizations 

supported the use of a pilot to test 

approaches to conveying custom 

beneficiary data, but requested that CMS 

delay finalizing the requirement in 

regulation until a pilot program can be 

conducted and evaluated. Another 

commenter requested that the pilot aim 

to identify other potential alternatives 

for providing this information, such as 

ways to enhance the MPF tool. Several 

commenters suggested that CMS 

conduct consumer focus groups to 

ascertain the type and extent of 

information consumers/beneficiaries 

would find useful. A commenter 

suggested that we include beneficiaries 

with a range of health literacy and 

decision making skills to determine 

which models are the most beneficiaryfriendly and effective. Others 

recommended that CMS convene a 

CMS-industry-advocacy working group 

to examine the value in this proposed 

requirement and determine what design, 

content and timing might enhance that 

value. 

Several commenters recommended 

that CMS instead put its resources into 

enhancing the MPF tool, since many 

beneficiaries already rely on and are 

familiar with this tool. They stated that 

these enhancements would permit 

enrollees to input their utilization data 

and receive direct comparisons of plans 

based on specific data. Another 

commenter stated that their plan already 

uses an online portal where members 

can view all claims made, pending, and 

paid. This commenter stated their belief 

that this ‘‘real time’’ data is more useful 

to beneficiaries to estimate their costs 

than 6 months of data the plans would 

use to estimate costs. 

Other commenters requested that we 

put more resources instead into 

government agencies, community 

organizations and other groups that 

provide one-to-one counseling to 

beneficiaries to help them choose the 

best plans for them. One commenter 

requested that we retain existing market 

basket estimates instead of individual 

estimates, because they provide useful 

comparative information and 

accomplish some goals of this provision. 

Another commenter suggested that we 

require plans to make MOOP 

information more prominent in member 

materials instead of providing more 

information that would be marginally 

helpful. 


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Response: We appreciate the 

commenters’ suggestions. We do not 

believe that it is necessary to delay 

finalizing the statement of authority in 

regulation, but we note that our final 

regulation text for § 422.111(b)(12), will 

allow us to move forward with a pilot 

program while allowing sufficient room 

to modify our initial requirements based 

the results of the pilot, to continue to 

modify requirements over time, or to 

extend the pilot program if necessary 

before full-scale implementation. We 

agree with commenters that enhancing 

the MPF tools to be able to input 

utilization data and generate enrollee 

specific information on plan choices 

would be an ideal option. However, we 

do not foresee this as an option that 

could be accomplished in a relatively 

short timeframe of a year or two. While 

the suggestion that CMS invest more 

resources into organizations that 

provide one-on-one counseling to 

beneficiaries is a valuable one, it is 

outside the scope of this regulation. 

Also, only MA organizations have the 

individual utilization data that would 

be needed to enhance the MPF tools and 

improve one-on-one counseling for 

beneficiaries. Therefore, both improving 

the MPF tool and improving one-to-one 

counseling would require plans to track 

and disclose individual Part C 

utilization data. 

Comment: A few commenters 

recommended that EGWPs be exempt 

from the requirement to distribute 

customized beneficiary data. 

Commenters noted the limited range of 

choices available to beneficiaries who 

receive coverage through these plans; 

MA organizations’ lack of knowledge 

regarding the contribution EGWP 

retirees make toward the cost of the 

premium for their plan; and changes 

made by the employers to their EGWP 

MA plans that are not known to the MA 

organization at the time these 

summaries are to be provided to 

enrollees. Another commenter stated 

that any summary sent to enrollees who 

have employer group commercial group 

coverage primary and Medicare as 

secondary payer, and who enroll in 

their employer’s EGWP MA plan to 

obtain this Medicare secondary 

coverage, will not be accurate because it 

would be based on MA plan out-ofpocket cost-sharing but would not 

account for the commercial group 

coverage cost-sharing that these 

enrollees actually pay. This commenter 

also stated that some enrollees will not 

have had the ‘‘minimum enrollment 

period’’ of 6 months, so the plan would 

have to exclude them from receiving the 

summary. 

Response: We disagree with these 

commenters and do not intend to 

exempt EGWPs from the requirement 

§ 422.111(b)(12). Given that we are 

modifying our original proposal to 

provide CMS with authority, under to 

require an MA organization to furnish 

directly to enrollees, a Part C EOB, we 

do not believe that many of these 

comments are relevant. We also note 

that EGWPs currently must comply with 

all MA marketing requirements under 

§ 422.111, although they have flexibility 

through previously granted waivers 

with respect to submission, CMS 

review, and timing requirements. Since 

a Part C EOB would be part of MA 

disclosure requirements under 

§ 422.111, we expect EGWPs would be 

afforded these same times of flexibility 

but would still be required to comply 

with the requirement. 

Comment: Several commenters 

responded to our request for comments 

related to exempting dual eligible 

special needs plans (D–SNPs) from the 

requirements. Several commenters 

recommended that D–SNPs and/or 

chronic and institutional care SNPs 

should be exempt from the requirement 

to furnish customized enrollee data on 

out-of-pocket costs. Another commenter 

recommended that CMS exempt any 

dual eligible beneficiary that enrolls in 

an MA plan that is not a D–SNP. These 

commenters believe that since the 

States’ Medicaid plans generally pay 

enrollees’ out-of-pocket costs, providing 

customized enrollee data through a 

customized out-of-pocket cost statement 

or an EOB would be unnecessary and 

confusing for enrollees. 

Response: We appreciate the 

responses from commenters, but given 

the modification of our original 

proposal, we believe that an EOB 

allowing beneficiaries to track 

utilization of services as well as any outof-pocket costs would be a useful tool 

for dual eligible MA enrollees. While we 

are not exempting any MA plan type 

from the requirements at 

§ 422.111(b)(12) at this time, we intend 

to study the issue of applicability to 

dual eligible MA enrollees—regardless 

of whether they are enrolled in D– 

SNPs—further under our pilot program. 

Comment: A few commenters 

requested confirmation that cost plans 

will be exempt from furnishing 

customized enrollee data, since we did 

not specifically include cost plans in the 

proposal. One commenter stated that 

cost plans should not have to provide an 

EOB due to the difficulty of gathering 

the information and the significant cost 

and time required. One commenter also 

stated that because out-of-network 

services are paid directly by Medicare 

Administrative Contractors (MACs), cost 

plans do not know a member’s full outof-pocket costs. This commenter also 

stated that for most cost plans, the 

MACs process claims before sending 

them to the cost plan; thus there could 

be a delay in receiving the information, 

resulting in an inability to produce 

customized enrollee documents in time 

to be distributed with the ANOC/EOC. 

Response: We did not propose to 

include cost plans in the proposal for 

customized enrollee data and, therefore, 

will not include them in this final 

policy. However, we will continue to 

study whether to apply the EOB 

requirement to cost plans in the future. 

5. Extending the Mandatory Maximum 

Out-of-Pocket (MOOP) Amount 

Requirements to Regional PPOs 

(§ 422.100 and § 422.101) 

In our April 2010 final rule (75 FR 

19709 through 19711), we established a 

mandatory maximum out-of-pocket 

(MOOP) requirement for local MA plans 

effective contract year 2011. As 

provided at § 422.100(f)(4), all local MA 

plans, including HMOs, HMOPOS, local 

PPO (LPPO) plans and PFFS plans, must 

establish an annual MOOP limit on total 

enrollee cost sharing liability for Parts A 

and B services, the dollar amount of 

which will be set annually by CMS. As 

provided at § 422.100(f)(5), LPPO plans 

are required to have a catastrophic limit 

inclusive of both in- and out-of-network 

cost sharing for all Parts A and B 

services, the dollar amount of which 

also will be set annually by CMS. Since 

a statutory MOOP requirement was 

already in effect with respect to RPPO 

plans, we had proposed to apply the 

new mandatory MOOP requirement 

only to local MA plans, and thus in our 

April 2010 final rule (75 FR 19711) 

subjected only local MA plans to the 

requirement that they meet the MOOP 

dollar amount specified. We encouraged 

RPPOs to adopt either the mandatory or 

voluntary MOOPs established in CMS 

guidance, stating that, to the extent an 

RPPO sets its MOOP and catastrophic 

limits above the mandatory amounts set 

by CMS for other plan types, it may be 

subject to additional CMS review of its 

Parts A and B services cost sharing 

amounts. We also expressed our intent 

to address this discrepancy in future 

notice-and-comment rulemaking. 

In our November 2010 proposed rule 

(75 FR 71233 and71234), we proposed 

to extend these mandatory MOOP and 

catastrophic limit amount requirements 

to RPPO plans beginning in contact year 

2012, in order to make it easier for 

beneficiaries to understand and 

compare MA plans. Each RPPO plan 

would establish an annual MOOP limit 


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on total enrollee cost sharing liability 

for Parts A and B services, the dollar 

amount of which would be set annually 

by CMS. All cost sharing (that is, 

deductibles, coinsurance, and 

copayments) for Parts A and B services 

would be included in RPPO plans’ 

MOOPs. We proposed to codify this 

requirement by revising § 422.100(f) to 

include regional MA plans. In addition, 

we proposed revisions to paragraphs 

(d)(2) and (d)(3) of § 422.101(d) to 

specify that the catastrophic limits set 

by RPPOs may not be greater than the 

annual limit set by CMS. 

After considering the comments 

received, we are finalizing these 

proposed provisions without further 

modification. 

Comment: We received several 

comments on this proposal, most of 

which expressed support for our 

proposal to extend the mandatory 

MOOP and catastrophic limits to RPPOs 

and agreement that doing so would 

make it easier for beneficiaries to 

understand and compare plans. 

However, a commenter argued that 

since CMS is paying MA plans based on 

projected costs of providing Parts A and 

B benefits under the fee-for-service 

program, we should not require MA 

plans to provide richer benefits than 

Parts A and B required benefits without 

being compensated for the additional 

cost. 

Response: We agree with commenters 

that extending the MOOP and 

catastrophic limit requirements 

applicable to RPPOs will make plan-toplan comparisons easier and will level 

the playing field for RPPOs relative to 

LPPOs. 

We disagree with the commenter that 

recommended that MA plans be 

compensated for the additional cost of 

including MOOP and catastrophic limits 

in their benefit packages. As discussed 

previously in our April 2010 final rule 

(75 FR 19710), we believe that requiring 

the inclusion of a MOOP limit is an 

important step to ensure that 

individuals who utilize higher than 

average levels of health care services are 

not discouraged from enrolling in MA 

plans that do not have such a limit in 

place. Given that RPPO plans are 

required by statute to have such a 

liability limit in place, we were 

concerned that enrollees with high outof-pocket costs would be discouraged 

from enrolling in RPPOs if similar 

protection from high out-of-pocket costs 

is not offered under those plans. We 

continue to believe that requiring a 

mandatory MOOP and catastrophic 

limits set by CMS does not unduly 

disadvantage MA plans relative to 

original Medicare. 

We are therefore finalizing our 

proposal to extend the mandatory 

MOOP and catastrophic limit 

requirements to RPPO plans at 

§ 422.100(f) and § 422.101(d). Effective 

contract year 2012, each RPPO plan 

must establish an annual MOOP limit 

on total enrollee cost sharing liability 

for Parts A and B services, the dollar 

amount of which would be set annually 

by CMS. All cost sharing (that is, 

deductibles, coinsurance, and 

copayments) for Parts A and B services 

will be included in RPPO plans’ MOOPs 

and catastrophic limits. 

Comment: Several commenters 

recommended that we eliminate the 

MOOP requirement for dual eligible 

SNPs (D–SNPs) because members are 

not responsible for out-of-pocket costs. 

Response: We disagree with these 

commenters. As we explained 

previously in our April 2010 final rule 

(75 FR 19711), dual-eligible individuals 

entitled to have their cost sharing paid 

by the State and enrolled in a SNP may 

experience mid-year changes in their 

Medicaid eligibility. In those cases, 

these individuals may be required to 

directly pay the plan cost sharing that 

otherwise would be the obligation of the 

State. Accordingly, we will not exempt 

D–SNPs from the requirement that they 

implement MOOP and catastrophic 

limits as established annually by CMS. 

Like all MA plans, D–SNPs must 

establish a MOOP limit to provide this 

enrollee protection, even though the 

State Medicaid program is usually 

paying those costs on the enrollee’s 

behalf. For purposes of tracking out-ofpocket spending relative to its MOOP 

limit, a D–SNP must count only the 

enrollee’s actual out-of-pocket spending. 

Thus, for any D–SNP enrollee, MA 

plans must count only those amounts 

the individual enrollee is responsible 

for paying net of any State responsibility 

or exemption from cost sharing toward 

the MOOP limit rather than the costsharing amounts for services the plan 

has established in its plan benefit 

package. 

6. Prohibition on Use of Tiered Cost 

Sharing by MA Organizations 

(§ 422.262) 

As provided in section 1854(c) of the 

Act and implemented at § 422.100(d)(2), 

an MA organization offering an MA plan 

must offer the plan to all Medicare 

beneficiaries residing in the service area 

of the MA plan at a uniform premium, 

with uniform benefits and levels of cost 

sharing throughout the plan’s service 

area, or segment of the service area, as 

provided at § 422.262(c)(2). In spite of 

this regulatory guidance, we have 

become aware that an increasing 

number of plans are charging 

beneficiaries different amounts of cost 

sharing for services depending on, for 

example, which provider group the 

beneficiary selects, the plan’s network 

of hospitals, or how frequently the 

beneficiary uses selected services. 

In an effort to ensure that MA 

organizations establish cost sharing that 

is fully consistent with the intent of the 

uniformity requirement in section 

1854(c) of the Act, we proposed to 

revise § 422.262 to stipulate that MA 

organizations cannot vary the level of 

cost sharing for basic or supplemental 

benefits for any reason, including based 

on provider groups, hospital network, or 

the beneficiary’s utilization of services. 

Comment: We received many 

comments that opposed our proposal to 

prohibit ‘‘tiered’’ cost sharing on the 

basis of provider group or hospital 

network. Comments stated that 

prohibiting tiering would create an 

overly restrictive environment and 

would prevent plans from developing 

benefit designs that encourage enrollees 

to compare providers on the basis of 

price. For example, plans would be 

prevented from implementing various 

value-based insurance designs. Others 

asserted tiering allows plans to develop 

benefit designs that encourage enrollees 

to compare providers on the basis of 

price and is valuable component of the 

MA program. Further, some stated that 

tiered cost sharing is an integral 

component of HMO point-of-service and 

PPO plans’ benefit structures and is 

generally an acceptable practice in 

health insurance. One comment stated 

that CMS should not restrict a plan’s 

ability to create innovative benefit 

package designs that would encourage 

member participation in programs that 

support increased access to quality care 

and allow members to seek services 

from lower cost providers. 

In addition, commenters expressed 

their concern that the CMS proposal 

failed to recognize the value of using 

cost sharing incentives to encourage 

enrolled beneficiaries to choose high 

quality, efficient providers. They stated 

the belief that tiered networks that 

group providers into tiers based on 

quality and efficiency may be used to 

promote quality, and that lower cost 

sharing could be used to encourage 

enrollees to receive care from high-value 

providers rather than low quality or 

inefficient providers. Other commenters 

mentioned that plans may use tiering to 

encourage enrollees to join patientcentered ‘‘medical homes’’ that improve 

quality while reducing hospitalizations, 

ER visits, and per capita cost. 

Several commenters stated that rather 

than prohibiting tiered cost sharing for 


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medical services CMS should use 

revised summary of benefit (SB) 

sentences and plan benefit package 

(PBP) software revisions to make 

transparent plans’ tiered cost sharing. 

Response: Our proposal to prohibit 

tiering of medical benefits would not 

restrict the benefit design of PPO or 

HMO–POS plans, as beneficiaries are 

able to clearly distinguish cost sharing 

differences on the basis of in-network 

and out-of-network providers. Our 

proposal addressed designs that would 

create sub-networks with varying levels 

of cost sharing for in-network services 

that may not be clearly distinguishable 

and/or accessible by beneficiaries. 

We do not disagree with commenters 

that believe it is important for plans to 

be able to design benefit packages that 

allow enrollees to choose providers 

based on both quality and cost. Our 

concerns about tiered cost sharing for 

medical services are focused on the 

potential barriers to access that may be 

created if plans implement differential 

cost sharing by provider network (or on 

any basis) and the lack of transparency 

to beneficiaries as they compare plans, 

and to providers and enrolled 

beneficiaries that are participants of any 

such benefit design. We require that all 

enrollees in a plan’s service area must 

have adequate access to plan providers 

and that permitting different levels of 

cost sharing for provider networks or 

provider groups may create inconsistent 

access to providers at each cost sharing 

tier. We believe some enrollees in a 

service area could have access only to 

the highest cost providers or that 

implementation of tiered cost sharing 

could disrupt an established 

relationship with a provider that 

becomes one of those grouped into a 

higher cost sharing level or that the 

enrollee would begin paying the higher 

cost sharing, not realizing that lower 

cost providers are available. 

We also are committed to ensuring 

that beneficiaries are able to understand 

their choices of plan offerings and there 

is currently no system to facilitate the 

disclosure of tiered cost sharing to 

beneficiaries as they compare plans or 

to beneficiaries that are enrolled in the 

plan. Further, tiered cost sharing based 

on provider group or network 

complicates referrals within the plan 

network as the providers themselves 

must be informed about the enrollee 

costs to see other plan providers to 

effectively manage enrollees’ health care 

needs. 

Finally, we are committed to ensuring 

that enrolled beneficiaries have access 

to high quality, efficient providers and 

to supporting MA plans that create 

innovative benefit packages that would 

provide enrollees with low cost, high 

quality services. We greatly appreciate 

the comments that expressed plans’ 

same goal of providing enrollees with 

affordable, high quality care and their 

belief that enrollees appreciate having 

choices about providers and the amount 

they are spending for care. 

To date, we are aware of only a few 

instances of tiered cost sharing for 

medical services but, in those cases, we 

believe the differential cost sharing was 

not based on quality of care or value but 

rather, on a plan’s ability to negotiate 

favorable rates with providers. That is 

not to say that we are not persuaded that 

it may be possible to allow plans more 

flexibility to design benefit packages 

that include some differential cost 

sharing in order to encourage enrollees 

to seek care from the most efficient 

providers. In fact, we have decided that 

we will not finalize at this time our 

proposal to prohibit tiered cost sharing. 

After carefully considering all of the 

comments, we have determined that it 

would be appropriate for us to consider 

this policy more broadly. We will 

provide future guidance and investigate 

a number of aspects for possible future 

policymaking related to tiered cost 

sharing, including, but not limited to: 

possible revisions to the PBP and SB 

sentences that would enable 

transparency; methods for verifying that 

any tiered cost sharing for medical 

benefits does not impede access to care 

for a plan’s enrollees; identifying 

methods for evaluating quality of care 

furnished by providers or provider 

networks; processes by which plans 

could submit for review proposed tiered 

benefit structures. 

Further, we note that although we are 

not finalizing our proposal, based on 

our authority at section 1852(b)(1) of the 

Act and as codified at § 422.100(f)(2), 

we prohibit tiered cost sharing based on 

utilization as a type of cost sharing that 

discriminates against beneficiaries, 

promotes discrimination, discourages 

enrollment or encourages disenrollment, 

steers subsets of Medicare beneficiaries 

to particular plans or inhibits access to 

services. Thus, although we included 

tiered cost sharing based on utilization 

in our proposal to prohibit all tiered 

cost sharing, it is also prohibited 

because it is discriminatory against 

beneficiaries. 

Comment: There were many 

comments that supported our proposal 

to prohibit tiered cost sharing on any 

basis. 

Response: We thank the commenters 

for their support of the proposal but, as 

explained previous comment, we are 

not finalizing our proposal at this time. 

Comment: There were two 

commenters that specifically supported 

the prohibition of tiering based on 

utilization and several others that stated 

tiering based on utilization could result 

in most plan members having lower cost 

sharing obligations because the first few 

provider services would have low cost 

sharing and only the minority of plan 

enrollees that over-utilize services 

would have to pay the higher cost 

sharing amounts charged for more 

frequent use of services. 

Response: We believe that increasing 

enrollees’ cost sharing to charge more to 

enrollees as they use more services is an 

example of discriminatory cost sharing 

which we prohibit under our authority 

as codified at § 422(f)(2). While the 

commenters believe that some enrollees 

are over-utilizing services, we must 

consider that the enrollees who use the 

most services may be the sickest 

enrolled beneficiaries who need more 

services than do most enrollees. We 

expect plans to manage enrollees’ care 

and believe there are tools available that 

enable plans to do so without 

implementing policies that 

inappropriately create barriers to access 

to care. Our policies (for example, cost 

sharing standards, benefit package 

review) are designed to prevent 

discriminatory cost sharing and are in 

place to protect sicker enrollees from 

plan designs that charge higher costs for 

more frequent or more costly utilization 

in order to discourage use of needed 

services. 

Comment: There were several 

commenters that requested general 

clarification of the proposal. There were 

other comments that stated the proposal 

was inconsistent with the objectives of 

the ACA. One plan’s comment also 

requested clarification of what the 

proposal does to prohibit plans from 

varying cost sharing by place of service 

in order to manage cost. For example, 

lowering cost sharing for physical 

therapy delivered in the PCP’s office 

compared to the hospital outpatient 

setting, since such variation is 

instrumental in plans’ efforts to 

encourage enrollees to utilize the most 

effective setting for care and to manage 

cost. Another commenter explained 

tiering allows health plans to 

experiment with alternative cost sharing 

structures that promote better access to 

care for sicker beneficiaries and better 

compliance with treatment regimens. 

For example, by waiving co-payments 

for certain services provided to 

diabetics. The commenter also 

suggested that tiering can be found 

throughout the Medicare FFS and MA 

programs since plans are allowed to 


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charge different cost sharing for out-ofnetwork services and providers. 

Response: We believe these 

disagreements with our proposal are 

based on a misunderstanding of what 

we mean by tiered cost sharing, 

specifically the examples regarding the 

prohibition of higher cost sharing for 

out-of-network services and the special 

cost sharing arrangements for diabetic 

services/supplies. These examples cited 

by the commenters are not what we 

define as tiering of medical services. 

Therefore, we would like to clarify that 

even under our proposal, higher cost 

sharing would have been permitted for 

out-of-network services (for example, 

PPOs) and incentivizing enrollees 

through cost sharing to use more costeffective settings to receive the same 

service (for example, charging lower 

cost sharing for the same service in a 

PCP’s office than in the hospital 

outpatient department, or for services in 

a freestanding imaging facility than in 

the outpatient department of a hospital). 

Comment: One commenter questioned 

CMS’s elimination of tiered cost 

sharing, especially as the industry 

moves towards patient centered medical 

homes and accountable care 

organizations to ensure quality care and 

tiered cost sharing could be one way to 

encourage these types of organizations. 

Response: We recognize that there is 

an evolving market for new models for 

care such as medical home and 

accountable care organizations. We do 

not believe that MA cost sharing 

standards create barriers to plans 

providing access to those high quality 

care delivery organizations. CMS will 

take these comments into consideration 

in future rulemaking. 

Comment: One commenter wanted to 

clarify whether this prohibition of tiered 

cost sharing would be at the Plan 

Benefit Package (PBP) level. 

Response: The tiered cost sharing we 

have observed has been at the PBP level 

and our proposal would have prohibited 

tiering at the PBP level. 

Comment: One commenter sought 

clarification on whether or not the 

proposal applies to the drug portion of 

Part C plans and encouraged CMS to 

apply the proposed change to the drug 

portion of Part C plans. Another 

commenter proposed that CMS allow 

differential cost sharing based on 

provider group or hospital, or modify 

the meaningful differences test to allow 

for evaluation of differences in network 

or referral requirements between plans. 

Response: Our proposal targeted 

tiering of all medical benefits, including 

Part B drugs under Part C. We thank the 

commenters and will include the 

suggestion that allowing differential cost 

sharing and including the resulting 

differentiation in provider networks to 

be considered in our evaluation of 

meaningful differences during bid 

review, in our future policy discussions 

and rulemaking. 

Comment: One commenter stated that 

tiering is the core of modern drug 

therapy management. 

Response: We would like to clarify 

that our proposal would have no effect 

on the drug tiering under the Medicare 

Part D drug benefit. 

Comment: One commenter suggested 

expanding the proposed prohibition to 

the Part D Program. 

Response: We thank the commenter 

for their suggestions but tiering within 

Part D is beyond the scope of this 

proposed rule. 

Comment: One commenter requested 

that CMS establish an employer group 

waiver excepting MA plans offered 

through employer/union group health 

plans from the tiered cost sharing. 

Response: We thank the commenter 

for the suggestion, but we believe that 

employer group plans must be subject to 

the same cost sharing as other MA plans 

in order to provide the beneficiaries 

enrolled in those plans the same 

protections as beneficiaries enrolled in 

other MA and cost plans. 

Based on the comments received on 

this proposal, we will not finalize the 

proposal to amend § 422.262 by revising 

paragraph (c)(1). We will consider 

further rulemaking related to this 

practice in the future. 

7. Delivery of Adverse Coverage 

Determinations (§ 423.568) 

Section 1860D–4(g) of the Act 

requires Part D plan sponsors to 

establish procedures for processing 

requests for coverage determinations 

and redeterminations. Those procedures 

must apply to Part D plan sponsors in 

the same manner as they apply to MA 

organizations with respect to 

organization determinations and 

reconsiderations under Part C. Under 

§ 422.568(d), an MA organization must 

provide written notice when it makes an 

unfavorable standard organization 

determination. 

In accordance with section 1860D– 

4(g) of the Act, we created a parallel 

notice provision in § 423.568(f) for 

unfavorable Part D standard coverage 

determinations. We proposed to revise 

§ 423.568(f) by allowing a Part D plan 

sponsor to first provide oral notice of an 

adverse standard coverage 

determination decision, so long as it 

also provides a written follow-up notice 

of the decision within 3 calendar days 

of the oral notification. 

As noted in the proposed rule, we 

believe this change is necessary because 

of the short decision-making timeframes 

under Part D. As we also noted in the 

proposed rule, this change is consistent 

with § 422.572(c) whereby an MA 

organization may choose to meet the 72- 

hour notification timeframe for adverse 

expedited organization determinations 

by first providing oral notice of its 

decision within 72 hours, so long as it 

also sends a written follow-up notice 

within 3 calendar days after providing 

oral notice. 

After considering the comments 

received in response to this proposal, 

we are adopting this provision without 

modification. Thus, we have revised 

§ 423.568(f) to allow a Part D plan 

sponsor to provide initial notice of an 

adverse standard coverage 

determination decision orally, so long as 

it also provides a written follow-up 

notice within 3 calendar days of the oral 

notice. 

Comment: Several commenters 

supported this policy. Some of the 

comments in support of the proposal 

also requested that CMS clarify that 

plan sponsors have 3 business days 

from the date of the oral notice to send 

written notice. Other commenters 

requested that plans have the option of 

mailing the notice within 3 days of 

receipt of the request if oral notice is not 

provided, citing the difficulty in 

providing oral notice in cases where the 

plan does not have a telephone number 

for the enrollee or the enrollee is 

difficult to reach by telephone. 

Response: The regulations in Subpart 

M of Part 423 related to providing notice 

to enrollees refer to calendar days, not 

business days. We do not believe there 

is a good reason to deviate from that 

approach for purposes of § 423.568(f). 

Accordingly, if a plan chooses to 

provide the initial notice orally, the 

written follow-up notice must be mailed 

to the enrollee within 3 calendar days 

of the oral notice. We appreciate 

commenters’ concerns about those 

instances where the enrollee cannot be 

reached by telephone. However, 

providing oral notice is optional. If the 

plan does not provide oral notice of a 

standard coverage determination to 

deny a drug benefit, the plan sponsor 

must notify the enrollee of its 

determination in writing as 

expeditiously as possible, but no later 

than 72 hours after receipt of either the 

request or, for an exceptions request, the 

physician or other prescriber’s 

supporting statement. 

Comment: One commenter expressed 

concern that the intent of the provision 

to provide enrollees with information 

quickly will be diminished if 


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beneficiaries have to wait to receive the 

written notice to learn the reason for the 

denial and appeal rights. The 

commenter requested that the regulation 

require the oral notice to include the 

reason for the denial and information 

about requesting a redetermination. The 

commenter also requested that CMS 

issue guidance to plans and develop 

model scripts. 

Response: We believe that the written 

notice plans must send the enrollee 

following the oral notice is the most 

effective means of providing detailed 

information on the coverage decision 

and an explanation of appeal rights. 

However, we agree there is value in 

providing guidance to plans on the 

information that should be conveyed to 

enrollees when providing an oral 

decision. Therefore, we will provide 

guidance in relevant manual provisions 

regarding the content of oral notification 

provided by plans. 

8. Extension of Grace Period for Good 

Cause and Reinstatement (§ 422.74 and 

§ 423.44) 

Section 1851(g)(3)(B)(i) of the Act 

provides that MA plans may terminate 

the enrollment of individuals who fail 

to pay basic and supplemental 

premiums after a grace period 

established by the plan. Section 1860D– 

1(b)(1)(B) of the Act generally directs us 

to use disenrollment rules for Part D 

sponsors that are similar to those 

established for MA plans under section 

1851 of the Act. Consistent with these 

sections of the Act, the Part C and D 

regulations set forth our requirements 

with respect to involuntary 

disenrollment procedures under 

§ 422.74 and § 423.44, respectively. 

Currently, § 422.74(d)(1)(i)(B) 

specifies that an MA organization must 

provide, at minimum, a 2-month grace 

period before disenrolling individuals 

for failure to pay the premium. 

Similarly, under current regulations at 

§ 423.44(d)(1)(ii), Part D sponsors must 

also provide a 2-month minimum grace 

period before disenrolling individuals 

for failure to pay the premium. For both 

Part C and Part D, involuntary 

disenrollments are not mandatory and, 

thus, organizations may choose to 

implement longer grace periods or forgo 

involuntary disenrollments entirely as 

long as they apply their policy 

consistently. MA and Part D plans that 

choose to disenroll beneficiaries for 

failure to pay premiums must notify the 

beneficiary of the delinquency and 

provide the beneficiary at least 2 

months to resolve the delinquency. The 

plan must also be able to demonstrate to 

CMS that it has made reasonable efforts 

to collect the unpaid premium amounts. 

Since beneficiaries who are 

disenrolled from an MA or Part D plan 

for failure to pay premiums generally 

are not eligible for a special enrollment 

period, the next opportunity to enroll in 

another plan is during the annual 

election period in the fall. As a result, 

these beneficiaries may lose their 

prescription drug coverage for the 

remainder of the year, and may incur a 

late enrollment penalty if they 

subsequently choose to re-enroll in Part 

D. For these reasons, and to be 

consistent with the provision for 

delinquent premium payments for 

Supplementary Medical Insurance (Part 

B of Medicare), we proposed to permit 

reinstatement of enrollment in an MA or 

Part D plan for instances in which the 

individual was involuntarily 

disenrolled for failure to pay plan 

premiums, but subsequently 

demonstrated good cause for failing to 

submit the premium payment timely. 

We proposed that good cause would be 

established only when an individual 

was prevented from submitting timely 

payment due to unusual and 

unavoidable circumstances beyond his 

or her control. 

Specifically, we proposed amending 

§ 422.74(d)(1) and § 423.44(d)(1) 

regarding disenrollment for nonpayment of premiums to allow for the 

reinstatement of enrollment for good 

cause subsequent to an involuntary 

disenrollment associated with the 

failure to pay premiums within the 

grace period. A reinstatement of 

enrollment would remove the 

involuntary disenrollment from the 

enrollment record, resulting in 

continuous coverage as if the 

disenrollment never occurred. Further, 

before such reinstatement could occur, 

we proposed to require that the 

individual pay in full all premium 

arrearages on which the disenrollment 

was based, as well as all other 

premiums that would have been due 

since the disenrollment. Consistent with 

the provision for delinquent premium 

payments for Supplementary Medical 

Insurance (Part B of Medicare), we 

proposed that the disenrolled individual 

would have a maximum of 3 months 

from the disenrollment date in which to 

request the good cause reinstatement 

and resolve all premium delinquencies. 

Comment: The overwhelming 

majority of commenters expressed 

support for the proposed regulatory 

revision. Several commenters further 

requested that CMS provide additional 

guidance to plans regarding the 

circumstances that would constitute 

‘‘good cause’’ and would allow for 

reinstatement of enrollment following 

an involuntary disenrollment for failure 

to pay premiums. It was also suggested 

that CMS require plans to include in 

their information to beneficiaries an 

explanation of a grace period, including 

the eligibility criteria. 

Response: We appreciate the support 

for this proposal and are adopting it as 

proposed. We will provide additional 

guidance regarding implementation of 

these new provisions in manual 

guidance (Chapter 2 of the Medicare 

Managed Care Manual and Chapter 3 of 

the Medicare Prescription Drug Benefit 

Manual). 

Comment: A commenter favored an 

extension of the minimum required 

grace period for nonpayment of 

premium from 2 months to 3 months 

and supports the development of 

provisions for payment plans for 

circumstances in which the beneficiary 

owes more than 1 month’s premium. 

Another commenter asked that CMS 

consider a waiver of the grace period 

requirements for employer group waiver 

plans (EGWPs), stating that some 

employers pay a portion of the 

beneficiary’s premium and may not be 

financially able to incur the cost of 

members not paying their portion of the 

premium during a 2 month grace period. 

Response: Issues involving the length 

and applicability of the minimum grace 

period have been the subject of recent 

rulemaking (see our April 2010 final 

rule (75 FR 19678)), and we do not 

believe it would be appropriate or 

warranted to revisit these issues in this 

final rule, given that they were not 

raised in the proposed rule. With 

respect to the request that we require 

plans to establish payment plans for 

premium arrearages, plans are by no 

means precluded from establishing such 

arrangements with beneficiaries, but we 

do not believe such arrangements 

should be mandatory. 

Comment: Several commenters who 

supported our proposal expressed 

concern about the examples in the 

proposed rule preamble of 

circumstances that likely would not 

constitute good cause. They suggested 

certain scenarios they believed would 

warrant a good cause determination. For 

example, some commenters opposed the 

statement in the preamble indicating 

that we would not expect to find good 

cause in instances where an individual’s 

legal guardian or authorized 

representative was responsible for 

making premium payments but failed to 

do so in a timely manner. The 

commenters indicated that beneficiaries 

may be penalized for errors made by 

their appointed representatives in 

situations when the beneficiary is 

unable to manage his or her affairs and 

may be unaware of the delinquency or 


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pending disenrollment. It was requested 

that CMS direct plans to find good cause 

in situations where a caregiver, 

authorized representative or legal 

guardian is responsible for making 

payment, but failed to do so timely. In 

addition, commenters suggested 

allowing for reinstatement of enrollment 

if the request is supported by a 

physician who states that any lapse in 

coverage could seriously jeopardize the 

beneficiary’s health due to the potential 

for a disruption in care or if a member 

of a State Pharmaceutical Assistance 

Program (SPAP) is disenrolled because 

the SPAP failed to provide appropriate 

premium payments. 

Response: The examples provided in 

the proposed rule were intended to be 

illustrative, and we do not intend to 

codify those principles in regulation. 

Accordingly, we will take these 

comments into consideration as we 

develop additional ‘‘good cause’’ 

guidance to plans in the Medicare 

Managed Care and Medicare 

Prescription Drug Benefit Manuals. 

However, we note that the fundamental 

basis of a good cause determination 

rests on the circumstances that 

prevented timely payment of the 

premium. Thus, a physician’s statement 

about the health consequences of a 

coverage lapse would not appear to be 

germane to whether a good cause 

determination was warranted. 

Comment: Two commenters requested 

clarification as to whether our proposal 

applied to cost plans. 

Response: Cost plans were not a part 

of our proposal and we did not set forth 

any proposed changes to 42 CFR part 

417. We may consider expanding this 

policy to cost plans in future 

rulemaking. 

9. Translated Marketing Materials 

(§ 422.2264 and § 423.2264) 

Pursuant to our authority under 

sections 1851(d)(2)(C), 1860D–1(c), and 

1860D–4(a) of the Act, we proposed to 

codify existing MA and Part D guidance 

for marketing materials in markets with 

a significant non-English speaking 

population or large percentage of 

limited English proficient (LEP) 

individuals. We proposed to include a 

requirement in the regulations that plan 

sponsors must provide translated 

marketing materials in any language that 

is spoken by more than 10 percent of the 

general population in a plan benefit 

package (PBP) service area. We 

proposed revisions to § 422.2264(e) of 

Subpart V and § 423.2264(e) of Subpart 

V to reflect this clarification. 

The proposed clarification would 

codify existing guidance regarding 

translated marketing materials. We 

proposed taking this step as a result of 

frequent complaints to CMS from 

beneficiaries and advocacy 

organizations that revealed plan 

sponsors were not providing translated 

marketing materials upon request in 

languages spoken by more than 10 

percent of the general population of a 

particular PBP service area. The August 

15, 2005 version of the Medicare 

Marketing Guidelines and every version 

thereafter, included language stating, 

‘‘Organizations/plan sponsors should 

make marketing materials available in 

any language that is the primary 

language of more than 10 percent of a 

plan’s geographic service area.’’ 

Nevertheless, plan sponsors have 

indicated they were uncertain whether 

translated marketing materials were 

required. For example, plan sponsors 

we talked to were confused about 

whether the 10 percent threshold 

applied to a specific age group (for 

example, only those 65 and older, 

which does not take into account 

younger beneficiaries who are Medicareeligible based on disability). Other plan 

sponsors assumed they did not have to 

conduct a language analysis for their 

plan because they were not aware of any 

LEP enrollees in their plans. By 

explicitly codifying the requirement to 

translate marketing materials for LEP 

individuals, we are addressing the 

problem of plan sponsor confusion by 

removing any ambiguity concerning the 

translation requirement that may have 

been created by differences between the 

language of § 422.2264 and § 423.2264 

and the Medicare Marketing Guidelines. 

Additionally, Title VI of the Civil Rights 

Act of 1964 prohibits discrimination on 

the basis of race, color, or national 

origin by recipients of Federal financial 

assistance. Recipients must take 

reasonable steps to provide persons 

with limited English proficiency 

meaningful access to their programs and 

activities. This may require the 

translation or interpretation of certain 

information into languages other than 

English. Under an Executive Order 

13166, issued in 2000 and reaffirmed in 

February 2011 by the Attorney General, 

each Federal agency must also 

implement a system by which LEP 

persons can meaningfully access the 

agency’s programs. This codification is 

consistent with that obligation. 

Comment: We received more than 100 

comments regarding the proposal to 

codify the 10 percent threshold 

standard. The majority of commenters 

proposed new, more rigorous threshold 

standards. The most commonly 

suggested threshold standard was 5 

percent of the population or 500 people 

in a service area, whichever is lower. A 

small number of commenters suggested 

a 1 percent threshold. None of these 

commenters quantified the 

improvement in access that these 

standards, particularly the 500 person 

minimum or 1 percent options, would 

bring. Some of the commenters 

recommending this translation standard 

were unaware that this regulation would 

only pertain to the Medicare population 

enrolled in Part C or D plans or that the 

proposed rule was only requiring 

translation of marketing materials and 

not lab test results or patient 

instructions. Additionally, some 

commenters supporting the 5 percent or 

500 people threshold indicated that 

many of the LEP individuals they serve 

are illiterate in any language. 

A variety of industry representatives 

indicated that they supported CMS’ 

rule. Some of these commenters further 

recommended, however, that CMS base 

the standard on an individual’s primary 

language in order to focus on 

individuals that were proficient in only 

a non-English language rather than 

those who were bi-lingual. One 

commenter from industry suggested the 

standard should be based on the 

Medicare population; another suggested 

the standard should be based on the 

PBP’s membership; and another 

suggested we should look at only 

individuals age 65 and older. Industry 

commenters justified their suggestions 

for modifying CMS’ current standard 

based on their experience that they only 

receive a few requests for hard copies of 

the materials each year. The industry 

commenters also expressed concern 

about the cost of developing and 

printing translated materials when they 

anticipate a low demand. 

Response: In response to both 

industry and advocacy stakeholders that 

commented on the proposed rule, we 

will move the standard populationbased translation threshold from 10 

percent to 5 percent. Further, we will 

revise our methodology for calculating 

these thresholds by focusing on 

individuals who primarily speak a nonEnglish language and who have a 

limited ability to read, write, speak, or 

understand English, as opposed to also 

including individuals who are at least 

bilingual. Specifically, we will require 

plan sponsors to translate marketing 

materials into any non-English language 

that is the primary language of at least 

5 percent of the individuals who reside 

in a PBP’s service area. 

At this time, we will continue to use 

the U.S. Census Bureau’s American 

Community Survey (ACS) data to 

determine the languages spoken in each 

sponsor’s PBP’s service area. However, 


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we recognize that the ACS data may be 

superseded by more accurate or timely 

data in the future; therefore, we will 

continue to monitor and review data 

sources that are available to all plan 

sponsors. In particular, we will continue 

to evaluate forthcoming data sources 

that most accurately identify 

individuals who are unable to read 

English-language materials, but are 

literate in non-English languages. We 

prefer to use data sources that are 

publicly available in order to reduce the 

burden on plan sponsors. We will, as we 

have done since 2009, continue to 

calculate, on behalf of all plan sponsors, 

the specific languages that meet the 

threshold for each PBP service area. 

From a public policy perspective, 

moving to a 5 percent threshold and 

focusing on individuals’ primary 

language produces the best outcome 

because it will focus sponsor resources 

on individuals with the most need for 

translated materials. We conducted an 

impact analysis of how this standard 

and revised methodology would change 

current translated materials offerings. 

The results of our analysis indicated 

moving to 5 percent and focusing on 

primary language will slightly reduce 

the burden on plan sponsors because a 

small number of them will no longer be 

required to translate materials at all. 

(There was a slight net reduction, which 

may vary from year to year. Under the 

new standard, some PBPs that did not 

require translation in the past will now 

be required to translate.) Additionally, 

focusing on the primary language 

spoken by individuals more closely 

aligns with the HHS definition of a LEP 

individual. The HHS Guidance to 

Federal Financial Assistance Recipients 

Regarding the Title VI Prohibition 

Against National Origin Discrimination 

Affecting Limited English Proficient 

Persons (HHS LEP Guidance) defines 

LEP individuals as those ‘‘who do not 

speak English as their primary language 

and who have a limited ability to read, 

write, speak, or understand English.’’ 

Focusing on individuals’ primary 

language is more consistent with the 

definition than our current practice of 

looking at any languages spoken by the 

general population. 

We disagree with the other suggested 

translation threshold approaches from 

the commenters for several reasons. 

First, the suggested standard threshold 

of 5 percent or 500 people, whichever 

is less, would result in all PDPs and 

nearly all MAOs providing translated 

materials in all languages captured in 

the ACS data because 500 is such a 

small number of speakers. This would 

be a significant increase in the number 

of plan sponsors required to translate 

and the number of languages required 

for translation, and absent definitive 

evidence to support the sharp increase, 

this would result in insupportable costs 

and burden. The same argument holds 

true for the suggestion of a 1 percent 

standard. Second, the suggested 

standard of 10 percent of a plan’s 

membership (as opposed to population 

data) would be impossible for plan 

sponsors or CMS to calculate because 

beneficiary language preference is an 

optional field for beneficiaries to 

complete on a plan enrollment form. 

There is no guarantee that all LEP 

beneficiaries would be counted by the 

sponsor. Also, because we do not collect 

the enrollment form language preference 

data from sponsors, we would need to 

establish a reporting requirement and 

then wholly rely upon sponsorgenerated data when monitoring for 

compliance. With regard to the 

suggestion to only look at language data 

for those age 65 and older, we cannot 

lose sight of the fact that some 

individuals that qualify for Medicare 

(and for participation in the Part C and 

D programs) are younger than 65. 

However, we will conduct additional 

sensitivity analyses in the future to 

assess if applying a weighted-average to 

account for the age distribution of the 

Medicare population would affect 

translation requirements. Should we 

ever change our data source or 

methodology for calculating translation 

requirements, we will publish that 

information in subregulatory guidance. 

Comment: One industry organization 

suggested that plan sponsors should not 

have to translate any documents, and 

beneficiaries should rely on oral 

interpretation services available through 

their call centers. 

Response: We do not agree with this 

comment. In order to ensure that LEP 

beneficiaries have access to vital 

information needed to make appropriate 

decisions about their health care, our 

goal is to make marketing materials 

available to beneficiaries, wherever it is 

reasonable to do so. Because of the 

particular effort required to make these 

translations available, we must balance 

those resource costs with the likelihood 

of the documents being requested and 

used. As such, we apply a threshold, 

and thus our rules do not require 

translation of marketing materials into 

all languages. However, call center 

interpreters, must be made available in 

virtually all languages spoken in the 

U.S. Fulfillment of this requirement 

provides a safety net in geographic areas 

where only a few beneficiaries speak a 

particular non-English language. We 

reached our decision after conducting 

the four factor analysis in the 

aforementioned HHS LAP Guidance, 

and, based on this analysis, a mix of 

language services (that is, both oral 

interpretation services and written 

translated materials when a standard 

translation threshold has been met), is 

the most appropriate solution for the 

population served by the Medicare Parts 

C and D programs. 

Comment: Several comments were 

outside of the scope of this proposed 

rule. The comments were technical and 

operations oriented, and are more 

appropriate as comments on the 

Medicare Marketing Guidelines. 

Industry requested that plans should not 

have to have pre-printed copies of 

translated materials on hand; rather, 

they preferred to meet the requirement 

through a print-on-demand capability 

and provide the translated material 

within a reasonable timeframe to the 

beneficiary. Another comment 

suggested CMS require plans to provide 

enrollment materials in any language 

that the plan was advertised in via any 

media (for example, print, radio, 

Internet, etc.). Lastly, a commenter 

requested clarification regarding which 

marketing materials required 

translation. 

Response: We agree that these 

comments raise valid points that merit 

clarification, and we will consider them 

in the context of future revisions of the 

Medicare Marketing Guidelines. 

However, we remind MA organizations 

and Part D plan sponsors that, pursuant 

to the current Medicare Marketing 

Guidelines, all Medicare marketing 

materials that are required to be 

translated and available in print upon 

request are also required to be posted on 

the plan’s Web site. The specific 

marketing materials required for 

translation are contained within the 

Medicare Marketing Guidelines. 

Comment: One industry commenter 

suggested that CMS provide translations 

of the model evidence of coverage (EOC) 

in the top five languages other than 

English most commonly spoken by 

Medicare beneficiaries nationally. 

Response: We are aware of the cost 

burden on plan sponsors to produce 

translated marketing materials, and 

CMS and beneficiary advocates have 

concerns about the quality and accuracy 

of translated materials provided to 

beneficiaries. In response, for the 2012 

contract year, CMS anticipates 

providing a few translated versions of 

certain model marketing materials. Our 

aim is to reduce the burden on plan 

sponsors and increase the quality, 

consistency, and accuracy of these 

marketing materials for beneficiaries. By 

providing translations of some or all 

model materials in all languages in 


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which translation is required for at least 

one plan benefit package, plan sponsors 

would merely need to translate their 

own plan-specific inserts or 

modifications, in addition to required 

materials for which there is no model or 

translation available. In future years we 

would prefer to translate all required 

model marketing materials and will 

actively pursue this goal, but we are 

uncertain about viability of this practice 

because we cannot guarantee that we 

would be able to fund this initiative 

annually. Additionally, we are 

exploring creating a 1-page model 

document that would inform 

beneficiaries, in multiple languages, that 

free interpreter services are available 

when beneficiaries call the plan’s 

customer service call center. 

Comment: One commenter requested 

clarification as to whether the Program 

of All-inclusive Care for the Elderly 

(PACE) program is subject to the 

requirement that plan sponsors provide 

translated marketing materials. 

Response: We clarify that PACE 

programs are not subject to this 

requirement. 

In summary, we received numerous 

comments on this proposed rule. In 

response to commenters, we are 

finalizing the proposed rule, with 

modification. We factored in advocacy 

organizations’ comments to reduce the 

percentage threshold and addressed 

industry’s concerns by refining our 

methodology, which will slightly reduce 

sponsors’ administrative burden. 

Further, the revised analysis 

methodology is more consistent with 

the HHS definition of an LEP individual 

than our current practice. Our final rule 

will require plan sponsors to translate 

marketing materials into any nonEnglish language that is the primary 

language of at least 5 percent of the 

individuals in a PBP’s service area. This 

new translation standard will go into 

effect for contract year 2012; therefore, 

2012 enrollment materials must be 

produced with this new translation 

standard in mind, in keeping with all 

relevant deadlines that occur in 2011 in 

preparation for the 2012 marketing 

season. As in the past, we will continue 

monitoring sponsors’ compliance with 

translated materials requirements. 

E. Strengthening Our Ability To 

Distinguish for Approval Stronger 

Applicants for Part C and Part D 

Program Participation and To Remove 

Consistently Poor Performers 

This section addresses a number of 

provisions designed to strengthen our 

ability to approve strong applicants and 

remove poor performers in the Part C 

and D programs. Since the 

implementation of revisions to the MA 

program and initial implementation of 

the prescription drug program in 

January 2006 as a result of the MMA, we 

have steadily enhanced our ability to 

measure MA organization and PDP 

sponsor performance through efforts 

such as the analysis of data provided 

routinely by sponsors and by our 

contractors, regular review of 

beneficiary complaints, marketing 

surveillance activities, and routine 

audits. This information, combined with 

feedback we have received from 

beneficiary satisfaction surveys, HEDIS 

data, and information from MA 

organizations and PDP sponsors 

themselves, has enabled us to develop a 

clearer sense of what constitutes a 

successful Medicare organization 

capable of providing quality Part C and 

D services to beneficiaries. This 

information has also allowed us to 

identify and take appropriate action 

against organizations that are not 

meeting program requirements and not 

meeting the needs of beneficiaries. 

As our understanding of Part C and D 

program operations has deepened since 

implementation of the MMA, our use of 

our authority to determine which 

organizations are qualified to offer MA 

and PDP sponsor contracts, evaluate 

their compliance with Part C and D 

requirements, and make determinations 

concerning intermediate sanctions, 

contract non-renewals and contract 

terminations has evolved as well. The 

changes identified in this rule will 

further allow us to make these 

determinations more effectively. These 

provisions are described in detail in 

Table 7. 


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1. Expand Network Adequacy 

Requirements to All MA Plan Types 

(§ 422.112) 

In our November 2010 proposed rule 

(75 FR 71236), we proposed applying 

the network adequacy standards at 

§ 422.112(a)(10) to all MA plans that 

meet Medicare access and availability 

requirements by directly contracting 

with network providers, including MSA 

plans that choose to use a contracted 

networks of providers. This proposed 

change would bring MSA network 

adequacy requirements in line with 

those applicable to MA coordinated care 

(CCP) plans and network private-fee-forservice (PFFS) plans, per a provision 

finalized in our April 2010 final rule (75 

FR 19691 through 19693). This rule 

established criteria that MA CCP and 

PFFS plans must meet so that we can 

ensure that the network availability and 

accessibility requirements specified in 

section 1852(d)(1) of the Act are 

satisfied. We are finalizing this 

provision without modification. 

Comment: One commenter 

recommended that CMS require all MA 

plans, including non-network PFFS and 

MSA plans, to meet the network 

adequacy requirements at 

§ 422.112(a)(10). 

Response: We do not have the 

statutory authority to require that the 

network adequacy standards at 

§ 422.112(a)(10) be applied to MSA 

plans that do not use a network of 

providers or to PFFS plans that are not 

required to have a network that meets 

network adequacy requirements. MSA 

plans are not required under section 

1859 of the Act to establish networks of 

providers, and section 1852(d)(5) of the 

Act permits PFFS plans to operate 

without networks when fewer than two 

network-based plans are operating in an 

area. 

2. Maintaining a Fiscally Sound 

Operation (§ 422.2, § 422.504, § 423.4, 

and § 423.505) 

Under the authority of sections 

1857(d)(4)(A)(i) and 1860D–12(b)(3)(C) 

of the Act, which establish requirements 

for MA organizations and PDP sponsors 

to report financial information 

demonstrating that the organization has 

a fiscally sound operation, we proposed 

in § 422.2 and § 423.4 to define a fiscally 

sound operation as one which, at the 

very least, maintains a positive net 

worth (total assets exceed total 

liabilities). We noted that the States’ 

oversight and enforcement of financial 

solvency of MA organizations and PDP 

sponsors provides an important 

protection for Medicare beneficiaries 

enrolled in MA and Part D plans. 

However, we also noted that the 

requirement for plans to report financial 

information demonstrating that the 

organization has a fiscally sound 

operation and our authority to audit and 

inspect any books and records, is an 

indication that we have an interest in 

the organization maintaining a fiscally 

sound operation and that this interest is 

separate and apart from the State 

licensure and financial solvency 

requirements for an organization. 

Additionally, under the authority of 

sections 1857(e)(1) and 1860D– 

12(b)(3)(D) of the Act which afford the 

Secretary the authority to include terms 

and conditions in the contracts with MA 

organizations and PDP sponsors that are 

necessary and appropriate, we proposed 

the addition of a contract provision at 

§ 422.504(a) and § 423.505(b)(23), under 

which the MA organization or Part D 

sponsor agrees to maintain a fiscally 

sound operation by at least maintaining 

a positive net worth (total assets exceed 

total liabilities). 

Comment: One commenter suggested 

that the standard that ‘‘total assets 

exceed total liabilities’’ was insufficient 

and that CMS should set a higher 

threshold. 

Response: We believe that the role of 

the state insurance departments in 

providing oversight and enforcement of 

licensure and financial solvency is the 

primary tool for financial oversight of 

organizations and therefore it is 

unnecessary for CMS to modify this 

standard. 

Comment: One commenter asked if 

the fiscally sound operation 

requirement applied only to the 

Medicare lines of business or to all lines 

of business. 

Response: We have not imposed any 

new reporting requirement and will rely 

on the financial reports that are 

submitted for the organization as a 

whole. 

Comment: One commenter suggested 

that CMS should publish clear 

guidelines for when a plan’s finances 

will be declared ‘‘unsound.’’ 

Response: We have specified in the 

definitions that a ‘‘fiscally sound 

operation’’ is one with a positive net 

worth. We already require that 

organizations submit the same 

information that is submitted to their 

state insurance departments under that 

state’s requirements and guidelines. 

Therefore it is not necessary for us to set 

specific guidelines for calculating 

positive net worth. 

Comment: One commenter suggested 

that CMS should publish its criteria for 

selecting alternative plans for receiving 

transitioned beneficiaries. 

Response: When appropriate, we 

would follow all policies and 

procedures specified in the current 

guidance in Chapter 2 of the Medicare 

Managed Care Manual http:// 

www.cms.gov/MedicareMangCare

EligEnrol/Downloads/

FINALMAEnrollmentand

DisenrollmentGuidance

UpdateforCY2011.pdf, entitled ‘‘Passive 

Enrollment by CMS which are used for 

the smooth transition of beneficiaries to 

other plans when there are terminations 

for reasons other than failure to 

maintain a fiscally sound operation. For 

prescription drug plans, we would 

follow all policies and procedures 

specified in the current guidance in 

Chapter 3 of the Medicare Prescription 

Drug Benefit Manual, http:// 

www.cms.gov/MedicarePresDrugElig

Enrol/Downloads/

FINALPDPEnrollmentandDisenrollment

GuidanceUpdateforCY2011.pdf, which 

contains the Part D guidance on passive 

enrollment. 

Comment: One commenter agreed 

with the definition for ‘‘fiscally sound 

operation’’ with the understanding that 

‘‘total assets’’ and ‘‘total liabilities’’ were 

to be as defined by the state insurance 

departments. 

Response: We appreciate the 

commenter’s support for the proposal 

and confirm that we have not changed 

our financial reporting requirements 

and that we continue to use the 

information that is submitted to the 

state based on the State’s financial 

reporting requirements and guidelines. 

Comment: One commenter suggested 

that CMS should take into consideration 

arrangements providing for the financial 

solvency of an MAO by the parent 

organization consistent with the 

treatment of those arrangements by the 

relevant State insurance department. 

Response: We continue to consult 

regularly with state insurance regulators 

to ensure that sponsoring organizations 

are meeting State reserve requirements 

and solvency standards required for 

State licensure and their input is 

included in any action related to fiscal 

soundness. 

Comment: One commenter requested 

that CMS clarify how the Part D fiscally 

sound requirement will apply to 

Medicare cost organizations that also 

offer Part D services. 

Response: As mentioned previously, 

we will rely on the financial reports that 

are submitted for the organization as a 

whole. Therefore, the cost organization, 

including the Part D benefit, will be 

held to the fiscally sound operation 

requirement. 

Comment: One commenter was 

concerned that the fiscally sound 


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requirement adds new reporting 

requirements. 

Response: As noted in the preamble to 

the November 2010 proposed rule, a 

determination of whether there is a 

positive net worth will be made from 

the financial reports submitted under 

the currently approved financial 

reporting requirements. No additional 

filings will be required. 

Comment: One commenter requested 

that CMS explain how traditional state 

regulation has not provided adequate 

consumer protection such that 

additional Federal oversight is required 

and suggested that the proposal be 

withdrawn to allow the states to 

maintain primary supervision of plans 

for fiscal soundness. 

Response: As noted in the preamble to 

the November 2010 proposed rule, 

licensure does not deem an organization 

to meet other requirements imposed 

under Part C or Part D. The requirement 

for an organization to be licensed under 

State law and the requirement that an 

organization must report financial 

information demonstrating that the 

organization has a fiscally sound 

operation are separate requirements in 

the Act. The authority to license an MA 

organization or PDP sponsor and set 

solvency standards rests with the state 

licensing authority and therefore the 

primary supervision of plans for fiscal 

soundness continues to rest with the 

states. The proposed rule clarifies what 

we expect from a fiscally sound 

operation. Further, as stated previously, 

we consult regularly with state 

insurance regulators and their input is 

included in any action related to fiscal 

soundness. 

Comment: One commenter asked how 

the requirement to maintain a fiscally 

sound operation will protect 

beneficiaries if the plan sponsor has 

already encountered the financial 

difficulties. 

Response: We have historically been 

limited in our ability to take compliance 

and enforcement action against an 

organization solely on the basis of 

financial problems if the organization is 

still licensed by the state and is not 

otherwise out of compliance with CMS 

requirements. In some cases, we have 

been made aware by state insurance 

departments that an organization would 

inevitably lose its state licensure 

because of its poor financial condition, 

but we were unable to take action to 

terminate the organization’s contract 

and ensure that beneficiaries were 

smoothly transitioned to a new 

organization or sponsor, until the full 

termination process was completed by 

the state. The proposed rule will allow 

us to work with the state insurance 

department and if appropriate, take 

timely contract action in order to avoid 

any additional potential risk to 

enrollees. 

After consideration of the comments 

received in response to the proposed 

rule, in this final rule, we are adopting 

the provisions as proposed. 

3. Release of Part C and Part D Payment 

Data (§ 422.504, § 423.505, and 

§ 423.884) 

This final rule provides for the 

Secretary to release Part C and D 

summary payment data. The Secretary 

believes these data should be made 

available because other publicly 

available data are not, in and of 

themselves, sufficient for the public 

(including policy analysts and 

researchers) either to understand 

expenditures for the MA and Part D 

programs, or to inform the public on 

how their tax dollars are spent. 

In the proposed rule, we stated that in 

keeping with the President’s January 21, 

2009, Memorandum on Transparency 

and Open Government (74 FR 26277), 

we were proposing to routinely release 

summary Part C and Part D payment 

data. We stated that additional purposes 

underlying release of these data 

included allowing public evaluation of 

the MA, prescription drug benefit, and 

RDS programs, including their 

effectiveness, and reporting to the 

public regarding expenditures and other 

statistics involving these programs. 

In the proposed rule, we stated our 

belief that the availability of the 

payment data would permit potential 

plan sponsors to better evaluate their 

participation in the Part C and D 

programs, as well as facilitate the entry 

into new markets by existing plan 

sponsors. As a result, the availability of 

plan payment data would enhance the 

competitive nature of the programs. We 

stated that in knowing the per member 

per month payment amounts and other 

components of plan payment (plan 

rebates and risk scores), new business 

partners might emerge, and better 

business decisions might be made by 

existing partners. Thus, we believed that 

including a provision in our contracts 

with plan sponsors regarding the release 

of summary payment data was both 

necessary and appropriate for the 

effective operation of those programs. 

We proposed that these data would be 

routinely released on an annual basis in 

the year after the year for which 

payments were made. The data release 

would occur only after the final risk 

adjustment reconciliation has been 

completed for the payment year in 

question and, for Part D, after final 

payment reconciliation of the various 

subsidies. Thus, we would release data 

for payment year 2010 in the Fall of 

2011. 

We stated this proposed timeframe 

would not apply to the release of RDS 

payment data, since we do not reconcile 

RDS payment amounts until 15 months 

following the end of the plan year. The 

majority of our sponsors provide retiree 

drug coverage on a calendar year basis. 

Thus, if an applicable RDS plan year 

ended December 31, 2010, the payment 

reconciliation would not be due until 

March 31, 2012, which would be after 

the Fall 2011 target for release of other 

Part C and D payment data. Therefore, 

we proposed that we would release the 

most current RDS payment data 

available at the time the Part C and D 

payment reconciliation has been 

completed and at the same time those 

other Part C and D payment data are 

compiled and released. 

Specifically, as we indicated in the 

November 2010 proposed rule, 

beginning in the Fall of 2011 we would 

release reconciled payment data as 

follows: 

• Part C 

++ Reconciled payment data 

summarized at the plan benefit package 

level including average per member per 

month (PMPM) payment for A/B 

(Medicare covered) benefits 

standardized to the 1.0 (average risk 

score) beneficiary and average PMPM 

rebate amounts. 

++ The average Part C risk score for 

each plan benefit package. 

++ Reconciled aggregated Part C 

payment data by county including the 

average PMPM payment amounts for 

A/B benefits standardized to the 1.0 

(average risk score) beneficiary and 

average rebates amounts at the plan type 

(including HMO, PPO, RPPO, and PFFS) 

for each county in which such plan 

types are represented. 

• Part D 

++ Reconciled payment data 

summarized at the plan benefit package 

level including average PMPM payment 

for the direct subsidy standardized to 

the 1.0 (average risk score) beneficiary, 

the average low-income cost sharing 

subsidy, and the average Federal 

reinsurance subsidy. 

++ The average Part D risk score for 

each plan benefit package. 

++ Final payment reconciliation data 

arrayed by parent organization, number 

of plan benefit packages, the gross 

reconciliation amount broken out by 

risk sharing reconciliation amount, 

reinsurance reconciliation amount, and 

low income cost sharing reconciliation 

amount. 

++ Retiree drug subsidy (RDS) data 

including the gross aggregate reconciled 


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subsidy amount paid to each eligible 

sponsor of qualified retiree prescription 

drug coverage and the total number of 

unduplicated Medicare eligible retirees 

for each sponsor. 

We noted that because the proposed 

provisions would apply to all Part C and 

Part D sponsors, it would apply to any 

entity offering either Part C or Part D 

plans, including MA organizations 

offering and not offering prescription 

drug plans, as well as all Part D drug 

plan sponsors. It would also apply to 

sponsors entitled to Federal RDS 

subsidies. 

We solicited comment generally on 

the public release of Part C and Part D 

payment data. We also specifically 

solicited comment on whether 

commenters believed that any of the 

Part C and Part D payment data we 

proposed to release contained 

proprietary information, and asked 

commenters to suggest, if they believed 

proprietary data were implicated, 

safeguards that might appropriately 

protect those data. 

Comment: We received numerous 

comments on this provision of the 

proposed rule from beneficiary 

advocacy groups, researchers, PDPs, 

PBMs, associations, and MA 

organizations. The beneficiary advocacy 

group comments supported our 

proposal to release payment data. One 

beneficiary advocacy group supported 

release of all payment data, to the extent 

it could be done without compromising 

beneficiary personally identifiable 

health information, and recommended 

we codify release in regulation text. 

Response: We accept the comment 

from the beneficiary advocacy group 

regarding codifying a process for release 

of summary payment data in regulation 

text. We believe that codifying the 

release in the Code of Federal 

Regulations will permit interested 

parties to have a better understanding of 

exactly what summary payment data to 

expect CMS to release and when to 

expect to be able to access it. As we 

indicated in the proposed rule, the 

Secretary has the authority to include in 

MA organization and Part D sponsor 

contracts any terms and conditions the 

Secretary deems necessary and 

appropriate. (See sections 1857(e)(1) 

and 1860D–12(b)(3)(D) of the Act, which 

incorporates section 1857(e) into Part 

D.) As we also stated in the proposed 

rule, our regulations at sections 

§ 422.504(j) and § 423.505(j) permit us to 

include other terms and conditions in 

these contracts that we find necessary 

and appropriate to implement the Part 

C and D programs. Similarly, we stated 

that under § 423.884(c)(3)(i), RDS 

sponsors agree to comply with the terms 

and conditions for eligibility for a 

subsidy payment in our regulations and 

in related CMS guidance. Accordingly, 

we are codifying in our regulations at 

§ 422.504(n) our intent to release Part C 

summary payment data as proposed, at 

§ 423.505(o) our intent to release Part D 

summary payment data as proposed, 

and at § 423.884(c)(3)(ii) our intent to 

release summary RDS payment data as 

proposed. We will also modify MA 

organization and Part D sponsor 

contracts as well as RDS sponsor 

agreements to account for the release of 

summary payment data. As we discuss 

in more detail, below, in our response 

to comments opposed to our release of 

summary payment data, we believe we 

have the authority to promulgate these 

regulations providing for the routine 

release of these data. 

Finally, in response to the statement 

from a beneficiary advocacy group that 

supported release only in the event that 

personally identifiable beneficiary 

health information could be protected, 

we will only release summary data to 

the extent individually identifiable 

information is protected—consistent 

with existing CMS policy. Thus, for 

instance, to the extent that less than 11 

MA plan members of a specific MA plan 

type reside in a county, we will not 

release summary payment information 

or average Part C risk scores for that 

plan type in that county. 

Comment: Some MA organizations 

supported release of payment data as 

proposed, while many of them 

recommended limiting data release in 

varying ways. Two recommended 

releasing only average monthly 

payments and rebates, while others 

suggested plans should have the right to 

veto release of any payment information 

prior to public dissemination. Another 

MA organization suggested aggregating 

data at a higher level, for instance by 

plan type, thus masking plan-specific 

data. A commenter stated that reporting 

or releasing payment data at the plan 

benefit package level is not aggregating 

or summarizing payment data at all and 

that such a release would be 

inconsistent with our stated intent to 

only release summary payment data. 

Some Part D plan sponsors 

recommended releasing Part D payment 

data on only an aggregate basis—where 

individual plan payment data would not 

be revealed. Some health plan 

associations also recommended 

releasing payment data on a more 

aggregated, non-plan-specific basis—for 

instance, releasing only aggregated Part 

C or D payment data at the county level 

with no plan identifiers. 

Response: We do not believe it is 

appropriate to provide veto power to 

MA organizations regarding release of 

payment data. If we were to allow some 

MA organizations to withhold data, the 

value of the remaining, released data 

would be diminished and would 

potentially become useless to 

researchers and the public. Similarly, 

were we to aggregate payment data at a 

higher level prior to release, the public 

would know very little about what 

payments were being received by 

specific CMS contractors—which would 

undermine a specifically stated goal of 

release which was to inform the public 

on how their tax dollars are spent. 

Researchers would also be hampered in 

their ability to conduct meaningful 

studies that analyze the Medicare 

program and Federal expenditures. We 

believe we have identified the 

appropriate level of aggregation such 

that researchers and the public will 

have specific enough information to 

meet their needs, while we will 

continue to shelter from disclosure 

bidding and provider contracting 

information both MA organizations and 

Part D plan sponsors want protected. 

Comment: Some MA organizations 

contended that proprietary plan 

payment information related to 

providers could be deduced from the 

payment data we proposed to release. 

Some Part D plan sponsors and 

associations stated that competitors 

would be able to reverse engineer bids. 

One commenter stated that the data we 

proposed to release could be used with 

other Part D data currently released by 

CMS, such as PDP enrollment 

information, plan premiums, and 

generic dispensing rates, to reverse 

engineer bid data and other sensitive 

information relevant to Part D sponsors’ 

bidding and business strategies. 

Response: We do not agree. The bid 

pricing tool (BPT) document that MA 

organizations and Part D plan sponsors 

submit to CMS as part of the annual 

bidding process asks the plans to 

provide detailed information on their 

costs to furnish Part C and D services. 

In the case of MA organizations, over a 

dozen initial values related to Part C 

costs are further broken out by costs for 

services, administrative costs, expected 

utilization and member cost sharing. 

These costs and others are trended from 

the base year (derived from costs from 

the calendar year before the bid is 

submitted) to the year for which plans 

are bidding. Thus, the input values in 

the bids are already composed of 

aggregated cost and utilization 

information. Information provided on 

the BPT is aggregated in a number of 

ways—across providers, beneficiaries, 

and sites of service. Additionally, the 

different components of cost—direct 


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medical, indirect medical, 

administrative, profit, etc. are also 

aggregated. Thus, to suggest that a 

competitor would be able to derive or 

disaggregate specific bidding 

information from the aggregated 

payment data we proposed to release, 

or, much less, that a competitor would 

be able to derive payment information 

related to any specific provider, is 

simply not credible. 

A similar argument applies to Part D 

bid submissions in the sense that 

dozens of input values representing type 

of drug (generic, preferred brand, 

specialty, etc.), expected utilization and 

cost information aggregated over a 

number of provider types, and a 

multitude of contracting entities ensures 

sufficient protection for plan bidding 

information. While the payment data 

proposed for release will be very helpful 

in understanding the payments received 

by Part D sponsors and their ability to 

estimate their revenue needs in their 

Part D bids, we do not believe that this 

information will be sufficient for others 

to determine sensitive components of 

the Part D bids, such as expected 

manufacturer rebates and profits. The 

Part D data to be released do not provide 

information about administrative costs 

and drug costs incurred by Part D 

sponsors in sufficient detail for other 

parties to determine the sensitive 

components of bid data. In the few 

numbers we will release, no specific 

provider contractual information is in 

danger of being exposed. Those viewing 

and using the aggregated data will have 

no way to disaggregate the data since 

there are dozens, if not hundreds, of 

individual components that are used to 

build up the few data elements that will 

be released. 

Comment: Some commenters stated 

that by reviewing 2 or more years of 

payment data, an MA organization of 

Part D sponsor would be able to 

determine the cost trends of their 

competitors. The commenters stated 

that these entities would be able to 

determine where their competitors are 

heading, which would jeopardize the 

fairness and competitive dynamics of 

the bidding process. The commenters 

also stated that competitors would gain 

information about business strategies 

that could undermine the bidding 

process and the competitive nature of 

the Part C and D programs. Other 

commenters stated that release would 

undermine the integrity of the bid 

process and alter the competitive 

marketplace. 

Response: We do not agree that 

release of summary payment data as we 

proposed would affect the integrity of 

the bidding process in either the Part C 

or D programs. First of all, as we 

described briefly in response to an 

earlier comment, bids are built up of 

costs related to a multitude of 

components (plan costs for health care 

services, administrative activities, 

utilization, and profits). Further, such 

costs must be trended from the base 

year—the calendar year before the bid— 

to the year for which the bid is 

submitted—the year after the year in 

which bids are submitted in June. 

Utilization, costs, and trends must be 

certified by a qualified, independent 

actuary prior to bid submission. Since 

we will continue to require actuarial 

certification, integrity is unaffected. 

Second, the MA and Part D programs 

are not competitive in the way that term 

is normally understood. Although Part C 

and D plans do compete for members, 

primarily through the benefits offered 

and the cost (member cost sharing and 

premium) of those benefits, they do not 

directly compete for the payments that 

CMS makes. Rather, we approve all 

sustainable bids that are otherwise 

qualified without preference for the 

lowest bidder. The fact that MA-eligible 

Medicare beneficiaries can, on average, 

select from over 2 dozen MA and Part 

D plans in every county of the nation is 

ample evidence that competition is 

robust. As we mentioned in the 

preamble of the proposed rule, we 

believe the availability of the summary 

payment data we proposed to release 

will permit potential plan sponsors to 

better evaluate their participation in the 

Part C and D programs, as well as 

facilitate the entry into new markets by 

existing plan sponsors. In other words, 

we believe competition, if anything, will 

be enhanced by release rather than 

harmed in any way. Further, although 

trends from one year to the next might 

be revealed through release of payment 

data for sequential years, the fact 

remains that such trends will be stale (at 

least 2 years old) and reveal little about 

competitive strategies in future years. 

Finally, where plans are free to modify 

the actual competitive components that 

are used to build up bids, such as 

benefit offerings and member costsharing, little is left of the argument that 

revealed cost trends will have an impact 

on the competitive nature of the 

programs. 

Comment: One commenter stated that 

payment data release would work to the 

programs’ detriment. 

Response: We do not agree. We 

believe that a more extensive knowledge 

of summary payment data will not only 

not harm competition in the Part C and 

D programs, but rather that it will 

permit both existing and potential plan 

sponsors to better assess the business 

opportunities available to them. 

Comment: Many commenters stated 

release of summary payment data was 

prohibited under Exemption 4 of the 

Freedom of Information Act (FOIA), 

others cited a prohibition on release 

based on Exemption 6, still others cited 

both Exemptions 4 and 6 as prohibiting 

release under the FOIA. Some provided 

extensive arguments, citing case law to 

support their positions. These, and 

other commenters, also invoked the 

Trade Secrets Act and argued that there 

was a strong potential for compromising 

proprietary information of both Part C 

and D plan sponsors. Still others stated 

that the Privacy Act is implicated 

because release of risk scores might 

allow someone to identify the health 

status of an individual enrollee or 

enrollees. 

Response: In response to comments 

arguing that the Trade Secrets Act (18 

U.S.C. 1905) or FOIA exemptions 

prohibit release of this information or 

citing past practices of this agency with 

respect to FOIA requests, as noted 

previously, we do not believe that the 

release of the data at issue necessarily 

would be subject to the FOIA exemption 

for information protected by the Trade 

Secrets Act, because we do not believe 

the data we would be releasing could be 

used to obtain proprietary information. 

However, with respect to the data we 

are proposing to release, we believe the 

merits of such arguments are moot in 

light of the fact that we have decided 

through this rulemaking to require the 

disclosure of data at issue. Section 

1106(a) of the Act (42 U.S.C. 1306(a)) 

provides authority to enact regulations 

that would enable the agency to release 

information filed with this agency. (See 

Parkridge Hospital, Inc. v. Califano, 625 

F.2d 719, 724–25 (6th Cir. 1980). We 

have engaged in notice-and-comment 

rulemaking to promulgate regulations to 

enable the disclosure of the summary 

payment information. The Trade Secrets 

Act permits government officials to 

release otherwise confidential 

information when authorized by law. A 

substantive regulation issued following 

notice-and-comment rulemaking, such 

as this one, provides the authorization 

of law required by the Trade Secrets 

Act. Because the Trade Secrets Act 

would allow disclosure, Exemption 4 (5 

U.S.C. 552(b)(4)), which is as coextensive with the Trade Secrets Act, 

would also not preclude disclosure with 

respect to the information that would be 

released under this final rule. This 

conclusion would not apply to other 

payment data with respect to which a 

Trade Secrets Act argument might be 

made. 


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With respect to the commenters, who 

argued that FOIA Exemption 6 (5 U.S.C. 

552(b)(6)) protects information that 

would cause a clearly unwarranted 

invasion of an individual’s personal 

privacy and argued that releasing plan 

payment and risk score data could lead 

to the disclosure of the name or health 

status of an individual enrollee, we 

disagree, because the concerns 

expressed are too speculative to lead to 

a legitimate privacy interest. 

Furthermore, there is a substantial 

public interest in the release of this 

summary payment data which can be 

used to shed light on the government’s 

operation of the Part C and D programs, 

outweighing the speculative privacy 

interest. 

Finally, with regard to protection of 

individually identifiable data through 

the release of risk scores, as we stated 

previously, we will not release summary 

payment information or average Part C 

or D risk scores when the small number 

of enrollees in a plan or in an area might 

reasonably permit disaggregation such 

that individually identifiable 

information could be revealed. 

Comment: Some commenters stated 

release of payment data would harm 

business partners and thus, the Part D 

program. 

Response: We do not agree. As we 

have already explained, we are not 

releasing payment data at a sufficient 

level of granularity to permit 

extrapolation of specific contract terms 

or purchase information. Rather, we will 

only be releasing summary payment and 

risk score data that is sufficiently 

aggregated to prevent extrapolation to 

any individual provider’s or 

manufacturer’s terms with any plan 

sponsor. 

Comment: Some Part D sponsors and 

one association cited Congressional 

Budget Office (CBO) and Federal Trade 

Commission (FTC) letters warning that 

release of rebate information could lead 

low bidders to increase their bids 

compared to the bids they would have 

submitted without such information on 

competitor prices. They argued that 

release of rebate data might foster 

collusion or otherwise undercut 

vigorous competition on drug pricing. 

Response: These commenters seem to 

be conflating the release of summary 

data on the component of savings in the 

Part C payment calculation known as 

the Part C rebate with the release of Part 

D drug manufacturer rebate information. 

In the CBO and FTC documents we 

were able to review, warnings were 

provided solely related to the release of 

the latter. In the proposed rule we did 

not propose the release of any Part D 

drug manufacturer rebate information. 

The Part C rebate information we 

proposed to release is solely related to 

Part C and represents 75 percent of the 

difference between the plan riskadjusted statutory non-drug monthly bid 

amount and the plan risk-adjusted areaspecific non-drug monthly benchmark 

amount—when the bid is below the 

benchmark. (See § 422.264(ff).) 

Revealing this Part C rebate information 

is little different than revealing the Part 

C plan basic beneficiary premium 

amount (see § 422.262), release of which 

is already required by regulation. (See 

§ 422.111(f)(6).) 

Comment: Some commenters cited 

past practices by CMS where CMS 

specifically denied release of similar 

data by invoking Exemptions 4 and 6 of 

the FOIA. 

Response: As we previously 

indicated, the data that would be 

released under this rule have been 

specifically limited in nature, and as to 

the year involved to avoid proprietary 

data issues. It thus is not necessarily the 

case that previous denials of FOIA 

requests would apply to these data. 

Also, as noted previously, the issue of 

whether these data would be withheld 

from release in response to a FOIA 

request absent this final rule is moot in 

light of the fact that we have now 

engaged in notice-and-comment 

rulemaking to promulgate regulations 

which clearly enable the disclosure of 

this information regardless of whether it 

would have been disclosable in the 

absence of this final rule. 

Comment: Some commenters stated 

that release of this summary payment 

data would have limited value to 

researchers. One researcher cited more 

than 20 scholarly articles that he and 

colleagues had written using data on 

MA payments and enrollment since 

2000 and urged us to release the type of 

MA payment data discussed in the 

proposed rule for years between 2006 

and 2010. An additional commenter 

also urged the release of the same 

payment data for years prior to 2010, 

and argued that this notice and 

comment process would apply equally 

to such prior year data. 

Response: First, we would note that 

researchers have informed us that they 

believe the data we proposed releasing 

does have value to them. With respect 

to 2006 through 2009 payment data, 

while the proposed rule referenced 2010 

data in discussing the timing of our 

release of payment data, we agree that 

the same analysis and rationale would 

apply equally to data for prior years as 

well, and that through our publication 

of a proposed rule and our response to 

comments, we have satisfied the 

requirements in section 1106(a) of the 

Act (42 U.S.C. 1306(a)) for a regulation 

that authorizes release of this 

information for any year. Given the 

interest of these commenters in such 

prior year data, we will release data for 

these prior years as well as 2010, and 

will release data for future years on the 

schedule set forth in the proposed rule. 

Comment: One commenter stated that 

we had not stated what public policy 

goal was being served by releasing 

payment data at the plan level. Another 

commenter stated that currently 

available data are sufficient to CMS’ 

stated purposes for release. 

Response: We do not agree that 

currently available data are sufficient to 

accomplish the broad public policy 

purposes supporting release of this 

information, which we discussed in the 

proposed rule. In the preamble of the 

proposed rule we explained that other 

publicly available data are not, in and 

of themselves, sufficient for the studies 

and operations that researchers want to 

undertake to analyze the Medicare 

program and Federal expenditures, and 

to inform the public on how their tax 

dollars are spent. This is so because 

currently available data do not provide 

researchers a means of analyzing 

payment data at a granular enough level 

to draw conclusions about regional 

variations in CMS payment—such as 

rural/urban differences or the payment 

variances between MSAs. We also cited 

the President’s January 21, 2009, 

Memorandum on Transparency and 

Open Government. Finally, we stated 

that additional purposes underlying 

release included allowing public 

evaluation of the MA, prescription drug 

benefit, and RDS programs, including 

their effectiveness, and reporting to the 

public regarding expenditures and other 

statistics involving these programs. 

Comment: Some commenters stated 

that release would not help beneficiaries 

select the MA or Part D plan that is best 

for them. Others stated that release 

would adversely impact beneficiaries 

due to related impacts on MA and Part 

D plan offerings. Still others stated that 

release of payment data would be 

misinterpreted by MA enrollees. 

Response: The intent of releasing 

summary payment data and risk score 

information is not necessarily to help 

Medicare beneficiaries to select the right 

plan for them. When the data are 

published we will provide appropriate 

disclaimers to ensure the greatest 

likelihood of understanding by 

researchers, enrollees, and other 

interested parties. As far as the potential 

for adverse impacts on beneficiary 

offerings, we have already addressed the 

issues of competition and collusion and 

explained our belief that release will 


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neither limit competition nor engender 

collusion. 

Comment: One commenter noted that 

release of this information was not 

authorized by the Social Security Act. 

Response: We do not agree. Section 

1106(a) of the Act (42 U.S.C. 1306(a)) 

provides authority to enact regulations 

that enable the agency to release 

information filed with this agency. 

Comment: One commenter stated that 

there was a unique situation in their 

State where they are the largest MA 

organization offering MA plans. This 

commenter stated that its primary 

competition is from Medicare Cost 

HMOs/CMPs and Medigap insurers— 

neither of which are impacted by this 

regulation. The commenter stated it was 

unfair that its aggregate payment 

information would be released, while 

that of Cost HMOs/CMPs with which it 

was competing would not be released. 

Response: While it might be true that 

in some markets a single MA 

organization is predominant, it is also 

true that a valid public policy goal 

related to the release of summary 

payment data is to encourage 

competition. Although Cost HMOs/ 

CMPs and Medigap insurers are not 

subject to this rulemaking, information 

on medical loss ratios for Medigap 

insurers should be available from the 

State Insurance Department. Thus, 

while the payment data we release will 

be available with respect to MA plans 

but not Cost HMOs/CMPs or Medigap 

plans, Medigap MLR data will be 

available with respect to Medigap plans 

but not MA plans. 

Comment: A commenter 

recommended that when CMS modifies 

the MA organization contracts, as it 

proposed in the proposed rule, it should 

modify them only to say that CMS will 

release the specifically described 

payment data. The commenter 

suggested that the new contractual 

language should not simply reference 

MA data, as this could be construed to 

permit CMS to release data that was not 

the subject of this notice and comment 

process. 

Response: We agree with the 

commenter and when modifying MA 

plan contracts, we will limit language 

regarding payment data disclosure to 

only the items discussed in the 

proposed rule. In a similar manner we 

have limited the regulatory language we 

are adding to sections § 422.504(n), 

§ 422.505(o) and § 423.884(c)(3)(ii) to 

provide for disclosure of only those 

items specifically proposed in the rule. 

Comment: One commenter argued 

that section 1860D–12(b)(3)(D) of the 

Act, as amended by section 181 of the 

Medicare Improvement for Patients and 

Providers Act of 2008 (MIPPA), 

specifically prohibited release of 

payment data since the only authorized 

release would be under the conditions 

enumerated in that section of the law. 

The commenter argued that the law 

authorizes release only when one of the 

following conditions is met: (1) To carry 

out Part D; (2) to improve public health 

through research on the utilization, 

safety, effectiveness, quality, and 

efficiency of health care services; or (3) 

to release the data to Congressional 

support agencies for Congressional 

oversight purposes. 

Response: The summary payment 

data that CMS proposed to release are 

not data that are provided by Part D 

sponsors—either under section 1860D– 

12 or under section 1860D–15 of the 

Act. Rather, the data that CMS proposed 

to release are CMS data. The data are 

compiled and derived solely from CMS 

internal payment files. 

Further, we do not agree with the 

commenter’s interpretation of law. In 

reviewing the House Ways and Means 

summary of section 181 of MIPPA, we 

find that Congressional intent in adding 

the matter after the first sentence in 

section1860D–12(b)(3)(D) of the Act was 

to provide a directive to the Secretary to 

release claims data to appropriate 

Congressional support agencies. The 

Ways and Means summary of section 

181 reads, in full: ‘‘Clarifies the use of 

Part D data collected under section 

1860D–12 of the Act for research and 

other purposes. Requires the Secretary 

to release Part D claims data to 

Congressional support agencies to the 

extent that the agencies have authority 

to request the data in their respective 

authorizing statutes.’’ In effect, the 

legislation was intended to require the 

Secretary to release claims data to 

Congressional support agencies and not 

to prohibit its release to any others. 

Section 1860D–12(b)(3)(D)(i) of the Act 

reads, in full: ‘‘[Information provided to 

the Secretary] may be used for the 

purposes of carrying out this part, 

improving public health through 

research on the utilization, safety, 

effectiveness, quality, and efficiency of 

health care services (as the Secretary 

determines appropriate;)’’ Thus, the law 

provides discretion to the Secretary to 

use the data broadly for these purposes, 

‘‘as the Secretary determines 

appropriate.’’ Although it is clear to us 

that the provision was narrowly 

intended and meant to cover release of 

only PDE data—‘‘Part D claims data’’– 

because that language only appears in 

the Ways and Means summary, and not 

in the statute, we must assume broad 

application. However, the statutory 

language, provides discretion to the 

Secretary, ‘‘as the Secretary determines 

appropriate,’’ to use the data for the 

purpose of ‘‘research on the efficiency of 

health care.’’ In our proposed rule we 

cited research and analysis of the 

Medicare program as one of the reasons 

for our proposed disclosure of Part C 

and D summary payment data and risk 

scores. We stated, ‘‘the Secretary 

believes these data should be made 

available * * * for the studies and 

operations that researchers want to 

undertake to analyze the Medicare 

program and Federal expenditures.’’ We 

believe studies related to the efficiency 

of Part D services are coextensive with 

our stated purposes for release. As 

explained earlier, by engaging in noticeand-comment rulemaking to promulgate 

regulations, proactive disclosure of 

summary Part C and D payment data is 

now permitted. 

Comment: Some commenters stated 

that CMS should not release retiree drug 

subsidy (RDS) payment data. Some 

stated that RDS plans are not public 

plans and therefore no payment data 

should be released for them. Others 

stated that RDS data should not be 

released because data would be based 

on member utilization in commercial 

prescription drug plans. One commenter 

stated that RDS plans are private plans 

in the private market and release of the 

subsidy amount is tantamount to release 

of private payment data since the former 

is a simple 28 percent of the latter. This 

commenter went on to say that they 

were unaware of any precedent for 

releasing private plan data and that they 

knew of no public policy data analysis 

that could be conducted using such 

data. Finally, one commenter stated that 

they opposed release of RDS data 

because RDS is a competitive 

commercial program and there is no 

basis for release. 

Response: We do not agree that RDS 

summary payment data should not be 

released. In the proposed rule we stated 

we would release the gross dollar 

amount paid to eligible sponsors and 

the total number of unduplicated 

Medicare eligible retirees. While we 

agree that RDS sponsors are private 

plans, we do not agree that no data 

should be released. Taxpayers and 

interested parties should be apprised of 

how their tax dollars are being spent. To 

the extent the RDS is a ‘‘simple 28 

percent of private payment data, ‘‘this is 

merely a consequence of the way the 

RDS payment is authorized in statute. 

Knowing that 28 percent of a specific 

portion of the cost of such plans is being 

paid by CMS does not reveal the final 

cost of the plan for a number of reasons, 

not the least of which is that we are not 

publishing member months, but only 


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the number of unduplicated Medicare 

eligible retirees. There are other factors 

that confound the relationship between 

the RDS subsidy CMS pays and the cost 

of a private plan, including the fact that 

CMS only pays 28 percent of the 

allowable retiree costs—which are 

defined in § 423.882. Further, we note 

that all MA and Part D plans are private 

plans and the release of summary data 

regarding payments to RDS plan 

sponsors is no different than the release 

of MA and Part D plan summary 

payment data. As we have noted earlier 

in this section in our response to other 

comments, having engaged in noticeand-comment rulemaking to promulgate 

regulations, disclosure of summary RDS 

payment data is now permitted. 

Comment: Some commenters stated 

that the 2008 Part D Data rule regarding 

the release of PDE data should be 

followed and that no additional 

payment data should be released. They 

stated that CMS needs to protect 

commercially sensitive data and that the 

threat of release is just as great today as 

it was in 2008. Others stated that release 

of summary Part D payment data is 

contrary to the 2008 Medicare Part D 

Claims Data final rule regarding limited 

release of PDE data. 

Response: We do not agree. The Part 

D Data rule (73 FR 30664) published in 

the Federal Register on May 28, 2008, 

addressed limits on release of Part D 

claims data—so called PDE 

(prescription drug event) data. In the 

proposed rule, we did not propose any 

changes to the process finalized in the 

Part D Data rule with respect to release 

of PDE data. Rather, we proposed to 

release summary Part D payment data 

and risk scores. As we have explained 

in our responses to previous comments, 

we do not believe that the summary 

payment data we will be releasing can 

be disaggregated in such a way as to 

gain granular knowledge of PDE data. 

Therefore, while we will continue to 

follow the guidelines we set out in the 

Part D Data rule with respect to PDE 

data, we will also proceed with the 

release of summary Part D payment and 

risk score data, consistent with our 

proposed rule. 

For the reasons outlined in our 

responses to comments and consistent 

with our proposed rule, we are 

finalizing our proposal to release 

summary Part C and D payment data 

and average risk scores and are 

codifying this policy in our regulations 

at § 422.504(n), § 423.505(o) and 

§ 423.884(c)(3)(ii). 

4. Required Use of Electronic 

Transaction Standards for MultiIngredient Drug Compounds; Payment 

for Multi-Ingredient Drug Compounds 

(§ 423.120) 

As provided under section 1860D– 

4(b)(2)(A) of the Act and codified in 

§ 423.120(c) of the regulations, Part D 

sponsors must issue (and reissue, as 

appropriate) a card or other technology 

that may be used by an enrollee to 

assure access to negotiated prices under 

section 1860D–2(d) of the Act. Under 

section 1860D–4(b)(2)(B) of the Act we 

must provide for the development, 

adoption, or recognition of standards 

relating to a standardized format for the 

card or other technology that are 

compatible with the HIPAA 

administrative simplification 

requirements of part C of Title XI of the 

Act and consult with the NCPDP and 

other standard setting organizations, as 

appropriate. 

In our November 2010 proposed rule, 

we noted that the NCPDP 

Telecommunications Standard Version 

D.0 (Version D.0), which was adopted as 

the HIPAA standard that must be used 

by HIPAA covered entities for retail 

pharmacy drug claims on and after 

January 1, 2012, standardizes claims 

processing for compounded drugs. 

Unlike the current version, in 2012 the 

pharmacy claim will reflect all 

ingredients of a drug compound. Since 

under § 423.120(c)(2), Part D sponsors 

will be required to adhere to the new 

standard, we proposed adding a new 

paragraph (d) to § 423.120 to clarify how 

Part D sponsors must treat compounded 

products under the Part D program. 

Our preamble observed that a 

compounded product as a whole 

generally does not satisfy the definition 

of a Part D drug; only costs associated 

with ingredients of a compounded 

product that satisfy the definition of a 

Part D drug are allowable costs under 

Part D. Since pharmacy transactions 

prior to the new standard have not 

captured all ingredients of a billed 

compounded drug, under our current 

policy Part D plans generally pay for the 

most expensive Part D drug ingredient 

in a compound and submit that 

ingredient on the prescription drug 

event record for Part D payment 

reconciliation purposes. Our guidance 

to date has been limited to clarifying 

that the dispensing fee may include the 

labor costs associated with mixing the 

compounded product (provided that at 

least one ingredient of the compound is 

a Part D drug) and providing direction 

regarding appropriate cost-sharing. 

Given that the new standard, Version 

D.0, will provide plan sponsors with 

access to information regarding 

ingredients, we thought it appropriate to 

clarify the treatment under Part D of 

compounds in general and, in 

particular, those that contain non-Part D 

ingredients. We proposed to codify our 

existing guidance that only 

compounded products that contain at 

least one ingredient that independently 

meets the definition of a Part D drug 

may be covered under Part D. Consistent 

with our current policy, we proposed to 

clarify that—subject to the exception for 

compounds containing Part B 

ingredients—sponsors may cover the 

Part D ingredients even if the 

compounded product as a whole does 

not satisfy the definition of a Part D 

drug. 

We further explained that the 

aforementioned exception for Part B 

ingredients is based both on current Part 

B payment policy and section 1860D– 

2(e)(2)(B) of the Act, and proposed 

codifying the following: if a compound 

includes a Part B drug ingredient, no 

ingredients of the compound may be 

covered under Part D, even if one or 

more ingredients of the compound 

would individually meet the definition 

of a Part D drug. 

In our November 2010 proposed rule, 

we proposed that Part D sponsors 

determine cost-sharing for Part D 

ingredients of Part D compounds and, in 

so doing, apply either a flat copayment 

amount equal to the copayment of the 

tier for the most expensive Part D 

ingredient or a coinsurance amount 

based on the tier of the most expensive 

Part D ingredient. In both cases, we 

proposed applying cost-sharing to the 

whole amount of the Part D claim. In the 

case of low income subsidy (LIS) 

beneficiaries, we recommended that 

sponsors select the cost-sharing amount 

based on whether the most expensive 

Part D ingredient is a generic or brandname drug. 

In our preamble, we identified an 

underlying premise of our policy: if a 

compound as a whole is considered by 

a Part D sponsor to be on-formulary at 

the time of adjudication, for the sake of 

consistency, then all Part D ingredients 

of that compound would be considered 

on-formulary, even if any individual 

Part D ingredients would be considered 

off-formulary as single drug claims. 

Accordingly, we proposed that if a Part 

D sponsor considers a Part D compound 

as a whole to be on-formulary, it must 

adjudicate the Part D ingredients as 

formulary drugs. 

Stating in our November 2010 

proposed rule that the government 

could not require Part D sponsors to 

reimburse pharmacies for non-Part D 

drugs in Part D compounds, we 


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proposed three options for a sponsor: 

Contract with the pharmacy to pay for 

the non-Part D ingredients without 

reporting these costs to us; deny 

payment, but allow the pharmacy to 

balance bill the beneficiary; or both 

deny payment and prohibit balance 

billing. Noting that limiting 

reimbursement of ingredients in Part D 

compounds might deter pharmacies 

from compounding services and 

subsequently affect beneficiary access to 

drugs, we invited comment. 

Comment: One commenter requested 

that we clarify that Part D compounds 

could include certain non-Part D 

ingredients such as over-the-counter 

(OTC) products or excluded Part D 

drugs that may or may not be covered 

under a supplemental benefit. 

Response: As proposed in 

§ 423.120(d)(1), a compound is 

considered a Part D compound if it 

contains ‘‘at least one Part D drug that 

independently meets the definition of a 

Part D drug’’ and does not contain any 

ingredients covered under Part B as 

prescribed and dispensed or 

administered. As long as a Part D 

compound satisfies these two 

requirements, we clarify that it also may 

include other non-Part D ingredients 

such as OTC products and excluded 

Part D drugs. 

Comment: One commenter questioned 

if there will be additional new reporting 

requirements for purposes of validating 

Part D coverage of compounds. 

Response: We are not proposing any 

new reporting requirements specific to 

Part D compounds in this rule. 

Comment: One commenter contended 

that the policy of allowing coverage for 

only Part D ingredients of a Part D 

compound is inconsistent with and 

contradicts our combination drug 

product policy. It stated that the 

combination drug product policy 

provides a product is covered under 

Part D if it contains at least one Part D 

drug ingredient even if one of its 

ingredients would separately be covered 

under Part B. 

Response: We disagree with the 

commenter. The combination drug 

product policy does not apply to Part D 

compounds. As stated in Chapter 6, 

section 10.3 of the Prescription Drug 

Benefit Manual, the combination drug 

product policy applies to commercially 

available combination prescription drug 

products. Part D compounds are 

extemporaneously compounded by 

pharmacies and not otherwise 

commercially available. Nevertheless, 

neither commercially available 

combination prescription drug products 

nor extemporaneously compounded 

prescription drug products can be 

covered under Part D if payment is 

available for these products under Part 

B as prescribed and administered or 

dispensed. 

Comment: One commenter requested 

that CMS clarify when an ingredient is 

considered covered under Medicare Part 

B so that the compound cannot be 

covered under Part D. 

Response: This rulemaking is 

intended to address when Part D covers 

a multi-ingredient compound and is not 

intended to address coverage rules 

under Part B. For purposes of 

determining Part D coverage of a 

compound, we consider a compound to 

be covered under Part B (for purposes of 

§ 423.120(d)(1)(i)) if, as prescribed and 

dispensed or administered, it meets the 

definition of a drug in section 1861(t) of 

the Act, fits within a Part B benefit 

category, and otherwise meets Part B 

coverage requirements. However, the 

fact that a compound meets the criteria 

in § 423.120(d)(1)(i) does not guarantee 

coverage of that compound under Part 

B. That stated, we will revise 

§ 423.120(d)(1)(i) to clarify that the 

criteria applies when an ingredient in 

the compound is covered under Part B 

‘‘as prescribed and dispensed or 

administered.’’ 

Comment: One commenter asked us 

to waive the 60 day notice when 

individual Part D ingredients within the 

compound change formulary or tier 

status. 

Response: We decline to adopt this 

recommendation. We do not see a 

compelling reason to deny beneficiaries 

notice of changes in formulary status for 

Part D drugs they take simply because 

they take those drugs in a compounded 

form. However, if a Part D sponsor’s 

formulary includes Part D compounds 

(that is, identified as such rather than by 

Part D ingredient), and the formulary 

status of the compound as a whole 

remains unchanged, then it follows that 

there would be no formulary change 

with respect to that compound about 

which beneficiaries would need to be 

notified. 

Comment: Most commenters 

supported the proposed policy that if a 

Part D compound as a whole is 

considered by a Part D sponsor to be onformulary, then all Part D ingredients 

within the Part D compound must be 

considered on-formulary even if a 

specific Part D ingredient would be 

considered off-formulary if it were 

provided separately. However, a few 

commenters recommended that CMS 

give Part D sponsors the option to 

determine formulary status not only by 

the Part D compound as a whole, but 

also Part D ingredient by Part D 

ingredient for purposes of meeting 

transition fill requirements. 

Response: We appreciated the 

comments that supported the proposed 

policy to consider Part D compounds as 

a whole as either on-formulary or offformulary. However, we disagree that 

Part D sponsors should determine 

formulary status of a compound on an 

ingredient-by-ingredient basis. We 

believe such an approach would be 

confusing for beneficiaries. 

Comment: While strongly supporting 

the classification of compounds as 

either on-formulary or off-formulary, 

one commenter requested that CMS 

require Part D plans both to include 

commonly used compounds on their 

formularies to ensure adequate access 

and to provide criteria to pharmacy and 

therapeutic committees in making the 

formulary classification, for instance, 

tailored separately for parenteral 

nutrition. 

Response: We did not propose to 

make any changes with respect to which 

drugs plans must include on their 

formularies and, therefore, we believe 

this comment is beyond the scope of 

this regulation. 

Comment: One commenter asked that 

CMS clarify whether compounded drugs 

would still be eligible for the generic 

drug cost-reduction in the coverage gap 

in 2013 when, under the ACA, the 

brand drug cost-sharing will be reduced 

in the coverage gap. 

Response: We believe this commenter 

is asking if our existing policy with 

respect to determining the cost-sharing 

of a compound will change in 2013 and, 

therefore, we confirm that at this time 

we have no plans to change the existing 

policy. 

Comment: A few commenters stated 

that CMS should not require Part D 

sponsors to base Part D compound costsharing on the most expensive Part D 

ingredient and instead allow Part D 

sponsors to determine which costsharing tier (copayment or coinsurance) 

under the benefit plan applies to a Part 

D compound. One commenter 

recommended that Part D sponsors have 

the option to base Part D compound 

cost-sharing on the highest unit cost or 

a specific copayment/coinsurance that 

would apply to all Part D compounds 

because this would allow for a more 

consistent beneficiary experience since 

beneficiaries are not aware of the 

individual ingredients within a Part D 

compound. Another commenter asked 

us to clarify that Part D cost-sharing 

cannot apply to or be based on non-Part 

D ingredients. One commenter 

supported the proposal to base the lowincome subsidy (LIS) cost-sharing on 

the most expensive ingredient, while 


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another commenter recommended that 

the LIS cost-sharing should be brand 

cost-sharing when compounds contain 

both generic and brand name Part D 

ingredients (that is, when not all Part D 

ingredients are generic). 

Response: We agree with the 

commenters’ recommendation not to 

require Part D sponsors to establish Part 

D compound cost-sharing based upon 

the tier associated with the most 

expensive Part D drug ingredient. We 

recognize that there are reasonable 

alternative methods for determining 

which cost-sharing tier should apply to 

Part D compounds and believe that each 

Part D sponsor should have the 

discretion to determine the cost-sharing 

for Part D compounds within its existing 

benefit design and in accordance with 

CMS tier requirements (for example, 

specialty tier cost threshold). 

While we have decided that a Part D 

sponsor can determine which existing 

cost-sharing tier (copayment or 

coinsurance) applies to Part D 

compounds under its benefit design, 

CMS maintains that the cost-sharing for 

low-income subsidy (LIS) beneficiaries 

(as described in § 423.782) must be 

based on whether the most expensive 

Part D ingredient is a generic or brandname drug regardless of which costsharing tier the Part D compound is 

placed on for non-LIS beneficiaries. We 

believe that this will ensure the LIS 

cost-sharing for Part D compounds will 

be consistent across all Part D plans 

regardless of benefit design in the same 

manner that LIS cost-sharing is 

consistent across Part D plans for noncompounded Part D drugs. Therefore, 

based on the comments, we are revising 

§ 423.120(d)(ii) to remove the 

requirement to base non-LIS costsharing on the most expensive Part D 

drug ingredient. 

Comment: Several commenters asked 

CMS to clarify that the most expensive 

Part D ingredient refers to the highest 

line item computed Part D ingredient 

cost (unit cost multiplied by quantity) 

and not the unit cost alone. 

Response: We agree with these 

commenters and clarify that by most 

expensive Part D ingredient we mean 

the Part D ingredient with the highest 

line item computed ingredient cost (unit 

cost multiplied by the quantity) of that 

ingredient. 

Comment: A few commenters 

supported the flexibility proposed for 

addressing non-Part D ingredients 

included in a Part D compound. 

However, a number of commenters did 

not support the proposed approach for 

several reasons. Some recommended 

that we require Part D sponsors to cover 

all Part D and non-Part D ingredients in 

a Part D compound or always allow 

balance billing. These commenters 

reasoned that the proposed approach 

would deter pharmacies from 

continuing to provide compounding 

services because they might not be paid 

for all ingredients. Others suggested that 

CMS should not allow Part D sponsor 

pharmacy contracts to allow pharmacies 

to balance bill for non-Part D 

ingredients because it could 

substantially increase beneficiary costsharing and create access problems for 

beneficiaries who could not afford the 

additional costs for any unpaid 

ingredients. Another commenter stated 

that current Part D sponsor pharmacy 

contracts generally do not allow 

member billing for anything other than 

what is specified as beneficiary costsharing on the paid response returned 

by the Part D sponsor on the pharmacy 

claim. These commenters also wrote 

that balance billing would confuse 

beneficiaries because they would not 

know which ingredients were not 

covered and the amounts listed on the 

explanation of benefits would differ 

from what the beneficiaries actually 

paid at the pharmacies. Another 

commenter stated that balance billing 

for only some ingredients in the 

compound would be difficult if 

secondary payers were involved. 

Response: Based on the comments, we 

have reconsidered this issue, and we 

now agree with the commenters that 

recommended that Part D sponsors not 

allow their network pharmacies to 

balance bill beneficiaries above and 

beyond the Part D beneficiary costsharing specified on the paid response 

returned by the Part D sponsor on the 

pharmacy claim. The proposed policy 

would have allowed for balance billing 

based upon the premise that only a 

portion of some Part D compounds are 

covered because non-Part D ingredients 

included within the compound might 

not be directly paid for by the Part D 

sponsor and cannot be reported as Part 

D ingredient costs on PDEs, and we 

recognize that some commenters are 

concerned that pharmacies simply will 

stop preparing Part D compounds if they 

believe they are insufficiently 

compensated for that service. However, 

after considering the comments, we 

believe a better approach to this issue is 

one that is more straightforward for 

beneficiaries, Part D sponsors, and 

pharmacies. Thus, we are amending our 

final regulation to prohibit balance 

billing for non-Part D ingredients of Part 

D compounds. 

Further, in response to concerns about 

pharmacy reimbursement, we wish to 

clarify that Part D sponsors and 

pharmacies are able to negotiate prices 

for covered Part D compounds that 

account for non-Part D ingredients. We 

believe they can accomplish this in one 

of two ways: (1) Part D sponsors can 

directly pay for non-Part D ingredients 

on the pharmacy claim (without 

charging the beneficiary or reporting 

these costs on the PDE to CMS); or (2) 

Part D sponsors can reimburse 

pharmacies for these ingredients as part 

of the dispensing fee. In addition, we 

note that, in our view, our definition of 

dispensing fees supports the proposition 

that pharmacies already are reimbursed 

by the plan for those ingredients of a 

Part D compound that do not 

independently meet the definition of 

Part D drug. For these reasons, we 

further do not believe that the billing 

and payment of specific line items on a 

pharmacy claim for a Part D compound 

determines whether a Part D sponsor 

has paid the full negotiated price for the 

entire Part D compound. Instead, we 

believe that Part D sponsors and 

pharmacies have negotiated how Part D 

compounds are priced in general and 

that such prices adequately account for 

any non-Part D ingredients, which 

usually account for a small portion of 

the overall cost, regardless of how an 

individual paid claim represents 

payment for individual ingredients. 

Consequently, because the plan’s 

payment to the pharmacy represents 

payment in full, there are no remaining 

unpaid amounts to be balance billed. 

We believe this policy appropriately 

protects beneficiaries by ensuring that 

they only pay Part D negotiated prices 

for Part D compounds without 

interfering with the ability of 

pharmacies to negotiate prices that 

provide adequate reimbursements for 

Part D compounds. Based on the 

comments, we are revising § 423.120(d) 

to prohibit Part D sponsors from balance 

billing (or permitting pharmacies to 

balance bill) beneficiaries for non-Part D 

ingredients in Part D compounds. 

Comment: Several commenters stated 

separately that the proposed approach 

for covering Part D compounds might 

increase Medicare costs significantly 

and noted that CMS did not estimate the 

savings, if any, this policy would bring 

to the beneficiary or the Medicare Part 

D program. 

Response: We disagree with the 

commenters that the proposed approach 

might significantly increase Medicare 

costs. The proposed approach to allow 

reimbursement only for ingredients that 

independently meet the definition of a 

Part D drug is not new policy but rather 

a clarification of existing policy in light 

of the changing pharmacy billing 

standard that makes pharmacy claims 

for compounded drugs more 


jlentini on DSKJ8SOYB1PROD with RULES2
21524 Federal Register / Vol. 76, No. 73 / Friday, April 15, 2011 / Rules and Regulations 

transparent. We also note that Part D 

compounds represent significantly less 

than one percent of the PDEs submitted 

to CMS. Additionally, as noted 

previously, CMS revisited its policies in 

light of a new industry standard rather 

than to achieve specified savings per se. 

For these reasons, we do not believe any 

further action is necessary. 

Comment: A number of commenters 

disagreed with the preamble discussion 

on PDE reporting for compounds. 

Specifically, these commenters stated 

that the quantity reported on the PDE 

should not reflect only the quantity of 

the most expensive Part D ingredient 

national drug code (NDC) submitted on 

the PDE, but rather should reflect the 

total quantity of the Part D compound 

as a whole. 

Response: We agree with the 

commenters that our preamble 

incorrectly suggested the current PDE 

guidance requires Part D sponsors to 

submit the quantity for the most 

expensive Part D ingredient NDC only. 

In fact, current PDE guidance does not 

specify whether the PDE should reflect 

the quantity of the most expensive NDC 

only or the total quantity of the Part D 

compound as a whole. Until further PDE 

guidance is issued, we will allow Part 

D sponsors to submit either quantity. 

However, given the industry consensus 

for reporting total quantity as reflected 

in the comments, we recommend that 

Part D sponsors submit the total 

quantity of the Part D compounds as a 

whole. 

The final provision, amended as 

discussed in this section, will apply to 

plan years on and after January 1, 2012. 

5. Denial of Applications Submitted by 

Part C and D Sponsors With Less Than 

14 Months Experience Operating Their 

Medicare Contracts (§ 422.502 and 

§ 423.503) 

Each year, as part of the application 

evaluation process, we conduct a 

comprehensive review of each Part C 

and D sponsor’s past performance in the 

operation of its Medicare contract(s). 

Current regulations provide that 

organizations with current or prior 

contracts with CMS are subject to CMS 

denial of any new applications for 

additional or expanded Part C or D 

contracts if they fail during the 

preceding 14 months to comply with the 

requirements of the Part C or D 

programs, even if their applications 

otherwise demonstrate that they meet 

all of the Part C or D sponsor 

qualifications. In the absence of 14 

months of performance, however, this 

leaves a gap whereby CMS must either 

assume full compliance and exempt the 

entity from the past performance 

review, or deny additional applications 

from such entities until the applicant 

has accumulated 14 months’ experience, 

during which it complied fully with the 

requirements of the Part C and/or Part 

D programs. 

Our interest in protecting Medicare 

beneficiaries and limiting program 

participants to the best performing 

organizations possible strongly suggests 

that we take the latter approach. Our 

justification for proposing this change 

was two-fold. First, we would ensure 

that new entrants to the Part C or Part 

D program could fully manage their 

current contracts and books of business 

before further expanding. Second, this 

change would require that entities 

rightfully focus their attention on 

launching their new Medicare contracts 

in a compliant and responsible manner, 

rather than focusing attention almost 

immediately on further expansions. 

Therefore, we proposed modifying 

§ 422.502(b) and § 423.503(b) by adding 

additional language at § 422.502(b)(2) 

and § 423.503(b)(2) that in the absence 

of 14 months’ performance history, we 

may deny an application based on a lack 

of information available to determine an 

applicant’s capacity to comply with the 

requirements of the Part C or Part D 

program, respectively. 

Comment: Several commenters 

requested that CMS clarify at what 

organizational level this provision 

would apply. Specifically, to determine 

whether an applying organization met 

the 14-month performance history 

threshold, would CMS review—(1) its 

experience in offering a particular plan 

benefit package (PBP); (2) its experience 

in operating a particular Part C or D 

contract it holds with CMS; (3) its 

experience in operating all contracts it 

holds with CMS; or 4) the experience of 

its parent organization’s operation of all 

of the Medicare contracts held by its 

subsidiaries? 

Response: These provisions only 

pertain to applying entities that 

currently operate Part C or Part D 

contract(s) but have done so for less 

than 14 months, and further, are 

unrelated (by virtue of being 

subsidiaries of the same parent) to any 

other contracting entity with at least 14 

months’ experience. So long as a 

contracting entity or another subsidiary 

of its parent organization has operated 

one or more Medicare contracts for the 

requisite period of time, applications for 

new contracts or service area 

expansions submitted by a current 

contracting entity will not be subject to 

denial under § 422.502(b)(2) and 

§ 423.503(b)(2). Rather, these 

contracting entities will be subject to the 

past performance review under 

§ 422.502(b) and § 423.503(b), which 

CMS will conduct according to the 

‘‘2012 Application Cycle Past 

Performance Review Methodology’’ 

document CMS issued in December 

2012 and expects to update each year. 

Comment: One organization requested 

that CMS specify approval criteria for 

service area expansion. 

Response: We have already published 

our criteria for approving applications, 

including service area expansions. This 

information can be found within the 

Part C and Part D application 

solicitation materials, and in the memo 

published on December 12, 2010 

entitled, ‘‘2012 Application Cycle Past 

Performance Review Methodology.’’ All 

of these documents are posted on CMS’ 

Web site (http://www.cms.gov). 

Comment: CMS received two 

comments concerning its application of 

the past performance methodology 

generally. One organization urged CMS 

to limit denials based on past 

performance to instances where the 

extent and intent of the plan’s noncompliance amounts to consistent and 

willful inappropriate behavior or 

misrepresentation by a particular plan 

to beneficiaries. Another organization 

expressed concern that the past 

performance review CMS conducts on 

all applying organizations pursuant to 

§ 422.502(b) and § 423.503(b) (that is, 

including those with more than 14 

months’ Part C or D experience) creates 

an uneven playing field for existing and 

new sponsors, giving new carriers a 

competitive advantage since they do not 

undergo a past performance review. 

Response: These comments concern 

our general authority to deny 

applications based on an applicant’s 

past Medicare contract non-compliance 

pursuant to § 422.502(b) and 

§ 423.503(b). The latter comment, in 

particular, concerns the application of 

the past performance methodology to 

entities with established relationships 

with CMS versus those entities with no 

prior Part C or Part D relationship with 

CMS. Neither comment addresses the 

issue of how CMS should treat entities 

with less than 14 months experience 

(neither long-established nor brand 

new). As such, these comments fall 

outside the scope of this proposal. 

In summary, for the reasons stated in 

the proposed rule, and after 

consideration of the comments received 

in response to the proposal, we are 

finalizing this provision without 

modification. 

F. Other Clarifications and Technical 

Changes 

We have identified seven technical 

changes in this section, affecting as 


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Federal Register / Vol. 76, No. 73 / Friday, April 15, 2011 / Rules and Regulations 21525 

noted in Table 8, cost contract plans, 

MA plans, or Part D plans. 

1. Clarification of the Expiration of the 

Authority To Waive the State Licensure 

Requirement for Provider-Sponsored 

Organizations (§ 422.4) 

We clarified in our November 2010 

proposed rule (FR 75 71242) that we 

will no longer waive the State licensure 

requirement for organizations seeking to 

offer a provider-sponsored organization 

(PSO) because, under section 

1855(a)(2)(A) of the Act and § 422.370 of 

our regulations, we had the authority to 

waive the State licensure requirement 

for PSOs only for requests for waivers 

submitted prior to November 1, 2002. 

While we currently contract with 

organizations that have previously met 

the conditions for becoming a PSO and 

will continue to contract with these 

organizations, organizations that do not 

meet State licensure requirements can 

no longer offer new PSOs because 

waiver of State licensure laws is 

necessary in order to offer a PSO. A PSO 

is defined in section 1855(d) of the Act, 

and that definition is codified in 

§ 422.350. 

Even though the authority to waive 

the State licensure requirement for PSOs 

expired on November 1, 2002, and we 

have not granted waivers of State 

licensure requirements since that time, 

we took the opportunity to clarify this 

policy in our November 2010 proposed 

rule because of questions we have 

received. Accordingly, we proposed to 

revise paragraph (a) of § 422.4 to clarify 

that we no longer have the authority to 

waive the State licensure requirement 

for PSOs. We received no comments on 

this proposal; therefore, we are 

finalizing this provision without 

modification. 

2. Cost Plan Enrollment Mechanisms 

(§ 417.430) 

As part of the enrollment process, 

§ 417.430 requires that application 

forms be submitted to an HMO or CMP 

and must include a beneficiary’s 

signature. The organization must 

provide the beneficiary with written 

notice of acceptance or rejection of the 

application. We proposed changes to 

§ 417.430(a)(1) to allow us to approve 

other enrollment mechanisms for cost 

plans in addition to paper forms, such 

as electronic enrollment. We also 

proposed to streamline § 417.430(b)(3) 

and § 417.430(b)(4)(i) to allow for notice 

delivery options other than the 

traditional mailing of documents. These 

changes take into consideration the 

advancement of communication 

technology and comport with revisions 

we made with respect to the MA 

program under § 422.50(a)(5) and 

§ 422.60(e). 

Comment: Commenters voiced 

support for this proposal. They believed 

that alternative enrollment mechanisms 

provide easier access for beneficiaries to 

cost plans and lower plan 

administrative costs. 

Response: We appreciate the 

commenter’s support of our proposal 

and are finalizing this provision without 

modification. 

3. Fast-Track Appeals of Service 

Terminations to Independent Review 

Entities (IREs) (§ 422.626) 

To correct a typographical error in 

§ 422.626(g)(3), we proposed to remove 

the word ‘‘to’’ after the word ‘‘may’’ in 

the regulation text. However, in the 

proposed rule, we erroneously referred 

to § 422.626(f)(3) as containing the 

typographical error rather than 

§ 422.626(g)(3). We are correcting both 

of these errors in the final rule. 

Although we did not include this 

change in the proposed rule, we are 

using this opportunity to make a 

technical correction to a cross-reference 

in § 422.622 (Requesting immediate QIO 

review of the decision to discharge from 

the inpatient hospital). Specifically, we 

are amending paragraph (g)(1) to refer to 

§ 422.626(g) rather than § 422.626(f). 

We did not receive any comments on 

these proposed revisions and are 

finalizing these technical corrections 

with the modifications previously 

noted. 


jlentini on DSKJ8SOYB1PROD with RULES2ER15AP11.009</GPH>
21526 Federal Register / Vol. 76, No. 73 / Friday, April 15, 2011 / Rules and Regulations 

4. Part D Transition Requirements 

(§ 423.120) 

We explained in our November 2010 

proposed rule that as a result of section 

3310 of the ACA and the proposed rule 

at § 423.154, we proposed revising the 

existing transition policy for enrollees 

residing in LTC facilities to be more 

consistent with 7-day-or-less 

dispensing. We proposed a revised 

transition fill supply from 93 days to 91 

days to accommodate multiple 

dispensing events associated with 7- 

days-or-less dispensing in LTC facilities 

whenever § 423.154(a) applies to drugs 

dispensed in 7-day-or-less supplies. We 

explained that the proposed change to a 

91-day supply will permit exactly 13 

weeks of 7-day transition fills. Under 

this proposed requirement, a Part D 

sponsor would be required to provide a 

LTC resident enrolled in its Part D plan 

a temporary supply of a prescription 

when presenting in the first 90 days of 

enrollment up to a 91-day supply, with 

supply increments consistent with 

§ 423.154 (unless the prescription is 

written for less), with refills provided, if 

needed. 

We also proposed amending 

§ 423.120(b)(3)(iii) to clarify the 

transition notice requirements. Under 

this requirement, notices must be sent to 

beneficiaries within 3 business days of 

adjudication of a temporary fill. We 

proposed that a written notice be sent to 

each affected enrollee, and in the case 

of a LTC enrollee impacted by the 

dispensing requirement in § 423.154, 

the written notice be sent within 3 

business days after adjudication of the 

first transition fill. We explained that 

we were persuaded by feedback from 

the LTC industry that beneficiaries may 

be confused when receiving multiple 

transition notices within 7 to 10 days of 

each 7-day-or-less dispensing event. We 

solicited comments on this provision in 

our proposed rule. 

As described earlier in this final rule, 

we modified the proposed rule at 

§ 423.154 to reflect a 14-day-dispensing 

requirement. The responses below 

reflect that modification. As a result of 

comments received, in this final rule, 

we are modifying the proposed rule at 

§ 423.120(b)(iii)(B) to state that the 

temporary supply of non-formulary 

drugs (including Part D drugs that are 

on a sponsor’s formulary but require 

prior authorization or step therapy 

under a sponsor’s utilization 

management rules) must be for up to at 

least 91 days, and up to 98 days, 

consistent with the dispensing 

increment, for beneficiaries residing in 

a long-term care setting. 

Comment: We received comments 

requesting that we change the transition 

fill supply requirement in the LTC 

setting to 91 days across all claims 

submitted in that setting. Commenters 

stated that two different systems (91 

days for 7-day-or-less-dispensing and 93 

days for 31-day dispensing) would be 

confusing and add unnecessary 

complexity. 

Response: We believe that 

commenters want a transition 

requirement that is straightforward, and 

we believe a transition requirement that 

is consistent with the way drugs are 

dispensed will address the commenters’ 

concerns. Therefore, we will modify the 

proposed rule to require Part D sponsors 

provide a temporary supply of up to 91, 

and up to 98 days if the plan desires to 

have the transition supply mirror the 

dispensing increment, with refills 

provided, if needed, unless a lesser 

amount is actually prescribed by the 

prescriber. For ease of dispensing, plans 

can require that the temporary supply 

be evenly divisible by the quantities 

dispensed (for example, up to 93 days 

for a 31-day dispensing increment, up to 

91 for a 7-day dispensing increment, or 

up to 98 days for a 14-day dispensing 

increment). As long as the beneficiary 

who is receiving a transition fill can 

obtain at least 91 days of medication 

(unless a lesser amount is actually 

prescribed by the prescriber), plan 

sponsors will have the flexibility to 

implement the transition to match the 

dispensing increment if desired. 

We encourage Part D sponsors to 

establish policies and procedures that 

will assist in the effectuations of 

meaningful transitions prior to the 

exhaustion of a transition fill. However, 

also consistent with previous guidance, 

we encourage Part D sponsors to make 

arrangements to continue to provide 

necessary drugs to an enrollee by 

extending the transition supply period, 

on a case-by-case basis, if the enrollee’s 

exception request or appeal has not 

been processed by the end of the 

minimum transition period. 

Comment: Several commenters 

supported our proposal to send one 

transition notice at the start of the 

transition period. Some commenters 

urged us to require another transition 

notice prior to conclusion of the 

transition period to ensure that 

enrollees have access to medication 

beyond the transition period. 

Response: As stated in the proposed 

rule, beneficiaries may be confused if 

they were to receive multiple transition 

notices for a drug dispensed in multiple 

increments consistent with § 423.154. 

As such, we believe that an additional 

notice sent prior to the end of the 

transition period may lead to confusion. 

We require Part D sponsors to send a 

transition notice to inform enrollees 

(and their caregivers) about the options 

for ensuring that the enrollee’s medical 

needs are safely accommodated within 

the Part D sponsor’s formulary. We 

require that transition notices be sent 

within 3 business days of the transition 

fill to allow for sufficient time for the 

enrollee to be switched to a 

therapeutically equivalent drug that is 

on the formulary or for time to process 

an exceptions request. Based on 

previous Part D experience, we believe 

that one notice sent within 3 business 

days of the first temporary fill is 

adequate notice to effectuate a 

meaningful transition. 

Comment: A commenter 

recommended that the transition notices 

be sent to the pharmacies as well as 

beneficiaries residing in long-term care 

facilities. 

Response: Beginning in contract year 

2010, we permitted Part D sponsors the 

option of sending the required transition 

fill notices to network LTC pharmacies. 

For more details, see Chapter 6 of the 

Medicare Prescription Drug Benefit 

Manual, available at http:// 

www.cms.gov/ 

PrescriptionDrugCovContra/ 

12_PartDManuals.asp#TopOfPage. We 

decline to require Part D sponsors to do 

this, however, because the pharmacy is 

not directly involved with effectuating a 

meaningful transition. As stated in 

previous guidance, the purpose of a 

transition supply is to allow the sponsor 

and/or the enrollee sufficient time to 

work out with the prescriber an 

appropriate switch to a therapeutically 

equivalent medication or the 

completion of an exception request to 

maintain coverage of an existing drug 

based on medical necessity reasons. 

Pharmacies may assist in the process, 

but cannot effectuate a meaningful 

transition by switching the enrollee to a 

therapeutically equivalent medication 

or by requesting an exception under 

§ 423.578(b). 

As a result of comments received, in 

this final rule, we are modifying the 

proposed rule at § 423.120(b)(iii)(B) to 

state that the temporary supply of nonformulary drugs (including Part D drugs 

that are on a sponsor’s formulary but 

require prior authorization or step 

therapy under a sponsor’s utilization 

management rules) must be for up to at 

least 91 days, and up to 98 days, 

consistent with the dispensing 

increment, for beneficiaries residing in 

a long-term care setting. This provision 

will be effective January 1, 2012. 


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Federal Register / Vol. 76, No. 73 / Friday, April 15, 2011 / Rules and Regulations 21527 

5. Revision to Limitation on Charges to 

Enrollees for Emergency Department 

Services (§ 422.113) 

As provided under section 1852(d)(1) 

of the Act and codified at 

§ 422.113(b)(2)(v). MA organizations are 

financially responsible for emergency 

and urgently needed services. Under 

§ 422.113(b)(2)(v), charges to enrollees 

for emergency department services may 

not exceed $50, or what an MA 

organization would charge an enrollee if 

he or she obtained the services through 

the MA organization, whichever is less. 

This limit on cost sharing was first 

included in the regulations at 

§ 422.112(b)(4) in the June 26, 1998 

interim final rule (63 FR 35081) as the 

cost sharing limit for emergency 

services received out-of-network. 

Subsequently, new section § 422.113 

was added to the regulations in the June 

29, 2000 final rule (65 FR 40322) and 

required that same limit on cost sharing 

for emergency services regardless of 

whether they were received in- or outof-network. 

In our proposed rule, we explained 

that because we believe the current limit 

on cost sharing is outdated and has 

constrained MA organizations’ ability to 

control unnecessary use of emergency 

departments we proposed to revise 

§ 422.113(b)(2)(v) to remove the $50 

amount and replace it with language 

indicating that we will evaluate and 

annually determine the appropriate 

enrollee cost sharing limit for 

emergency department services. We 

would inform MA organizations of any 

changes to the limit in annual guidance, 

such as the Call Letter. 

Comment: We received many 

comments expressing support for our 

proposal to eliminate the $50 maximum 

for emergency department services and 

CMS’ annual evaluation and 

determination of the appropriate limit 

on enrollee cost sharing. However, a few 

commenters who were generally 

supportive of our proposal also 

expressed their interest in CMS 

providing notice of the methodology 

that would be used annually to 

determine the cost sharing limit and to 

specify what services are to be included 

in that cost sharing. In addition, we 

received one comment that supported 

our proposal but suggested the limit for 

ER services be no more than $100. 

Response: We thank the commenters 

for their support. CMS’ methodology for 

developing the cost share limit for CY 

2012 would be based on CY 2010 total 

costs for emergency department services 

visits under Original Medicare. We 

would calculate a weighted average for 

these visits and then determine the cost 

sharing limit to ensure that MA plans 

would be responsible for at least 50 

percent of the total cost of the visit. 

Although we would not specifically 

limit the cost sharing to $100 as 

requested by a commenter, we believe 

our method takes into account plans’ 

desire to manage utilization and 

beneficiary access and protections from 

high out-of-pocket costs to result in 

appropriate and affordable care. 

After consideration of all the public 

comments received on this proposal, we 

are finalizing our proposal to amend 

§ 422.113 by revising paragraph (v) to 

replace the $50 amount with language 

indicating that CMS will evaluate and 

determine an appropriate enrollee cost 

sharing limit annually and that the 

enrollee would be required to pay the 

lesser of that amount or the amount the 

plan would charge the enrollee if he or 

she obtained the services through the 

MA organization. 

6. Clarify Language Related to 

Submission of a Valid Application 

(§ 422.502 and § 423.503) 

Since we began our contracting efforts 

under the MMA in 2005 in preparation 

for the statute’s 2006 effective date, we 

have established strict deadlines for the 

initial submission of applications for 

qualification for contracts to operate as 

Medicare Part C or D sponsoring 

organizations and the resubmission of 

materials needed to cure identified 

deficiencies. Consistent with that 

policy, we do not review applications 

that are submitted after the established 

deadline, meaning that an organization 

that misses the deadline would not 

receive a Part C or D sponsor contract 

for the following benefit year. Because 

we do not review such applications, we 

do not provide a notice of intent to deny 

under § 422.502(c)(2) or § 423.503(c)(2), 

nor is the organization entitled to a 

hearing under § 422.660 or § 423.650. 

To avoid the consequences of missing 

the initial submission deadline, some 

organizations have submitted 

applications that we considered so 

lacking in required information or 

correct detail as to fail to constitute a 

valid, timely submission. We suspect 

that in many instances, these 

organizations expected to take 

advantage of our policy of affording 

applicants two later opportunities 

during the review process (including the 

10-day cure period following the 

issuance of a notice of intent to deny an 

application issued under § 422.502(c)(2) 

and § 423.503(c)(2)) to make their 

applications complete by providing 

information that had been omitted from 

the initial submission. Organizations 

that provide substantially incomplete 

applications are effectively submitting 

‘‘placeholders’’ designed to save their 

eligibility to participate in the 

application review process until they 

can produce all the required materials. 

We find this practice to be an abuse of 

the application review process that 

defeats the purpose of the established 

deadline. 

We believe that confusion about our 

authority to enforce the application 

deadline may be created by the 

provisions of § 422.502(c)(2)(i) and 

§ 423.503(c)(2)(i), which state that we 

will provide an applicant a notice of 

intent to deny when the organization 

‘‘has not provided enough information 

to evaluate the application.’’ We 

intended this language to afford an 

organization that had made a good faith 

effort to complete a contract 

qualification application the 

opportunity to provide the materials 

necessary to cure a discrete application 

deficiency. As noted in our November 

2010 proposed rule, it appears that this 

language could provide an unintended 

protection to an organization that 

circumvented our established 

application deadline by submitting a 

‘‘placeholder’’ application. 

We believe that the language in 

§ 422.502(c)(2)(i) and § 423.503(c)(2)(i), 

stating that the agency will issue a 

notice of intent to deny if CMS finds 

that the applicant does not appear 

qualified to contract as a Part C or D 

sponsor, combined with the language of 

§ 422.502(c)(2)(ii) and § 423.503(c)(2)(ii) 

allowing the organization to ‘‘revise its 

application to remedy any defects CMS 

identified’’ is sufficient to authorize us 

to consider additional curing materials 

submitted by a good faith applicant. 

Therefore, to remove all ambiguity that 

may exist concerning our authority to 

decline to accept or review substantially 

incomplete applications, we proposed 

to revise the provisions of 

§ 422.502(c)(2)(i) and § 423.503(c)(2)(i) 

to delete the phrase, ‘‘and/or has not 

provided enough information to 

evaluate the application.’’ 

Comment: Several commenters 

expressed their general opposition to 

the proposed regulatory provision as 

they were concerned that CMS would be 

arbitrary in determining whether an 

organization had submitted an invalid 

application. They also stated that 

should CMS adopt the provision in the 

final rule, we should create exceptions 

that would require us to accept 

applications where the applicant had a 

good reason for failing to complete the 

application and could demonstrate a 

good faith effort to submit a valid 

application. Another commenter 

advised that CMS should establish 


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objective criteria for determining 

whether an application is so incomplete 

as to constitute an invalid submission. 

Response: We do not believe that any 

modification of the proposed regulatory 

provision is necessary to address the 

commenters’ concerns. With respect to 

the recommendation that we provide 

guidance to applicants on our criteria 

for identifying an invalid application, 

we already provide instructions in the 

annual solicitation for applications 

where we make clear our expectation 

that organizations submit a complete 

application by the established deadline 

and provide guidance on how sponsors 

can achieve that goal. To provide 

guidance on how to submit successfully 

something less than a complete 

application would undercut our existing 

direction and undermine the meaning of 

the application deadline. Also, we do 

not hold applicants to an unreasonable 

standard of perfection as our regulations 

provide organizations that met the 

deadline an opportunity to submit 

curing information during the 

application review process. 

We accept contract qualification 

applications in all instances where there 

is evidence that the applicant made a 

good faith effort to submit a 

substantially complete application by 

the established deadline. For example, 

we already make exceptions to the 

application deadline when there has 

been a technical systems error on our 

part that prevented the submission of a 

valid application. Beyond that limited 

circumstance, we cannot foresee any 

other legitimate reason for which we 

should grant a waiver of our application 

deadline. 

Simply put, this authority is not 

applicable to applications that are 

missing only a few required elements 

but otherwise demonstrate that the 

submitting organization has completed 

the arrangements necessary to operate a 

Part C or D contract. As we noted in our 

proposed rule, we intend to declare an 

application invalid when it is so 

incomplete as to constitute little more 

than a placeholder submission that the 

applicant is attempting to use to meet 

the application deadline and then use 

the cure period to complete work that 

should have done prior to the deadline. 

To illustrate our point, we provide here 

examples, but not an exhaustive list, of 

characteristics of an invalid application. 

To complete a Part C or D contract 

qualification application, an 

organization must execute electronically 

a series of attestations and provide 

documentation demonstrating its 

financial wherewithal and relationships 

with first tier or downstream entities 

with which it has contracted to provide 

required services on its behalf under its 

contract with CMS. While the 

attestations are important to the 

application process, it is the 

documentation concerning elements 

such as the applicant’s authority to 

operate as a risk bearing entity, its 

relationships with first tier and 

downstream entities (including fully 

executed contracts), and the extent of its 

contracted provider network that most 

clearly substantiate an applicant’s 

ability to administer Medicare benefit 

plans. These elements also require the 

most effort on the part of the applicant 

as each completed document represents 

the culmination of extensive work with 

regulators and other business partners. 

Failure to provide these kinds of 

documents would be the most likely 

reason that we would determine that the 

organization has not submitted a valid 

application by the stated deadline. 

Further, if these documents are 

submitted but are either: (1) Blank or 

substantially blank, such as a retail 

pharmacy network list missing data in 

more than one required column; (2) a 

Part C document submitted for a Part D 

application and vice versa, in the 

absence of the correct documents; or (c) 

otherwise incorrect attachments, in the 

absence of other correct documents, 

CMS may consider the application 

incomplete. 

An example of an application we have 

received in past years that would have 

been excluded from further 

consideration is one where the 

applicant provided no information 

concerning its Part D pharmacy 

network; that is, no list of contracted 

pharmacies, no pharmacy contract 

templates, and no report demonstrating 

the network’s compliance with Part D 

pharmacy access requirements. Further, 

the applicant presented no evidence of 

licensure as a risk bearing entity and no 

executed contracts with the first tier and 

downstream entities the applicant had 

identified in the body of its application 

as providing Medicare-related services 

on its behalf. In this instance, it was 

clear that the deficiencies were not the 

result of an honest mistake on the part 

of the applicant, but instead indicated 

that it had not finished the work 

necessary to submit a substantially 

complete application before the 

deadline. We should not grant such an 

organization the opportunity to 

continue with the application review 

process when its work shows that it 

ignored a deadline that other 

organizations made their best effort to 

meet. 

We already have significant 

experience, through our administration 

of the annual bid and formulary review 

processes, in assessing the validity of 

submissions for the purposes of 

determining compliance with a 

submission deadline. Since 2005, we 

have declined to accept a handful of bid 

and formulary submissions that were so 

lacking in detail that we could not 

consider the submitting organizations to 

have met the deadline. None of our 

decisions in those cases has been 

successfully challenged, and we intend 

to apply the same level of judgment and 

analysis used in those decisions to our 

determinations concerning valid 

contract qualification applications. 

Comment: A commenter urged that 

CMS provide appeal rights to those 

organizations whose applications CMS 

excludes from consideration pursuant to 

this proposed regulatory provision. 

Response: The point of the proposed 

provision is to document our authority 

to determine when an organization has 

even qualified for further consideration 

of its application, including the rights 

that attach to that process, such as the 

opportunity to cure deficiencies and 

appeal a denial, by meeting the 

submission deadline. To afford appeal 

rights in instances where we have 

determined that an organization 

submitted an invalid application would 

re-create the very program vulnerability 

this provision is intended to eliminate. 

Having addressed the comments in 

the previous discussion, we are 

finalizing this provision without 

modification. 

7. Modifying the Definition of 

Dispensing Fees (§ 423.100) 

In the November 2010 proposed rule, 

we proposed a simplified and clarified 

definition of ‘‘dispensing fees’’ under 

§ 423.100. We explained in our 

proposed rule that ‘‘dispensing fees,’’ as 

defined in the final rule issued January 

28, 2005, implied that the salaries of 

pharmacists and other pharmacy 

workers were reasonable pharmacy 

costs only for pharmacies owned and 

operated by a Part D plan itself. We 

proposed to clarify that the salaries of 

pharmacists and other pharmacy 

workers may be reasonable pharmacy 

costs for any pharmacy. We also 

proposed to modify the definition of 

‘‘dispensing fees’’ under § 423.100 to 

include costs associated with the 

acquisition and maintenance of 

technology to maintain reasonable 

pharmacy costs. We proposed adding to 

the definition of ‘‘dispensing fees’’ a 

restocking fee associated with return for 

credit and reuse in long-term care 

pharmacies when return for credit and 

reuse is permitted under State law and 

is allowed under the contract between 

the Part D sponsor and the pharmacy. 


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We explained in the proposed rule 

that it was not our intent to include all 

activities that are ‘‘reasonable costs’’ in 

the definition of ‘‘dispensing fees,’’ but 

in light of the statutory requirements 

regarding LTC pharmacy dispensing, we 

believed that it was particularly 

important to highlight the potential 

pharmacy costs aimed at reducing the 

volume of unused Part D drugs and 

increasing efficiency of dispensing. We 

also stated that we believe dispensing 

fees should differentiate among the 

costs associated with different 

dispensing methodologies and 

appropriately address costs that are 

incurred to offset the amount of unused 

Part D drugs. 

We proposed to clarify the definition 

of ‘‘dispensing fees’’ by modifying 

§ 423.100 and eliminating the 

distinction between pharmacies owned 

and operated by a Part D plan itself and 

all other pharmacies. We also proposed 

to modify § 423.100 by adding to the 

definition that dispensing fees should 

take into consideration the number of 

dispensing events in a billing cycle, the 

incremental costs associated with the 

type of dispensing methodology, and 

with respect to Part D drugs dispensed 

in LTC facilities, the techniques to 

minimize the dispensing of drugs that 

go unused. Additionally, we proposed 

adding that dispensing fees may also 

take into account restocking fees 

associated with return for credit and 

reuse in long-term care pharmacies, 

when return for credit and reuse is 

permitted under State law and is 

allowed under the contract between the 

Part D sponsor and the pharmacy. As a 

result of comments, in this final rule, we 

further modify the definition to account 

for costs associated with data collection 

on unused Part D drugs in LTC 

facilities. 

Comment: Commenters supported our 

proposal to modify the definition of 

dispensing fees. Some commenters 

requested that we amend the definition 

of dispensing fees to include other costs 

associated with the dispensing 

requirement under § 423.154. Some of 

the commenters requested that we add 

costs associated with the return and 

report requirement described in 

§ 423.154(f)(1) and § 423.154(a)(2). 

Response: In the proposed rule, we 

modified the definition of ‘‘dispensing 

fees,’’ in part, to highlight the potential 

pharmacy costs aimed at reducing the 

volume of unused Part D drugs and 

increasing the efficiency of dispensing. 

As we stated in the proposed rule, it is 

not our intent to provide a 

comprehensive list of all activities that 

are ‘‘reasonable costs’’ in the definition 

of ‘‘dispensing fees.’’ However, in this 

final regulation, we amend the 

definition of ‘‘dispensing fees’’ to 

include costs associated with the data 

collection on unused Part D drugs. 

Comment: Some commenters wanted 

us to provide assurances that dispensing 

fees would appropriately reflect the 

increased costs associated with 

dispensing requirements under 

§ 423.154 in LTC facilities and to 

monitor dispensing fees to pharmacies 

dispensing to enrollees in LTC facilities 

to ensure that dispensing fees are 

adequate. 

Response: As provided in section 

1860D–11(i) of the Act, we are 

prohibited from interfering with 

negotiations between Part D plans and 

pharmacies. 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

3506(c)(2)(A) of the Paperwork 

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

The following sections of this 

document contain paperwork burden 

but not all of them are subject to the 

information collection requirements 

(ICRs) under the PRA for reasons noted. 

A. ICRs Regarding Cost Sharing for 

Specified Services at Original Medicare 

Levels (§ 417.454 and § 422.100) 

Under § 417.454(d) and § 422.100(g) 

and (h), we clarify that MA 

organizations may not impose cost 

sharing that exceeds that required under 

Original Medicare. We evaluate the 

following services annually to ensure 

that MA plans are charging cost sharing 

in the upcoming contract year that does 

not exceed cost sharing in Original 

Medicare. Specifically, chemotherapy 

administration services that include 

chemotherapy drugs and radiation 

therapy integral to the treatment 

regimen, renal dialysis as defined at 

section 1881(b)(14)(B) of the Act, and 

skilled nursing care defined as services 

provided during a covered stay in a 

skilled nursing facility would be subject 

to this limitation. The burden associated 

with this requirement is the time and 

effort necessary for MA organizations 

and section 1876 cost contracts to 

submit their benefit designs, including 

cost-sharing amounts, via the Plan 

Benefit Package (PBP) software. While 

this requirement is subject to the PRA, 

the burden associated with it is 

currently approved under OMB control 

number (OCN) 0938–0763 with a May 

31, 2011, expiration date. 

B. ICRs Regarding SNP Provisions 

(§ 422.101, § 422.107, and § 422. 152) 

1. Dual-Eligible SNP Contracts With 

State Medicaid Agencies (§ 422.107) 

Section 422.107(d)(ii) extends the 

deadline for new and existing dualeligible SNPs (D–SNPs) to operate 

without a contract with their respective 

State Medicaid agency(ies). New D– 

SNPs and D–SNPs not seeking to 

expand their service areas can continue 

to operate without a State contract until 

December 31, 2012. 

For new and existing D–SNPs that are 

seeking to expand in contract years 2011 

through 2013, the burden associated 

with this requirement is the time and 

effort put forth by each dual eligible 

SNP to confer and develop a contract 

with the State Medicaid agency. While 

this requirement is subject to the PRA, 

this burden is already approved, under 

OCN 0938–0753, with a November 30, 

2011, expiration date. 

2. ICRs Regarding NCQA Approval of 

SNPs (§ 422.101 and § 422.152) 

Sections 422.101 and 422.152 provide 

for the approval of all SNPs, existing 

and new, by NCQA beginning in 2012. 

The burden associated with this 

requirement is the time and effort put 

forth by MA organizations offering SNPs 

to submit their MOC to CMS for NCQA 

evaluation and approval as per CMS 

guidance. Although the submission of 

the MOC document is already part of 

the application process, scrutiny of 

these documents by NCQA for approval 

is a new requirement. Previously, all 

SNPs were not required to complete the 

SNP proposal portion of the application 

each year. Under the new requirement, 

we require all SNPs (that is, all of the 

SNP plans offered by an MA 

organization) must complete the SNP 

proposal portion of the application. We 

estimate that it will take each SNP plan 

40 hours to complete the annual 

application. Within those 40 hours, it 

will take each SNP plan 6 hours to 


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complete the SNP portion of the 

application. For the existing 544 SNPs, 

we estimate the burden associated with 

completing the SNP section only is 

3,264 hours. 

The number of new plans each year 

will vary and cannot easily be 

predicted. However, based on the 

number of new plans that submitted 

SNP Proposals during the application 

period in February 2010 for operation in 

2011, we estimate that approximately 15 

new applications will be submitted 

annually. Thus, for 15 new plans at 40 

hours each, we estimate the total annual 

burden hours to be 600. The burden 

associated with the proposed 

requirement for the new plans is 

currently approved under OCN 0938– 

0935 with a January 21, 2011 expiration 

date. 

C. ICRs Regarding Voluntary De 

Minimis Policy for Subsidy Eligible 

Individuals (§ 423.34 and § 423.780) 

Our regulatory modifications 

pursuant to section 3303 of the ACA 

ensure that our regulations reflect the 

new statutory prohibition on reassigning 

LIS beneficiaries from Part D plans that 

waive a de minimis amount of their 

premium on the basis that the premium 

exceeded the low-income premium 

benchmark. Further, the regulatory 

modifications reflect statutory 

discretion for us to auto-enroll or 

reassign LIS beneficiaries to Part D 

plans that waive the de minimis amount 

of the premium. The modifications to 

§ 423.34 do not by themselves impose 

any new information collection 

requirements on any external entity. 

However, related proposals to modify 

§ 423.780 do impose new information 

collection requirements. Specifically, 

the modifications provide for the 

process for a Part D plan to volunteer to 

waive a de minimis amount over the 

monthly beneficiary premium for 

certain low income subsidy eligible 

(LIS) individuals. As specified in 

proposed changes to § 423.34, we are 

prohibited from reassigning LIS 

beneficiaries from Part D plans that 

waive the de minimis amount of the 

premium based on the fact that their 

premiums exceed the LIS benchmark 

premium amount, and we may choose 

to auto-enroll or reassign LIS 

beneficiaries to such plans. 

The burden associated with this 

requirement is the time and effort 

necessary for a Part D plan to submit 

data to us indicating its decision to 

volunteer to waive the de minimis 

amount. Since we will collect this 

information as part of an already 

established system, we estimate that it 

will take an additional 10 minutes 

annually for plans to read the 

instructions, select an online check box, 

and submit the information. The de 

minimis amount will be established 

each year, and the amount may vary 

among years. For purposes of estimating 

the burden, we assume that the de 

minimis amount will be $1.00, and that 

all Part D plans with premiums within 

the de minimis amount over the 

regional LIS benchmark will volunteer 

to waive it. We estimate 150 Part D 

plans will qualify for de minimis in a 

given fiscal year. For 150 plans at 10 

minutes each fiscal year, we estimate 

the total annual burden hours to be 25. 

We assume an hourly wage of $23.92 for 

a compliance officer, resulting in a total 

annual labor cost of $598. 

D. ICRs Regarding Increase in Part D 

Premiums Due to the Income Related 

Monthly Adjustment Amount (Part D— 

IRMAA) (§ 423.44) 

Section 423.44(e)(4) requires PDPs to 

provide Part D enrollees with a notice 

of termination in a form and manner 

determined by CMS. We estimate that 

approximately 1.05 million of the 29.2 

million Medicare beneficiaries enrolled 

in the Part D program will exceed the 

minimum income threshold amount and 

will be assessed an income related 

monthly adjustment amount. We also 

estimate that approximately 80,000 

beneficiaries will be directly billed for 

the Part D—IRMAA because they are not 

receiving monthly benefit payments 

from SSA, the OPM, or the RRB, or the 

monthly benefit payment is not 

sufficient to have the Part D—IRMAA 

withheld. 

Of the 80,000 Part D enrollees who 

will be directly billed for the Part D— 

IRMAA, CMS cannot estimate how 

many might accrue Part D—IRMAA 

arrearages and be subsequently 

terminated. However, in the event that 

the 80,000 Part D enrollees who pay the 

Part D—IRMAA through direct billing 

become delinquent, PDPs would be 

required to send all 118,000 enrollees a 

notice of termination in accordance 

with § 423.44(e)(4), and the burden 

associated with this requirement would 

be the time and effort that it takes a PDP 

to populate the notice with a 

beneficiary’s information. Termination 

notices are generally automated; 

therefore, CMS estimates that it will 

take 1 minute to generate a termination 

notice. As such, the total maximum 

annual hourly burden associated with 

this requirement is 1,333 hours (1 

minute multiplied by 80,000 enrollees, 

divided by 60 minutes). We estimate 

that the hourly wage paid to an 

individual tasked with generating the 

automated letters is $40 (based on U.S. 

Department of Labor statistics for hourly 

wages for administrative support). The 

associated burden amount for this work 

is $53,320. Additionally, Part D plan 

sponsors will have to retain a copy of 

the notice in the beneficiary’s records. 

We estimate 5 minutes multiplied by 

80,000 enrollees divided by 60 minutes. 

This equates to 6,666 hours at 

approximately $40 an hour (based on 

U.S. Department of Labor statistics for 

hourly wages for administrative 

support). This associated burden 

amount is $266,640. We estimate the 

total maximum annual burden for all 

Part D plan sponsors resulting from this 

proposed provision to be $319,960. 

E. ICRs Regarding Elimination of 

Medicare Part D Cost-Sharing for 

Individuals Receiving Home and 

Community-Based Services (§ 423.772 

and § 423.782) 

We are amending § 423.772 and 

§ 423.782 in accordance with section 

3309 of the ACA. Specifically, the 

changes provide for a definition of an 

individual receiving home and 

community based services, and for zero 

cost-sharing for Medicare Part D 

prescriptions filled by full-benefit dual 

eligible beneficiaries receiving such 

services. 

To carry out these provisions, we 

require State Medicaid Agencies to 

submit data at least monthly identifying 

these individuals. There is already an 

established data exchange for States to 

identify their dual eligible individuals 

to CMS at least monthly. We will 

leverage that data exchange by adding a 

new value for the existing institutional 

status field, which will prompt CMS to 

set a zero copayment liability for fullbenefit dual eligible beneficiaries who 

qualify for HCBS zero cost-sharing, as 

set forth under section 3309 of the ACA. 

The estimated size of the population to 

be reported as being full benefit dual 

eligible and receiving home and 

community-based services is 600,000. 

We estimate the burden associated 

with the requirement for States to 

provide CMS with the specified 

information including a one-time 

development cost and ongoing annual 

costs. The startup development effort is 

estimated at 20 hours per State, or an 

additional 1,020 hours for all 51 State 

Medicaid Agencies (50 States and the 

District of Columbia), in the fiscal year 

prior to the effective date of this 

provision. Assuming an hourly salary of 

$34.10 for computer programmers, this 

results in a development cost of 

$34,782. Once implemented, the 

information collection burden is 

estimated to be 1 hour each month, or 

612 hours in each fiscal year for 51 State 


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Medicaid Agencies. Assuming an hourly 

salary of $34.10 for computer 

programmers, we estimate an ongoing 

cost of $20,862 per fiscal year. 

F. ICRs Regarding Appropriate 

Dispensing of Prescription Drugs in 

Long-Term Care Facilities Under PDPs 

and MA–PD Plans (§ 423.154) and 

Dispensing Fees (§ 423.100) 

Under § 423.154 (a), we implement 

provisions of section 3310 of the ACA, 

which require Part D sponsors to use 

specific, uniform dispensing techniques 

such as weekly, daily, or automated 

dose dispensing when dispensing 

covered Part D drugs to enrollees who 

reside in long-term care facilities in 

order to reduce waste associated with 

30-day fills. The collection burden 

associated with this proposed provision 

is the reporting requirement and renegotiation of contracts. 

We are introducing a new 

requirement under § 423.154 (a)(2) for 

Part D sponsors to collect and report to 

CMS the method of dispensing 

technique used for each dispensing 

event described under § 423.154 (a) and 

on the nature and quantity of unused 

brand and generic drugs. We anticipate 

a billing standard that incorporates the 

collection of the method of dispensing 

technique. So, pharmacies and plans 

will not have to create unique data 

collection processes to collect that data. 

We estimate that 40 sponsorscontractors (28 drug claim processors 

and 12 sponsors that process their drug 

claims and data collection) will be 

subject to this requirement. For the 

collection of data on unused drugs, we 

estimate that it will take a total of 2400 

hours for 10 vendors (software vendors 

plus pharmacies with proprietary 

systems) to develop the programming 

for this requirement. The estimated total 

cost associated with the software 

development is equal to the number of 

software vendors plus the number of 

pharmacies with proprietary systems 

(10) times an hourly rate of $145.37 (this 

includes $43.35 in direct wages and an 

additional $102.02 in fringe benefits/ 

overhead/general and administrative 

costs/fee) times 240 (estimated number 

of hours to design and program one 

system; the cost is $348,888. The 

aforementioned burden will be included 

in a revision of the collection currently 

approved under OMB Control No 0938– 

0992. 

The requirements will necessitate the 

renegotiation of contracts between Part 

D sponsors and the pharmacies 

servicing LTC facilities. We anticipate 

dispensing fees will increase, consistent 

with our proposed change in the 

definition of dispensing fees (§ 423.100), 

with the relative investment in the 

dispensing technologies and 

corresponding dispensing efficiencies 

associated with the dispensing 

technologies used in § 423.154. 

We estimate that the total annual 

hourly burden for negotiating a contract 

between the Part D sponsors and entity 

contracting with the pharmacies 

servicing long-term care facilities (for 

example, PBM) to be equal to the 

number of Part D sponsors (731) 

multiplied by the average estimated 

hours per sponsor (10), equaling 7,310 

hours. We estimate the number of 

entities contracting with pharmacies 

servicing long-term care facilities to be 

40 (28 processors and 12 other entities). 

We estimate the total annual hourly 

burden for negotiating a contract 

between an entity described previously 

and the pharmacies servicing LTC 

facilities to be the number of entities 

(40) multiplied by the average estimated 

hours per entity (80), which is 3,200 

hours. The total number of hours for 

contract renegotiation is estimated to be 

10,510 hours (7,310 hours + 3,200 

hours). The estimated hourly labor cost 

for reporting is $150.20. The total 

estimated cost associated with these 

contract negotiation requirements is 

$1,578,602. We estimate that the total 

burden cost associated with this 

provision is $1,927,490. 

Comment: We received comments 

regarding the burden associated with 

the reporting requirements. Many 

commenters believed that the 

Controlled Substance Act, hazardous 

waste laws, and State laws would be a 

barrier to LTC facilities returning 

unused drugs to pharmacies. 

Commenters stated that manual 

reporting of unused drugs would create 

a burden on the pharmacy and sponsor 

and require additional staffing to 

accommodate the increased workload. 

Response: In response to the 

comments, we will eliminate the 

requirement that unused drugs be 

transferred to the pharmacy and instead 

retain only the requirement that Part D 

sponsors collect information from the 

network LTC pharmacies to determine 

the amount of unused drugs. We believe 

that this information can be collected by 

the pharmacies from the LTC facilities 

or determined by calculating the 

difference between the quantity 

dispensed and the quantity consumed 

which can be used to calculate the 

amount of unused medication. We are 

revising the PRA package for the Part D 

Reporting Requirements (OMB Control 

No. 0938–0992) to reflect this approach. 

Please comment on our approach in the 

Part D Reporting Requirement PRA 

package. 

G. ICRs Regarding Complaint System for 

Medicare Advantage Organizations and 

PDPs (§ 422.504 and § 423.505) 

Under § 422.504(a) and § 423.505(b) 

we would require MA organizations and 

Part D sponsors to address and resolve 

all complaints in the CMS complaint 

tracking system and to include a link to 

the electronic complaint form at http://

www.medicare.gov on their main Web 

page. This requirement would allow 

thorough monitoring of complaints 

through the tracking system by 

identifying how plan sponsors resolve 

and close complaints and allow 

members to access complaint forms 

electronically on http://

www.medicare.gov. 

The burden associated with this 

proposed provision is the time and 

effort of the MA organizations and Part 

D sponsors in recording complaint 

closure documentation in the CTM and 

training staff, as well as posting and 

maintaining a link from their Web site 

to the electronic complaint form at the 

Medicare.gov Internet Web site. While 

this requirement is subject to the PRA, 

we believe this burden is exempt as 

defined in 5 CFR 1320.3(b)(2). That is, 

the time, effort, and financial resources 

necessary to comply with the 

requirement would be incurred by the 

Part D sponsors in the normal course of 

their business activities. 

Comment: We received comments 

from one commenter expressing support 

for the use of a drop-down checklist of 

complaint closure reasons. However, the 

commenter was concerned that a new 

electronic complaint form that could be 

accessed through the plan’s Web site as 

well as http://www.medicare.gov would 

be seen as a substitute for beneficiaries’ 

current avenues for issue resolution. 

The commenter additionally 

recommended that CMS establish a 

strict process for monitoring and 

reviewing how these complaints are 

resolved. 

Response: Sections 422.504(a) and 

423.505(b) require MA organizations 

and Part D sponsors to address and 

resolve all complaints in the CMS 

complaint tracking system and to 

include a link to the electronic 

complaint form at http:// 

www.medicare.gov on their main Web 

page. The requirement allows complaint 

monitoring through the tracking system 

by identifying how plan sponsors 

resolve and close complaints, and 

allows enrollees to access complaint 

forms electronically on http:// 

www.medicare.gov. We are therefore not 

modifying the burden estimate in our 

proposed rule in this final rule. 


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H. ICRs Regarding Uniform Exceptions 

and Appeals Process for Prescription 

Drug Plans and MA–PD Plans (§ 423.128 

and § 423.562) 

In accordance with the new section 

1860D–4(b)(3)(H) of the Act, we 

proposed revising § 423.128 at 

paragraphs (b)(7) and (d) in our 

proposed rule to specifically provide 

three mechanisms that plan sponsors 

must have in place in order to meet the 

uniform appeals requirements of 

1860D–4(b)(3)(H) of the Act. 

We proposed adding paragraph (i) to 

§ 423.128(b)(7) to require that plan 

sponsors make available standard forms 

to request coverage determinations and 

redeterminations (to the extent that 

standard request forms have been 

approved for use by CMS). In this final 

rule, we modify the language of the 

proposed rule to instead require plan 

sponsors to make available uniform 

model forms for requesting coverage 

determinations and appeals, and we 

clarify that we intend to revise our 

existing model forms. 

We also proposed adding paragraph 

(ii) to § 423.128(b)(7), requiring sponsors 

to develop a Web-based electronic 

interface that allows an enrollee (or an 

enrollee’s prescriber or representative) 

to immediately request a coverage 

determination or redetermination via a 

plan’s secure Web site. The interface 

would be the ‘‘electronic equivalent’’ of 

the paper coverage determination and 

appeals forms referenced at 

§ 423.128(b)(7)(i). Based on comments 

we received, we are finalizing the 

language related to instant access to 

coverage determinations and appeals 

processes via the plan’s Web site, but 

have clarified in the preamble that we 

are interpreting instant access to mean, 

at a minimum, the ability of Part D plan 

sponsors to accept e-mail requests. 

Similarly, we are revising § 423.128(d) 

to require sponsors to provide a toll-free 

telephone line for requesting coverage 

determinations and redeterminations. 

The burden associated with these 

requirements involves collecting the 

coverage determination request 

information submitted through the 

various processes. 

We estimated that all 731 plan 

sponsors would receive a total of 

484,468 coverage determination 

requests submitted by mail, with some 

using the standardized coverage 

determination request form, if available. 

We further estimated that it would take 

10 minutes to enter the information 

submitted from each request into a 

claims processing system, for a potential 

total annual burden of 80,745 hours. 

Although this final rule modifies the 

proposed language to include a 

reference to a model coverage 

determination request form, we do not 

expect this modification to impact our 

estimated burden for coverage 

determination requests submitted by 

mail. In the proposed rule, we estimated 

that all plan sponsors would receive a 

total of 52,086 coverage determination 

requests submitted through secure 

websites, but that this process would 

not create an additional burden for plan 

sponsors beyond that required for 

requests submitted by mail because 

enrollees would enter information into 

a claims processing system themselves. 

In this final rule, we scale back the Web 

site requirement to mean, at a 

minimum, the ability to accept requests 

via e-mail. We expect plan sponsors to 

process the e-mail requests in the same 

manner as requests received by mail, 

and estimate that it will take 10 minutes 

to enter the information submitted from 

each request into a claims processing 

system, for a potential total annual 

burden of 8,681 hours. Finally, we 

estimated that all plan sponsors would 

receive a total of 690,064 coverage 

determination requests submitted by 

telephone, and it would take 10 minutes 

to enter the information submitted by 

phone into the claims processing 

system, for a total annual burden of 

115,011 hours. The burden associated 

with the redetermination process is 

exempt under 5 CFR 1320.4(a)(2) 

because a redetermination is an 

administrative action. Information 

collected when conducting an 

administrative action is not subject to 

the PRA. 

Our final rule requires Part D 

sponsors to modify their electronic 

transactions to pharmacies so that they 

can transmit codes instructing 

pharmacies to distribute notices at the 

POS. That is, pharmacies and processors 

will be required to program their 

systems to relay the message at the 

pharmacy to distribute the POS 

pharmacy notice that instructs the 

enrollee to contact the plan sponsor to 

request a coverage determination. In 

cases when a prescription cannot be 

filled as written, Part D sponsors would 

be required under § 423.562(a)(3) to 

arrange with their network pharmacies 

to distribute a pharmacy notice that 

advised the enrollee of his or her right 

to contact the plan to request a coverage 

determination. We estimate that the 

burden on processors will be the 

programming to send the code or billing 

response to the pharmacy, as well as 

revisions to the contract requirement 

with the pharmacy. We estimate that the 

number of hours for each processor (28 

PBMs and 12 plan organizations) to 

perform these tasks will be 40 hours per 

processor or plan organization, for a 

total one-time burden of 1600 hours. 

The estimated one-time cost associated 

with the processor or plan organization 

tasks is $64,000 (1600 hours × $40). 

Each pharmacy will need to program to 

receive the code and print the response. 

Programming by the pharmacies (40 

pharmacy software vendors) in order to 

receive the code will be 10 hours, for a 

total of 400 hours. The estimated onetime cost associated with the processor 

tasks is $16,000 (400 hours × $40). 

We estimate that the average time to 

process a coverage determination is 10 

minutes (0.167 hours), and that an 

average of 734 coverage determination 

requests received by mail or secure Web 

site (e-mail) will be processed for each 

respondent (n=731). Therefore, we 

estimate that requiring plan sponsors to 

process the information submitted in 

model coverage determination request 

forms (§ 423.128(b)(7)(i)) will result in 

an annual burden of 89,605 hours (731 

entities × 734 contracts per entity × .167 

hours per contract to process). At an 

estimated cost of $40.00 per hour, the 

estimated total annual cost of this 

change is $3.58 million. We estimate 

that processing coverage determination 

requests that are received by telephone 

(§ 423.128(d)) will take an average of 10 

minutes (0.167 hours) per request and 

that entities (n=731) would process on 

average 944 coverage determination 

requests. We expect this to result in an 

annual burden of approximately 

115,240 hours (731 entities × 944 

determination requests per entity × 

0.167 hours per determination request). 

At an estimated cost of $40.00 per hour, 

the estimated total annual cost of this 

change is $4.6 million (115,240 hours × 

$40.00 per hour). We estimate that 

contracting entities (n=731) will 

distribute an average of 2,200 pharmacy 

notices. 

Therefore, requiring plan sponsors to 

arrange with their network pharmacies 

to distribute pharmacy notices at the 

point-of-sale when prescriptions cannot 

be filled as written (§ 423.562(a)(3)) is 

estimated to result in an annual burden 

of 53,071 hours (2 minutes or 0.033 

hours at point-of-sale × 731 contracts × 

2200 pharmacy notices per contract). At 

an estimated cost of $40.00 per hour, the 

estimated total annual cost of this 

change is $2.1228 million. 

Comment: One commenter believed 

that our estimate of $40 an hour was too 

low for processing coverage 

determinations and redeterminations. 

Response: We disagree with the 

commenter. The estimated hourly rate 

of $40 is a composite rate based upon 


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the Bureau of Labor Statistics National 

Compensation Survey. 

Comment: One commenter asked 

CMS if the agency expects the pharmacy 

to maintain a copy of the POS notice 

according to the 10-year record 

retention requirement. If so, the 

commenter believed that this 

requirement would increase dispensing 

fees and present an additional hurdle 

for pharmacies and PBMs in response to 

CMS audit requests, thereby increasing 

the burden estimate. 

Response: Part D sponsors are 

responsible for determining which 

pertinent documents they must retain. 

CMS does not specify which specific 

records Part D sponsors must require 

their network pharmacies to retain for 

audit purposes. Therefore, the burden 

estimate associated with the POS notice 

does not account for record retention 

requirements provided at § 423.505. 

I. ICRs Regarding Including Costs 

Incurred by AIDS Drug Assistance 

Programs and the Indian Health Service 

toward the Annual Part D Out-of-Pocket 

Threshold (§ 423.100 and § 423.464) 

Revising the definition of ‘‘incurred 

cost’’ at § 423.100 to include the costs 

associated with IHS/ADAPs towards the 

TrOOP does not impose new 

information collection for CMS’ COB 

contractor or ADAPs. The COB 

contractor currently collects datasharing agreements from ADAPs under 

the MSP information collection process. 

The burden associated with this 

collection is accounted for under OMB 

0938–0214. 

J. ICRs Regarding Improvements to 

Medication Therapy Management 

Programs (§ 423.153) 

This final rule amends 

§ 423.153(d)(1)(vii) to require Part D 

sponsors to use a standardized format 

for the action plan and summary 

resulting from the annual 

comprehensive medication review, and 

permit the use of telehealth technology 

in the conduct of the CMR. 

The burden associated with a number 

of the new MTM program requirements 

in the ACA, including the requirement 

for a written summary of the CMR, was 

summarized in our April 2010 final rule 

(75 FR 19678 through 19826) and 

approved under OCN 0938–0964 with 

an expiration date of September 30, 

2012. We believe the burden associated 

with the requirement in 

§ 423.153(d)(1)(vii)(D) to provide an 

action plan and summary in a 

standardized format is generally part of 

that burden. Therefore, we do not 

estimate an additional burden for this 

requirement in this final rule. Further, 

since the use of telehealth technology to 

conduct the CMR is permitted but not 

required, there is no burden associated 

with this change. 

In our proposed rule, we estimated an 

ICR burden associated with the 

proposed requirement for Part D 

sponsors to coordinate MTM program 

quarterly medication reviews with LTC 

consultant pharmacist monitoring for 

Part D enrollees in LTC facilities. We are 

not finalizing this requirement and are 

eliminating this burden from our 

estimates. As a result, there is no burden 

associated with this provision. 

K. ICRs Regarding Changes to Close the 

Part D Coverage Gap (§ 423.104 and 

§ 423.884) 

Section 423.104(d)(4) requires the 

approximately 40 pharmacy claims 

processors currently responsible for 

adjudication of pharmacy benefits to 

identify the applicable Part D covered 

drugs in their systems and apply a 

different cost-sharing percentage when 

processed in the coverage gap than the 

percentage applied to non-applicable 

drugs. We estimate a one-time burden to 

be 12,000 hours per processor to make 

the initial coding changes necessary to 

implement this requirement and an 

annual burden of 250 hours per 

processor to perform periodic updates of 

the applicable drugs in their systems. 

There are an estimated 40 processors. At 

an average labor cost of $105 per hour 

for a senior computer programmer, we 

estimate the first fiscal year annual 

burden associated with this requirement 

to be 480,000 hours (12,000 hours × 40 

processors) at an estimated total cost of 

$50.4 million. After the first fiscal year, 

the estimated burden associated with 

this requirement would be 10,000 hours 

(250 hours × 40 processors) at an 

estimated total annual cost of 

$1,050,000. 

L. ICRs Regarding Medicare Advantage 

Benchmark, Quality Bonus Payments, 

and Rebate (§ 422.252, § 422.258 and 

§ 422.266) 

Under § 422.258(d)(6) we base the 

5-star rating system for quality bonus 

payments on a modified version of the 

plan ratings published each fall on 

http://www.medicare.gov. The 5-star 

rating system for quality bonus payment 

will require no additional burden. The 

data collection for the 5-star rating is 

currently approved under the following 

OCNs: 

We have included new calculations 

for the benchmarks and rebates in 

§ 422.252, § 422.258, and § 422.266. The 

burden associated with the bid data 

used in these calculations is included in 

the burden estimate associated with the 

Bid Pricing Tool which is currently 

approved under OCN 0938–0944 with a 

May 31, 2011, expiration date. 

M. ICRs Regarding Quality Bonus 

Appeals (§ 422.260) 

We add a new § 422.260 to state that 

each MA organization is afforded the 

right to request an administrative review 

of CMS’ determination concerning the 

organization’s qualification for a quality 

bonus payment. The burden associated 

with this proposed provision is MA 

organizations’ time and effort in 

developing and presenting their case 

demonstrating that they should qualify 

for the quality bonus payment to a CMS 

official and, ultimately, to the CMS 

Administrator. Eligibility for quality 

bonus payments will be based largely on 

CMS’ application of a publicized 

methodology for assigning star ratings to 

MA organizations. These star ratings 

will be calculated using a combination 

of the MA organization’s performance 

scores across a variety of quality 

assessment measures. MA organizations 

will have the opportunity to challenge 


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CMS’ application of the methodology to 

their performance. 

We estimate that the total hourly 

burden in a fiscal year for developing 

and presenting a case to us for review 

is equal to the number of organizations 

likely to request an appeal multiplied by 

the number of hours for the attorneys of 

each appealing MA organization to 

research, draft, and submit their 

arguments to CMS. Based on the star 

rating distributions of previous contract 

years, out of the approximately 350 MA 

contracts that are subject to star rating 

analysis (that is, those not excluded 

from analysis because of low 

enrollment, contract type not required 

to report data, or new contract with no 

performance history), approximately 

250 may receive less than a four-star 

rating. We estimate that 10 percent of 

those contracts (25) will request an 

appeal of their rating under the 

proposed rule. We further estimate that 

one attorney working for 8 hours could 

complete the documentation to be 

submitted to CMS for each contract, 

resulting in a total burden estimate of 

200 hours (8 hours × 25 contracts = 200 

hours). The estimated fiscal year cost to 

MA organizations associated with this 

provision (assuming an attorney billing 

rate of $250 per hour) is $50,000 (200 

hours × $250). 

N. ICRs Regarding Timely Transfer of 

Data and Files When CMS Terminates a 

Contract With a Part D Sponsor 

(§ 423.509) 

In this final rule, we are amending 

§ 423.509 to state that when CMS 

terminates a contract with a Part D plan 

sponsor, the Part D plan sponsor must 

ensure the timely transfer of any data or 

files. Our intent is to ensure that 

terminated Part D plan sponsors transfer 

to CMS the necessary data to provide a 

smooth transition for beneficiaries into 

a new Part D plan similar to when the 

Part D sponsor terminates the contract 

or CMS and the Part D plan sponsor 

mutually terminate the contract. The 

burden associated with this proposed 

provision is the time and effort that Part 

D plan sponsors must undertake to 

transfer the requisite data and files to 

CMS. We have not developed a burden 

estimate for this requirement because 

we do not believe that we will exceed 

the PRA threshold of 9 organizations per 

any 12-month period. 

O. ICRs Regarding Agent and Broker 

Training Requirements (§ 422.2274 and 

§ 423.2274) 

Sections 422.2274(b) and (c) and 

423.2274(b) and (c) would require MA 

organizations’ and Part D sponsors’ 

agents and brokers to receive training 

and testing via a CMS endorsed or 

approved training program. We are 

considering implementing this 

requirement through a RFP competitive 

process. The burden associated with 

this requirement is the time and effort 

put forth by plan sponsors and/or third 

party vendors to submit their proposals 

for CMS review. We estimate that about 

12 entities (plan sponsors and/or third 

party vendors) will submit a proposal 

and the average estimated hours per 

entity to complete the proposal is 100 

hours. The total estimated hourly 

burden associated with this requirement 

is equal to the estimated number of 

entities (12) multiplied by the estimated 

hours per entity (100) resulting in a total 

of 1200 hours. We estimate the hourly 

labor cost of $59.20 for the preparer 

(based on hourly wages for management 

analysts reported by the U.S. 

Department of Labor Bureau of Labor 

Statistics). We estimate that the total 

annual labor cost of this proposal 

preparation is $71,040 ($59.20 × 1200 

hours) per fiscal year. 

Also at § 422.2274 and § 423.2274, we 

clarify that the annual agent and broker 

training requirements apply to all agents 

and brokers selling Medicare products 

and not just independent agents and 

brokers. The burden associated with this 

requirement is the time and effort put 

forth by the MA organization or Part D 

sponsor to ensure all agents and brokers 

selling Medicare products are trained 

and tested annually. While this 

requirement is subject to the PRA, the 

burden is exempt as defined in 5 CFR 

1320.3(b)(2). The time, effort, and 

financial resources necessary to comply 

with the requirement would be incurred 

by persons in the normal course of their 

business activities. 

P. ICRs Regarding Call Center and 

Internet Web site Requirements 

(§ 422.111 and § 423.128) 

At § 422.111(g)(1)(2)(3) (redesignated 

as § 422.111(h)(1) through (3)), we 

require MA organizations to operate a 

toll-free customer call center that is 

open during usual business hours and 

provides customer telephone service in 

accordance with standard business 

practices, as well as to provide current 

and prospective enrollees with 

information via an Internet Web site and 

in writing (upon request). In 

§ 422.111(g)(1)(iii) and 

§ 423.128(d)(1)(iii) (redesignated as 

(h)(1)(iii)) we codify provisions from the 

Medicare Marketing Guidelines (August 

15, 2005 version and all subsequent 

versions) that require plan sponsors to 

provide call center interpreters for nonEnglish and LEP beneficiaries. The 

burden associated with this requirement 

is the time and effort necessary to 

maintain a customer call center and 

Internet Web site, to provide 

information to beneficiaries in writing 

upon request, and to provide call center 

interpreters. While this requirement is 

subject to the PRA, we believe this 

burden is exempt as defined in 5 CFR 

1320.3(b)(2). The time, effort, and 

financial resources necessary to comply 

with the requirement would be incurred 

by persons in the normal course of their 

business activities. 

Q. ICRs Regarding Requiring Plan 

Sponsors to Contact Beneficiaries to 

Explain Enrollment by an Unqualified 

Agent/Broker (§ 422.2272 and 

§ 423.2272) 

Sections 422.2272(e) and 423.2272(e) 

require MA organizations and Part D 

sponsors, respectively, to notify 

Medicare beneficiaries upon discovery 

that they were enrolled in a plan by an 

unqualified agent. While this 

requirement is subject to the PRA, the 

burden is exempt as defined in 5 CFR 

1320.3(b)(2). The time, effort, and 

financial resources necessary to comply 

with the requirement would be incurred 

by persons in the normal course of their 

business activities. 

R. ICRs Regarding Customized Enrollee 

Data (§ 422.111 and § 423.128) 

As discussed in our November 2010 

proposed rule (75 FR 71249 through 

71250), proposed § 422.111(b)(11) and 

§ 423.128(b)(12) authorize CMS to 

require MA organizations and PDP 

sponsors to periodically provide each 

enrollee with enrollee specific data to 

use to compare utilization and out-ofpocket costs in the current plan year to 

projected utilization and out-of-pocket 

costs for the following plan year. Plans 

would disclose this information to plan 

enrollees in each year in which a 

minimum enrollment period has been 

met, in conjunction with the annual 

renewal materials (currently the annual 

notice of change/evidence of coverage, 

or ANOC/EOC). 

Plan sponsors already collect enrollee 

utilization and cost-sharing information 

as part of their claims processing 

operations. In our proposed rule, we 

stated that the burden associated with 

this proposed requirement would be the 

time and effort necessary for a plan 

sponsor to complete program 

development and testing, and to 

disclose (print and mail) this 

information to each beneficiary. We 

anticipated that it would take 30 hours 

per MA organization and 20 hours per 

Part D sponsor to develop and submit 

the required information. This included 

2 hours for reading CMS’ published 


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instructions, 20 hours per MA 

organization and 10 hours per Part D 

sponsor generating the document or 

documents, and 8 hours printing and 

disclosing to enrollees. We developed 

this burden estimate using our burden 

estimates for the ANOC/EOC documents 

under OCN 0928–1051 as a baseline, 

then expanded on that baseline, and 

factored in expected programming and 

development costs to provide 

beneficiary specific information. We 

estimated that 564 MA organizations 

and 85 Part D sponsors would be 

affected annually by this requirement. 

We proposed that the total annual 

burden associated with this requirement 

would be 18,620 hours in a fiscal year. 

In our proposed rule, we estimated 

the subsequent annual burden 

associated with this proposed 

requirement by the time and effort 

necessary for a plan sponsor to disclose 

(print and mail) this information to each 

beneficiary. We anticipated that it 

would take 20 hours per MA 

organization and 15 hours per Part D 

sponsor to develop and submit the 

required information. This included 1 

hour for reading CMS’ published 

instructions, 10 hours per MA 

organization and 5 hours per Part D 

sponsor generating the document or 

documents, and 6 hours printing and 

disclosing to beneficiary. We estimated 

that 564 MA organizations and 85 Part 

D sponsors would be affected annually 

by this requirement. We estimated the 

total annual burden associated with this 

proposed requirement would be 12,555 

hours in a fiscal year (20 hours for each 

of the 564 MA organizations + 15 hours 

for each of the 85 Part D sponsors). 

Based on the comments we received on 

our proposed rule, we are modifying our 

burden estimate as described below. 

Comment: As discussed in section 

II.D.4 of this final rule, we received 

many comments on our proposal to 

authorize CMS to require MA 

organizations and Part D drug sponsors 

to periodically provide each enrollee 

with enrollee specific data to use to 

compare utilization and out-of-pocket 

costs in the current plan year to 

projected utilization and out-of-pocket 

costs for the following plan year. 

Commenters were particularly 

concerned with the administrative and 

cost burdens associated with providing 

beneficiaries with customized enrollee 

data that included an estimate of future 

costs. Several of the commenters stated 

that our analysis of the burden 

associated with this proposed 

requirement, which we developed by 

expanding on the baseline burden 

estimates for the ANOC/EOC documents 

under OCN 0928–1051, was 

undervalued. One commenter stated 

that the estimate did not take into 

account the size of organizations’ 

memberships, sophistication of IT 

systems, variances in benefit designs or 

delivery systems. Several commenters 

stated that creating systems to compile 

current year information as well as to 

calculate future year information would 

require many more hours of IT and staff 

time than we estimated. Commenters 

offered estimates such as ‘‘more than 30 

hours per plan option per product’’ and 

‘‘thousands of hours.’’ 

Response: As discussed in section 

II.D.4 of this final rule, we are 

modifying our original proposal to 

authorize CMS to require that MA 

organizations periodically provide each 

enrollee with enrollee specific data. We 

are finalizing § 422.111(b)(12) to state 

that we may require an MA organization 

to furnish directly to enrollees, in the 

manner specified by CMS and in a form 

easily understandable to such enrollees, 

a written explanation of benefits, when 

benefits are provided under part 422. As 

discussed in section II.D.4 of this final 

rule, we intend to work with MA 

organizations, Part D sponsors and 

beneficiary advocates to develop an 

explanation of benefits for Part C 

benefits modeled after the EOB 

currently required for Part D enrollees at 

§ 423.128(e). We plan to continue the 

research and development process 

through a small pilot program with 

volunteer organizations in CY 2012 with 

the hope of implementing an EOB 

requirement for all MA plans beginning 

in the future. 

Based on the comments received, and 

our modified final policy, we have 

recalculated our estimate of the burden, 

based on the annual burden to Part D 

plan sponsors to furnish enrollees with 

an EOB for prescription drug benefits 

under OMB 0938–0964. MA 

organizations already collect enrollee 

utilization and cost-sharing information 

as part of their claims processing 

operations. In the first year that the pilot 

program is implemented, the burden 

associated with this proposed 

requirement would be the time and 

effort necessary for 564 MA 

organizations to complete program 

development and testing of an 

explanation of benefits when Part C 

benefits are provided, and to disclose 

(print and mail) this information to each 

beneficiary. Given that stand alone PDPs 

already produce an EOB in accordance 

with § 423.128(e), the revised burden 

estimate includes only MA 

organizations. We estimate that in the 

first year it will require each entity 200 

hours on an annual basis to disseminate 

the required materials, for a total annual 

burden of 112,800 hours. We calculate 

the total labor cost estimate based on the 

hourly rate of $34.92 for a GS–11/step 

6 analyst. This first year estimate builds 

from the estimated annual burden for 

the Part D EOB. Our revised estimate 

increases the number of hours 

organizations will need to initiate and 

complete program development and 

testing of an EOB. 

In subsequent years, the burden 

associated with this requirement will be 

the time and effort necessary for about 

564 MA organizations to provide an 

EOB when Part C benefits are provided 

to enrollees. We estimate that it will 

require each entity 160 hours on an 

annual basis to disseminate the required 

materials, for a total annual burden of 

90,240 hours. We calculate the total 

labor cost estimate based on the hourly 

rate of $34.92 for a GS–11/step 6 

analyst. The decreased estimate of 

burden hours relative to the first year 

reflects the completion of program 

development in the first year and brings 

the estimated hours in line with the 

current estimated number of hours for 

the Part D EOB. 

S. ICRs Regarding Extending the 

Mandatory Maximum Out-of-Pocket 

(MOOP) Amount Requirements to 

Regional PPOs (§ 422.100(f) and 

§ 422.101(d)) 

In this final rule, we are extending the 

mandatory MOOP and catastrophic 

limit requirement to RPPO plans at 

§ 422.100(f) and § 422.101(d). Each 

RPPO plan will establish an annual 

MOOP limit on total enrollee cost 

sharing liability for Parts A and B 

services. We will set the dollar amount 

of the MOOP limit annually. RPPO 

plans’ MOOPs will include all cost 

sharing (that is, deductibles, 

coinsurance, and copayments) for Parts 

A and B services. These requirements 

will not result in an additional data 

collection burden for RPPOs since they 

already collect this data to establish 

their own in-network MOOP and 

catastrophic limits under 

§ 422.101(d)(4). While this requirement 

is subject to the PRA, the burden is 

exempt as defined in 5 CFR 

1320.3(b)(2). The time, effort, and 

financial resources necessary to comply 

with the requirement is incurred by 

persons in the normal course of their 

business activities. 

T. ICRs Regarding Prohibition on Use of 

Tiered Cost Sharing by MA 

Organizations (§ 422.100 and § 422.262) 

Section § 422.262 clarifies that MA 

organizations may not impose cost 

sharing that varies across enrollees for 

any reason, including provider group, 


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hospital network or enrollees’ 

utilization of services. The burden 

associated with this proposed revision 

is the time and effort necessary for MA 

organizations and section 1876 cost 

contracts to submit their benefit designs, 

including cost-sharing amounts, via the 

Plan Benefit Package (PBP) software. 

While this requirement is subject to the 

PRA, the burden associated with it is 

currently approved under OCN 0938– 

0763 with a May 31, 2011 expiration 

date. 

U. ICRs Regarding Translated Marketing 

Materials (§ 422.2264 and § 423.2264) 

This clarification at § 422.2264(e) and 

§ 423.2264(e) does not impose any 

additional burden upon MA 

organizations because they have been 

required to provide translated marketing 

materials pursuant to § 422.2264(e) and 

§ 423.2264(e) (previously numbered 

§ 422.80(c)(5) and § 423.50(d)(5)). We 

believe the burden associated with these 

proposed requirements is exempt from 

the requirements of PRA as defined in 

5 CFR 1320.3(b)(2) because the time, 

effort, and financial resources necessary 

to comply with the requirement would 

be incurred by persons in the normal 

course of their activities. 

V. ICRs Regarding Expanding Network 

Adequacy Requirements to Additional 

MA Plan Types (§ 422.112) 

Our amendment to § 422.112(a)(10) 

ensures that any MA plan that meets 

Medicare access and availability 

requirements through direct contracting 

network providers does so consistent 

with the requirements at 

§ 422.112(a)(10). We do not include MA 

MSAs in § 422.112(a)(10) because MSA 

plans historically have not had 

networks and enrollees in MSA plans 

may see any provider. However, MSA 

plans are not prohibited from having 

networks as long as enrollee access is 

not restricted to network providers. 

While there are currently no MA MSA 

network plans, we are aware of possible 

interest in offering such plans. 

The burden associated with this 

requirement is the time and effort 

required by MA organizations to submit 

network adequacy data to CMS for 

review and approval as part of the 

application process. This burden is 

already accounted for under OCN 0938– 

0935. However, since this amendment 

will extend the current network 

adequacy requirements only to 

Medicare MSA plans, and there is 

currently only one Medicare MSA 

contract (which does not use a network 

of providers), we believe that fewer than 

10 applications would be subject to this 

proposed requirement in each fiscal 

year. 

W. ICRs Regarding Maintaining a 

Fiscally Sound Operation (§ 422.2, 

§ 422.504, § 423.4, and § 423.505) 

Sections 422.504(a) and 423.505(b) 

add a contract term under which an MA 

organization or PDP sponsor agrees to 

maintain a fiscally sound operation by 

at least maintaining a positive net 

worth. A determination of whether there 

is a positive net worth will be made 

from the financial reports submitted 

under the current financial reporting 

requirements. The burden associated 

with this requirement is the time and 

effort necessary to submit these 

financial reports. While this 

requirement is subject to the PRA, the 

associated burden is currently approved 

under OCN 0938–0469 with an 

expiration date of April 30, 2013. 

X. ICRs Regarding Release of Part C and 

Part D Payment Data (Parts 422 and 

423, Subpart K) 

This provision permits the Secretary 

to release Part C and D summary 

payment data for research, analysis, and 

public information functions. The 

Secretary believes these data should be 

made available because other publicly 

available data are not, in and of 

themselves, sufficient for the studies 

and operations that researchers want to 

undertake to analyze the Medicare 

program and Federal expenditures, and 

to inform the public on how their tax 

dollars are spent. 

These data will be routinely released 

on an annual basis in the year after the 

year for which payments were made. 

The data release will occur after final 

risk adjustment reconciliation has been 

completed for the payment year in 

question and, for Part D, after final 

payment reconciliation of the various 

subsidies. Thus, we will release data for 

payment year 2010 in the fall of 2011. 

This timeframe will not apply to the 

release of RDS data, since we do not 

reconcile RDS payment amounts until 

15 months following the end of the plan 

year. The majority of our sponsors 

provide retiree drug coverage on a 

yearly basis. If an applicable plan year 

ended December 31, 2010, the payment 

reconciliation is not due until March 31, 

2012, which would be after the fall 2011 

target for other Part C and D payment 

data. We will release the most current 

RDS payment data available at the time 

Part C and D payment reconciliation has 

been completed and those data are 

compiled and released. 

Since we are not seeking additional 

information from MA organizations 

or from Part D sponsors, there are 

no PRA implications. Payment data are 

quite different than the bid data plans 

submit and for which we have existing 

OMB authority for collection (OCN 

0938–0944). The gross payment data we 

are proposing to disclose are not derived 

from information plans submit to us, but 

rather are compiled and derived solely 

from CMS internal payment files. 

Comment: One commenter argued 

that CMS should release MA payment 

data in accordance with the Freedom of 

Information Act (FOIA) and the current 

administration’s FOIA policy. The 

commenter believed that these data 

were necessary to assess the impact and 

operation of the MA program, requested 

immediate release of 2006–2009 data, 

and asked CMS to release 2010 data as 

soon as possible. 

Response: We disagree with the 

commenter’s argument that we must 

proactively release MA payment data in 

accordance with FOIA. Accordingly, we 

have engaged in notice and comment 

rulemaking pursuant to our authority 

under section 1106(a) of the Social 

Security Act to authorize the proactive 

release of data from 2010 and beyond. 

We are therefore finalizing our burden 

estimate as proposed. 

Y. ICRs Regarding Revision to 

Limitation on Charges to Enrollees for 

EmergencyDepartment Services 

(§ 422.113) 

At § 422.113(b)(2)(v) we eliminate the 

current $50 cost-sharing limit on 

emergency department services and, 

instead, to require CMS to evaluate and 

determine the appropriate enrollee cost 

sharing limit for emergency department 

services on an annual basis. The burden 

associated with this proposed 

requirement is the time and effort 

necessary to for MA organizations 

to submit their benefit designs, 

including cost-sharing amounts, via the 

Plan Benefit Package (PBP) software. 

While this proposed requirement is 

subject to the PRA, the associated 

burden is currently approved under 

OCN 0938–0763 with an expiration date 

of May 31, 2011. 

BILLING CODE 4120–01–P 


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BILLING CODE 4120–01–C 


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IV. Regulatory Impact Analysis 

A. Introduction 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), Executive 

Order 13563 on Improving Regulation 

and Regulatory Review (January 18, 

2011), the Regulatory Flexibility Act 

(RFA) (September 19, 1980, Pub. L. 96– 

354), section 1102(b) of the Social 

Security Act, section 202 of the 

Unfunded Mandates Reform Act of 1995 

(March 22, 1995, Pub. L. 104–4), 

Executive Order 13132 on Federalism 

(August 4, 1999), and the Congressional 

Review Act (5 U.S.C. 804(2)). Executive 

Orders 12866 and 13563 direct agencies 

to assess all costs and benefits of 

available regulatory alternatives and, if 

regulation is necessary, to select 

regulatory approaches that maximize 

net benefits (including potential 

economic, environmental, public health 

and safety effects, distributive impacts, 

and equity). Executive Order 13563 

emphasizes the importance of 

quantifying both costs and benefits, of 

reducing costs, of harmonizing rules, 

and of promoting flexibility. This rule 

has been designated an ‘‘economically’’ 

significant rule under section 3(f)(1) of 

Executive Order 12866, and a major rule 

under the Congressional Review Act. In 

accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

entities, if a rule has a significant impact 

on a substantial number of small 

entities. For purposes of the RFA, small 

entities include small businesses, 

nonprofit organizations, and small 

governmental jurisdictions. The great 

majority of hospitals and most other 

health care providers and suppliers are 

small entities, either by being nonprofit 

organizations or by meeting the SBA 

definition of a small business (having 

revenues of less than $7.0 million to 

$34.5 million in any 1 year; for details, 

see the Small Business Administration’s 

Web site at http://ecfr.gpoaccess.gov/

cgi/t/text/text-idx?c=ecfr&sid=2465b064

ba6965cc1fbd2eae60854b11&rgn=div8&

view=text

&node=13:1.0.1.1.16.1.266.9&idno=13). 

Individuals and States are not included 

in the definition of a small entity. 

MA organizations and Part D 

sponsors, the entities that will largely be 

affected by the provisions of this rule, 

are not generally considered small 

business entities. They must follow 

minimum enrollment requirements 

(5,000 in urban areas and 1,500 in 

nonurban areas) and because of the 

revenue from such enrollments, these 

entities are generally above the revenue 

threshold required for analysis under 

the RFA. While a very small rural plan 

could fall below the threshold, we do 

not believe that there are more than a 

handful of such plans. A fraction of MA 

organizations and sponsors are 

considered small businesses because of 

their non-profit status. HHS uses as its 

measure of significant economic impact 

on a substantial number of small 

entities, a change in revenue or costs of 

more than 3 to 5 percent. We do not 

believe that this threshold will be 

reached by the requirements in this final 

rule because this final rule will have 

minimal impact on small entities. 

Therefore, an analysis for the RFA will 

not be prepared because the Secretary 

has determined that this final rule will 

not have a significant impact on a 

substantial number of small entities. 

In addition, section 1102(b) of the Act 

requires us to prepare an analysis if a 

rule may have a significant impact on 

the operations of a substantial number 

of small rural hospitals. This analysis 

must conform to the provisions of 

section 604 of the RFA. For purposes of 

section 1102(b) of the Act, we define a 

small rural hospital as a hospital that is 

located outside of a metropolitan 

statistical area and has fewer than 100 

beds. We are not preparing an analysis 

for section 1102(b) of the Act because 

the Secretary certifies that this rule will 

not have a significant impact on the 

operations of a substantial number of 

small rural hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates 

require spending in any 1 year by State, 

local, or tribal governments, in the 

aggregate, or by the private sector of 

$100 million in 1995 dollars, updated 

annually for inflation. In 2011, that 

threshold is approximately $136 

million. This final rule is not expected 

to reach this spending threshold. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a final 

rule that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

Based on CMS Office of the Actuary 

estimates, we do not believe that this 

final rule imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

We note that we have estimated that our 

provision to eliminate, pursuant to 

section 3309 of the ACA, Medicare Part 

D cost-sharing for full-benefit dual 

eligible individuals receiving home and 

community based services at § 423.772 

and § 423.782 will have a very small 

cost impact on States resulting from the 

need to identify eligible individuals and 

provide data to CMS. As discussed 

elsewhere in this RIA, we estimate the 

annual cost associated with the 

requirement for States to provide CMS 

with this data to be $34,782 in the first 

year and $20,869 for subsequent years. 

B. Statement of Need 

The purpose of this final rule is to 

make revisions to the Medicare 

Advantage (MA) program (Part C) and 

Prescription Drug Benefit Program (Part 

D), to implement provisions specified in 

the ACA and make other changes to the 

regulations based on our continued 

experience in the administration of the 

Part C and Part D programs. These latter 

revisions are necessary to, (1) clarify 

various program participation 

requirements, (2) make changes to 

strengthen beneficiary protections, (3) 

strengthen our ability to identify strong 

applicants for Part C and Part D program 

participation and remove consistently 

poor performers, and (4) make other 

clarifications and technical changes. 

C. Overall Impact 

The CMS Office of the Actuary has 

estimated savings and costs to the 

Federal government as a result of 

various provisions of this final rule. As 

detailed in Table 11, we expect savings 

to the Federal government of 

approximately $82.42 billion for fiscal 

years (FYs) 2011 through 2016 as a 

result of the implementation of the 

following provisions: 


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In Table 10, we estimate total costs to 

the Federal government, States, Part D 

sponsors, MA organizations, and other 

private sector entities as a result of 

various provisions of this final rule. As 

detailed in Table 10, we expect costs of 

approximately $5.35 billion for FYs 

2011 through 2016 as a result of the 

implementation of various additional 

provisions of this final rule. Following 

are the provisions with the most 

significant costs (that is, costs greater 

than $100 million between FY 2011 and 

FY 2016) in this final rule: 

Tables H2, H3, and H4 detail the 

breakdown of costs by cost-bearing 

entity. Specifically, Table 11 describes 

costs and savings to the Federal 

government, Table 12 describes costs to 

MA organizations and/or PDP sponsors 

and third party entities, and Table 13 

describes costs to States. 

Taking into account both costs and 

savings estimated in this RIA, we 

estimate a net savings of $76.17 billion 

as a result of the provisions in this final 

rule over FYs 2011 to 2016. Therefore, 

this final rule is ’’economically 

significant’’ as measured by the $100 

million threshold, and is a major rule 

under the Congressional Review Act. 

Accordingly, we have prepared an RIA 

that details anticipated effects (costs, 

savings, and expected benefits), and 

alternatives considered by this 

requirement. For collection of 

information burden associated with our 

requirements and the bases for our 

estimates, refer to the collection of 

information section of this final rule. 

1. Expected Impact on States, Plans and 

the Medicare Program 

a. Cost Sharing for Specified Services at 

Original Medicare Levels (§ 417.454 and 

§ 422.100) 

We estimate that our implementation 

of section 3202 of the ACA will result 

in no additional program costs. In our 

November 2010 proposed rule (75 FR 

71250) we had proposed cost sharing 

limits for in-network home health 

services provided under MA plans in 

addition to the ACA-required limits on 

cost sharing in MA plans for 

chemotherapy services, renal dialysis 

services, and skilled nursing facility 

care. We are not finalizing our proposed 

requirement to requiring cost sharing 

limits for in-network home health 

services provided by MA plans. We 

estimate that the Federal fiscal year 

2012 (FY 2012) costs to Medicare of 

limiting cost sharing in MA plans for 

the service categories specified in the 

ACA (that is, chemotherapy and 

radiation services, renal dialysis, and 

skilled nursing facility care) will be zero 

because we already require plans to 

charge in-network cost sharing for these 

three service categories that does not 

exceed cost sharing under Original 

Medicare. In fact, we believe that 

Congressional intent was to require that 

CMS maintain the limits on in-network 

cost sharing that we had already 

implemented for SNF care, renal 

dialysis services, and Part B 

chemotherapy services. Thus, we expect 

that there will be no effect on plans or 

beneficiaries as a result of our 

implementation of the cost sharing 

limits specified in section 3202 of the 

ACA. We believe MA organizations will 

continue to have adequate flexibility to 

design plan benefits that are responsive 

to beneficiary needs and preferences 

while providing access to high quality 

and affordable health care. 

b. Approval of SNPs by NCQA (§ 422.4, 

§ 422.101, and § 422.152) 

The burden associated with this 

requirement is the time and effort put 

forth by MA organizations offering SNPs 

to submit their model of care (MOC) to 

CMS for NCQA evaluation and approval 

as per CMS guidance. Although the 

submission of the MOC is already part 

of the application process, review of this 

document by NCQA for approval is a 

new requirement. This requirement is 

for all new and existing SNPs. We 

estimate that it will take each SNP plan 

40 hours to complete the annual 

application. Within those 40 hours, we 

estimate it will take SNP plans 6 hours 

to complete the SNP proposal portion of 

the MA application. Currently, there are 

544 existing SNP plans. We estimate of 

the 6 hours, it will take existing SNPs 

2.5 hours to complete the MOC for the 

SNP approval process. For the existing 

544 SNPs, we estimate the burden 

associated with completing the MOC for 

the SNP approval process only is 1,360 

hours. For the existing plans to 

complete the SNP sections only, the 

burden associated with this new 

requirement is 3,264 hours. 

The number of new plans each year 

will vary and cannot easily be 

predicted. However, based on the 

number of new plans that submitted 

SNP Proposals during the application 

period in February 2010 for operation in 

2011, we estimate that approximately 15 

new applications will be submitted 

annually. For the estimated 15 new plan 


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applications, we estimate of the 6 hours 

to complete the SNP portion of the 

application it will take new SNPs 2.5 

hours to complete the MOC for the SNP 

approval process. For the 15 new plan 

applications, we estimate the burden 

associated with completing the MOC for 

the SNP approval process only is 38 

hours. Thus, for 15 new plans at 40 

hours each, we estimate the total annual 

burden hours to be 600. 

The estimated costs associated with 

the burden hours are summarized in 

Tables 10 through 12. Table 10 

summarizes the estimated total costs for 

the Federal government and MA SNP 

plans from FYs 2011 to 2016. The costs 

in Table 11 reflect the contract award to 

NCQA for $1 million and a contract 

award at the level of $500,000 for years 

2012 to 2016. The additional costs 

incurred in this table are for the Federal 

salaries for two GS–13 step 10 analysts 

and a GS–15 manager. Table 12 contains 

the projected costs to the SNPs for 

preparing the SNP sections of the 

application. These costs are primarily 

labor costs for staff employed by the 

plans to complete the required 

materials. The salaries are equivalent to 

that of one GS–13 step-10 analyst at a 

salary of $55.46 an hour. 

c. Determination of Part D Low-Income 

Benchmark Premium (§ 423.780) 

Beginning in 2011, section 1860D– 

14(b)(3)(B)(iii) of the Act requires CMS 

to calculate the LIS benchmarks using 

basic Part D premiums before the 

application of Part C rebates each year. 

This final rule updates our regulations 

at § 423.780(b)(2)(ii)(C) to codify this 

provision. This provision will decrease 

the number of reassignments of lowincome beneficiaries from plans that are 

above the low-income benchmark 

because it will increase the benchmark, 

thereby producing more zero-premium 

plans. We believe this provision will 

lead to additional costs to the Federal 

government of approximately $90 

million for FY 2011. 

The estimated cost to the Federal 

government between FY 2011 and FY 

2016 is $770 million. The year-by-year 

impacts in millions of dollars are shown 

in Tables 10 through 12. Table 11 shows 

that the bulk of this total cost is due to 

increased Federal premium subsidy 

payments, which are the result of 

generally increasing the low-income 

benchmarks. The higher benchmarks 

allow a greater number of low-income 

beneficiaries to remain in their current 

plan, rather than reassigning them to a 

lower cost plan. In each region, the lowincome benchmark essentially functions 

as a ceiling for the Federal premium 

subsidy for low-income beneficiaries. 

That is, the Federal premium subsidy 

covers the full cost of the plan’s basic 

Part D premium for a full-subsidy 

beneficiary, up to the low-income 

benchmark amount. 

This approach maintains a strong 

incentive to bid low to keep and 

possibly add LIS beneficiaries. Absent 

the provision, there may be a ‘‘winner 

take all’’ outcome in certain regions with 

one organization acquiring all of the LIS 

beneficiaries in the region. It is difficult 

to predict what will happen in the 

absence of this provision, but we expect 

some organizations will be induced to 

bid even lower, while other 

organizations will give up on this 

population and bid higher. 

We expect this rule to reduce the 

administrative costs for plan sponsors 

associated with the reassignment of LIS 

beneficiaries. These costs include the 

production of new member 

informational materials by the new 

plan, increased staffing of call centers to 

field beneficiary questions, and costs 

associated with implementing transition 

benefits for new enrollees. The cost 

estimate for the LIS benchmark 

methodology change in Table 10 does 

not include a projection for 

administrative savings. 

We believe this final rule will have an 

effect on the number of reassignments, 

and the number of zero-premium plans 

available to full-subsidy eligible 

individuals in each region. This final 

rule will reduce the number of 

reassignments and increase the number 

of zero premium organizations available 

to beneficiaries. This is because, under 

the higher benchmarks, more PDPs are 

likely to have premiums that are equal 

to or less than the low-income 

benchmark and, as a result, will be fully 

covered by the premium subsidy. Lowincome subsidy beneficiaries will be 

able to remain in these PDPs and will 

not be reassigned to other lowerpremium PDPs. Under the current 

framework we would expect 1.9 million 

reassignments. Under the formula for 

calculating benchmarks we will expect 

900,000 reassignments, or 

approximately one million fewer 

reassignments. We expect the formula to 

increase the number of zero premium 

organizations available to beneficiaries 

in 21 of the 34 PDP regions. 

Although there is no quantifiable 

monetary value to CMS to reducing 

reassignments, we believe this benefit is 

important, as it will increase program 

stability and continuity of care. 

d. Voluntary De Minimis Policy for 

Subsidy Eligible Individuals (§ 423.34 

and § 423.780) 

The new voluntary de minimis 

provisions in § 423.34(d) and 

§ 423.780(f) permit Part D plans to 

volunteer to waive a de minimis amount 

of the Part D premium above the LIS 

benchmark. We expect that the only Part 

D plans that will volunteer to do so are 

those PDPs that would otherwise lose 

LIS beneficiaries to reassignment. We 

will establish a new de minimis amount 

in August of each year, and the de 

minimis amount may vary by year. For 

purposes of illustration, if the de 

minimis amount were $1.00, we would 

estimate 800,000 LIS beneficiaries 

would have an average of $0.50 per 

month waived by Part D plans, resulting 

in a total annual cost to all de minimis 

plans of $5 million per year. Table 12 

shows that this would result in a total 

cost of $30 million to PDPs from FY 

2011 to 2016. If the de minimis amount 

were $2.00, we would estimate that 

1,200,000 LIS beneficiaries would have 

an average of $0.93 per month waived 

by Part D plans, resulting in a total 

annual cost to all de minimis plans of 

$10 million per year. 

Our voluntary de minimis provisions 

are estimated (based on the assumption 

of a $1.00 de minimis amount) to cost 

the Medicare Trust Fund $140 million 

over the 6-year period from FY 2011 to 

FY 2016. Tables 11 and 12 illustrate 

how these costs are borne by the Federal 

government and PDPs, respectively. 

PDPs that volunteer to waive a de 

minimis amount will not have their LIS 

beneficiaries reassigned to a zero 

premium plan. The additional costs are 

attributable to low-income beneficiaries 

staying in higher cost plans. The result 

of staying in higher costs plans is that 

Medicare’s low-income premium and 

cost-sharing subsidy and reinsurance 

payments will be greater than would 

have been the case if CMS reassigned 

these beneficiaries to lower-cost plans. 

e. Increase in Part D Premiums Due to 

the Income Related Monthly 

Adjustment Amount (D–IRMAA) 

(§ 423.44) 

Section 423.44(e)(3) requires PDPs to 

provide Part D enrollees with a notice 

of disenrollment in a form and manner 

determined by CMS. PDPs will provide 

disenrollment notices to enrollees who 

were required to pay the Part D— 

IRMAA because their modified adjusted 

gross income exceeded the income 

threshold amounts set forth in 20 CFR 

418, but failed to pay it after a grace 

period and appropriate notice has been 

provided. 


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Consistent with data from individuals 

paying the Part B IRMAA (1.8 million) 

and enrolled in a Part D plan, we 

estimate that approximately 1.05 

million of the 29.2 million Medicare 

beneficiaries enrolled in the Part D 

program will exceed the minimum 

income threshold amount and will be 

assessed an income related monthly 

adjustment amount. Out of the 1.05 

million affected beneficiaries, we 

estimate that 0.22 million will drop the 

Part D coverage in 2011. Under Part B, 

approximately 122,000 (14.8 percent) of 

the 1.8 million beneficiaries assessed an 

IRMAA are billed directly. This 

constitutes 5.17 percent of the Medicare 

population. We estimate that 

approximately 80,000 (7.6 percent) of 

the 1.05 million beneficiaries enrolled 

in Part D who must pay the Part D— 

IRMAA will be directly billed for the 

Part D—IRMAA either because they are 

not receiving monthly benefit payments 

from SSA, OPM, or the RRB, or the 

monthly benefit payment is not 

sufficient to have the Part D—IRMAA 

withheld. 

Of the 80,000 Part D enrollees who 

will be directly billed for the Part D— 

IRMAA, we cannot estimate how many 

might accrue Part D—IRMAA arrearages 

and be subsequently terminated. 

However, in cases where the PDP is 

required to send an enrollee a notice of 

termination in accordance with 

§ 423.44(e)(4), the burden associated 

with this requirement would be the time 

and effort it takes the PDP to populate 

the notice. Termination notices are 

generally automated; therefore, 

assuming all 80,000 Part D enrollees 

that have a Part D—IRMAA become 

delinquent, we estimate 1 minute × 

80,000 enrollees divided by 60 minutes. 

This equates to an annual burden for 

PDP sponsors of 1,333 hours at 

approximately $40/hour (based on U.S. 

Department of Labor statistics for hourly 

wages for administrative support). The 

associated burden amount for this work 

is $53,320. Additionally, Part D plan 

sponsors would have to retain a copy of 

the notice in the beneficiary’s records. 

We estimate 5 minutes × 80,000 

enrollees divided by 60 minutes. This 

equates to 6,666 hours at approximately 

$40/hour (based on U.S. Department of 

Labor statistics for hourly wages for 

administrative support). This associated 

burden amount is $266,640. We 

estimate the total maximum annual 

burden for all Part D plan sponsors 

resulting from this provision to be 

$319,960. Therefore, as shown in Table 

12, we estimate this provision to result 

in a maximum burden cost, to PDP 

sponsors, in the amount of $1.92 million 

for FYs 2011 through 2016. During 

calendar year 2011, we expect that 

implementation of the Part D—IRMAA 

provisions, at § 423.286(d)(4) and 

§ 423.293(d), will increase the Medicare 

Trust Fund by $270 million, with a net 

Federal government savings of 

approximately $4.77 billion from FY 

2011 through FY 2016 from increased 

premium payments by Medicare 

beneficiaries. We describe these savings 

to the Federal government in Table 11, 

and describe total year-by-year impact 

for the Federal government and Part D 

sponsors in Table 10. Also, because the 

income thresholds do not increase 

between 2011 and 2019, we anticipate 

that more beneficiaries will be affected 

by the IRMAA provision over time and 

this, in turn, will produce significant 

growth in the savings associated with 

this program. 

f. Elimination of Medicare Part D CostSharing for Individuals Receiving Home 

and Community-Based Services 

(§ 423.772 and § 423.782) 

We are amending § 423.772 and 

§ 423.782 pursuant to section 3309 of 

the ACA. Specifically, the changes 

provide for a definition of an individual 

receiving home and community based 

services, and for zero cost-sharing for 

Medicare Part D prescriptions filled by 

full-benefit dual eligible beneficiaries 

receiving such services. As illustrated in 

Table 12, this provision will not 

increase costs for MA organizations or 

PDP sponsors. The affected beneficiaries 

already have LIS as full duals and are, 

therefore, low-income individuals. 

Their Part D copayment level is likely 

to be low prior to the elimination of 

copayments. The elimination of 

copayments will allow them additional 

disposable income for other expenses. 

The reduction in the copayments to zero 

will be fully offset by increasing low 

income subsidy cost sharing subsidy 

payments we make to their Part D plans. 

The formal elimination of the fund will 

have little or no impact on the current 

operation of the MA program. We 

believe the impact on the Federal 

government will be minimal given that 

most of the impacted individuals are 

already at a low copayment level and 

the shift from the low copayment level 

to zero copayment is small. 

This provision will impact States, as 

they will have to identify eligible 

individuals and provide data to CMS. 

They will send the new data on an 

existing monthly data exchange already 

used to identify dual eligible 

beneficiaries. We estimate the cost for 

States to comply with this requirement 

to include a one-time development cost 

of $34,782 in FY 2011, and as well as 

an ongoing annual cost of $20,869 

starting in FY 2012. 

g. Appropriate Dispensing of 

Prescription Drugs in Long-Term Care 

Facilities Under PDPs and MA–PD 

Plans (§ 423.154) and Dispensing Fees 

(§ 423.100) 

We are adding a new regulation at 

§ 423.154 to require Part D sponsors to 

utilize uniform dispensing techniques 

in increments of 14-days-or-less when 

dispensing covered brand name Part D 

drugs to enrollees who reside in longterm care (LTC) facilities. Based on our 

discussions with industry, we estimate 

that 75 percent to 80 percent of the cost 

related to drug waste arises from 20 

percent of the drugs. That 20 percent is 

made up of brand name medications. In 

an effort to target the drugs resulting in 

the most financial waste and to lessen 

burden for facilities transitioning from 

30-day supplies to 14-day-or-less 

supplies, we are initially limiting the 

requirement for 14-day-or-less 

dispensing to brand name drugs as 

defined in § 423.4. 

Pharmacies servicing LTC facilities 

may have upfront costs associated with 

software upgrades, packaging and 

hardware changes, and ongoing costs of 

transaction fees, and additional 

deliveries. These costs were not 

reflected in Table 10 of the proposed 

rule; instead, we solicited comments on 

these costs. We expect some of these 

expenses to be offset by an increase in 

dispensing fees consistent with 

§ 423.100. In addition, a decrease in 

volume of drugs dispensed may result 

in lower revenues and rebates. 

We expect most pharmacies to 

initially convert from a 30-day punch 

card system to a 14-day punch card 

system. Our conversations with 

manufacturers of the 30-day punch card 

systems have indicated that there is 

minimal capital investment conversion 

needed for the transition from 30-day to 

14-day packaging. We expect only a 

relatively small number of pharmacies 

will convert to an automated dose 

dispensing system in the very shortterm due to the acquisition costs of the 

technology. We anticipate costs 

associated with the change in software 

and training of pharmacy staff 

associated with the change. We also 

expect a few pharmacies to incur a 

small additional expense related to the 

number of deliveries required to service 

a facility with a 14-day-or-less 

dispensing technique. 

We anticipate that dispensing fees 

will be developed to take into account 

the marginal costs associated with 

additional dispensing events in a single 

billing cycle for a single prescription 


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and consider costs undertaken to 

acquire and maintain technology aimed 

at reducing waste. We would expect 

dispensing fees to be greater when a Part 

D drug is dispensed using automated 

dose dispensing technology, as opposed 

to a Part D drug dispensed via a 14-day 

blister pack, due to substantially greater 

marginal costs of acquiring and 

implementing automated dose 

technology than in adjusting current 

systems and workflows to dispense in 

14-day rather than 30-day quantities. 

For purposes of scoring this final rule, 

we project that the current aggregate 

level of dispensing fees will double. It 

is not at all clear that negotiated 

dispensing fees must or will increase 

directly in proportion to the number of 

dispensing events per month as some, 

but not all, commenters assert. 

Nonetheless, in order to be as 

conservative as possible in projecting 

cost increases, we have assumed a 

doubling of the current aggregate level 

of dispensing fees. In addition, the 

information we have to work with in 

projecting potential savings reflects 

widely divergent estimates. The 

variation in savings estimates range 

from as low as approximately 3 percent 

to as high as 17 percent for 7-day 

supplies, and as high as 20 to 25 percent 

for automated dose dispensing. Given 

the divergence in estimates and the 

uncertainty in the rate of conversion to 

the more efficient methodologies, we 

have elected to be very conservative in 

estimating savings in this final rule in 

order to ensure that savings do result 

from the implementation of this 

provision. 

We estimate the total yearly burden 

for negotiating a contract between the 

Part D sponsor and the entity (for 

example, PBM) contracting with the 

pharmacies servicing LTC facilities to be 

equal to the number of the Part D 

sponsors (731) × the average estimated 

hours per sponsor (10). This equals 

7,310 hours. We estimate the number of 

entities contracting the pharmacies 

servicing LTC facilities to be 40 (28 

processors and 12 sponsors). We 

estimate the total yearly hourly burden 

for negotiating a contract between the 

entity described previously and the 

pharmacies servicing LTC facilities to be 

the number of entities (40) × the average 

estimated hours per entity (80). This is 

3200 hours. The total number of hours 

for contract negotiation is estimated to 

be 10, 510 hours. The estimated hourly 

labor cost for reporting is $150.20. 

Hourly rates in the RIA include fringe 

benefits and overhead. This estimate is 

a compilation of the hourly rate for a 

lawyer and support staff from the 

Bureau of Labor Statistics. The total 

estimated cost associated with these 

contract negotiation requirements is 

$1,578,602 ($150.20 × (3,200 + 7,310 

hours) = $1,578,602) and is described in 

Table 12. This is a one-time contract 

negotiation cost. 

We are introducing a new 

requirement under § 423.154 (a)(2) for 

Part D sponsors to collect and report to 

CMS the method of dispensing 

technique used for each dispensing 

event described under § 423.154 (a) and 

on the nature and quantity of unused 

brand and generic drugs. We anticipate 

a billing standard that incorporates the 

collection of the method of dispensing 

technique. So, pharmacies and plans 

will not have to create unique data 

collection processes to collect that data. 

We estimate that 40 sponsorscontractors (28 drug claim processors 

and 12 sponsors that process their drug 

claims and data collection) will be 

subject to this requirement. For the 

collection of data on unused drugs, we 

estimate that it will take a total of 2,400 

hours for 10 vendors (software vendors 

plus pharmacies with proprietary 

systems) to develop the programming 

for this requirement. The estimated total 

cost associated with the software 

development is equal to the number of 

software vendors plus the number of 

pharmacies with proprietary systems 

(10) times an hourly rate of $145.37 (this 

includes $43.35 in direct wages and an 

additional $102.02 in fringe benefits/ 

overhead/general and administrative 

costs/fee) times 240 (estimated number 

of hours to design and program one 

system; the cost is $348,888. The total 

cost associated with this provision is 

$1,927,490 and is described in Table 12. 

We anticipate that the initial upfront 

costs to convert to a 14-day-or-less 

dispensing technique will eventually be 

more than offset by the savings to the 

Federal government associated with 

dispensing (see Table 10 for estimates of 

the year-by-year savings). We expect 

this provision to reduce in Part D 

program expenses, pharmaceutical 

waste, environmental disposal costs 

impact, and the risk of pharmaceutical 

diversion associated with unused drugs 

in 30-day fills. 

Comment: Several commenters 

believed that we failed to adequately 

analyze the financial impact of the 7- 

day-or-less dispensing requirement. 

Some commenters also stated that we 

failed to consider the increased costs 

associated with hiring pharmacists and 

pharmacy technicians that would be 

needed to keep up with the 7-day-orless dispensing requirement. 

Response: As discussed earlier in this 

final rule, we modified the proposed 

rule at § 423.154 to reflect 14-day-or-less 

dispensing as opposed to 7-day-or-less 

dispensing. Given that the requirement 

is for 14-day-or-less dispensing and is 

limited to brand name drugs only 

(which make up only 20 percent of the 

drugs dispensed), we do not believe 

there will be a significant increase in 

pharmacy staff. In addition, this final 

rule modifies our proposed rule in such 

a way as to reduce the burden 

associated with this provision. As 

previously discussed, we eliminated the 

requirement for Part D sponsors’ 

pharmacies to collect unused Part D 

drugs the pharmacies had originally 

dispensed to enrollees, and we 

simplified the reporting requirements 

associated with this provision by 

allowing pharmacies to calculate the 

number of doses that go unused by 

enrollees in LTC facilities by utilizing 

the discontinuation dates of the 

prescription and the quantities 

dispensed to the enrollee. Also, by 

changing the requirement from 7-day-orless dispensing to 14-day-or-less 

dispensing, we reduce the burden 

associated with filling the prescriptions 

by the pharmacies and checking-in 

prescriptions by the LTC facilities. The 

burden reduction should translate into a 

reduction in costs associated with this 

provision because, for example, fewer 

additional staff will be needed to 

implement the requirements of 

§ 423.154. We also believe that at least 

some of the costs associated with 

implementing this requirement will be 

offset by the increase in dispensing fees. 

We have, however, modified our impact 

estimate to reflect the assumption that 

dispensing fees will double and to take 

into consideration that the 

implementation date is January 1, 2013. 

Comment: Several commenters stated 

that we failed to take into consideration 

the costs associated with collecting 

unused drugs from the LTC facilities 

and the costs associated with disposal of 

those unused drugs. 

Response: We have eliminated the 

requirement for Part D sponsors 

contracted pharmacies to collect unused 

Part D drugs from LTC facilities. 

Therefore, the pharmacies will not incur 

increased costs associated with the 

collection of unused drugs or the 

disposal of those drugs as a result of this 

final rule. 

h. Complaint System for Medicare 

Advantage Organizations and PDPs 

(§ 422.504 and § 423.505) 

The burden associated with this 

provision is the time and effort of the 

MA organizations and Part D sponsors 

in training staff and recording complaint 

closure documentation in the CTM, as 


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well as posting and maintenance of a 

link from their Web site to the electronic 

complaint form at http:// 

www.medicare.gov. We estimate that the 

total annual hourly burden for training 

staff and recording complaint closure in 

the CTM is equal to the average 

estimated hours per sponsor for 

documentation for each complaint 

closure (.25) × the average number of 

complaints per sponsor (102) plus the 

average estimated hours per sponsor for 

training (8 hours), multiplied by the 

average cost of a technical health care 

worker ($15) × the number of Part C and 

D contracts (757). We also estimate that 

the total annual hourly burden for 

posting and continued maintenance of a 

link is 20 hours × the average cost of a 

Web site developer ($34) × the number 

of Part C and D contracts (757). We 

estimate the annual burden associated 

with all these changes equals 40,500 

hours. The average cost per hour is 

approximately $22.10. The estimated 

annual cost associated with these 

requirements is $895,160. 

i. Uniform Exceptions and Appeals 

Process for Prescription Drug Plans and 

MA–PD Plans (§ 423.128 and § 423.562) 

We are modifying our proposal in our 

November 2010 proposed rule (75 FR 

71250) to include a reference to the 

availability of model forms for 

requesting coverage determinations and 

appeals, as opposed to requiring use of 

a standardized form. We are finalizing 

the language related to instant access to 

the coverage determination and appeals 

process via the plan’s Web site, but have 

clarified in the preamble that we are 

interpreting instant access to mean, at a 

minimum, the ability of Part D plan 

sponsors to accept e-mail requests. We 

expect that streamlining the appeals and 

exceptions process will allow 

beneficiaries to access appeals more 

quickly and will ensure beneficiaries 

have access to covered medications in a 

timely manner. MA organizations and 

Part D sponsors will be required to 

process coverage determination requests 

submitted by mail or via an Internet 

Web site (§ 423.128(b)(7)(i) and (ii)), 

which is estimated to result in an 

annual burden of 80,745 hours. At an 

estimated cost of $40.00 per hour, the 

estimated total annual cost of this 

requirement is $3.23 million. Also, 

processing coverage determination 

requests that are received by telephone 

(§ 423.128(d)) is estimated to result in 

an annual burden of 115,010 hours. At 

an estimated cost of $40.00 per hour, the 

estimated total annual cost of this 

requirement is $4.6 million. 

In cases when a prescription cannot 

be filled as written, Part D sponsors are 

required under § 423.562(a)(3) to 

arrange with their network pharmacies 

to distribute a pharmacy notice advising 

the enrollee of his or her right to contact 

the plan to request a coverage 

determination. Under this provision, 

Part D sponsors are required to modify 

their electronic transactions to 

pharmacies so that they can transmit 

codes instructing pharmacies to 

distribute notices at the POS. That is, 

pharmacies and PBMs are required to 

program their systems to relay the 

message at the pharmacy to distribute 

the POS pharmacy notice that instructs 

the enrollee to contact the plan sponsor 

to request a coverage determination. 

We estimate the burden on plan 

processors will be the programming to 

send the code or billing response to the 

pharmacy, as well as revising the terms 

of their contracts with pharmacies. We 

estimate that the number of hours for 

each processor (28 PBMs and 12 plan 

organizations) to perform these tasks 

will be 40 hours per processor or plan 

organization, for a total one-time burden 

of 1,600 hours. The estimated one-time 

cost associated with the processor or 

plan organization tasks is $64,000 (1600 

hours × $40). Each pharmacy will need 

to program to receive the code and print 

the response. Programming by the 

pharmacies (40 pharmacy software 

vendors) in order to receive the code by 

each pharmacy will be 10 hours, for a 

total of 400 hours. The estimated onetime cost associated with the processor 

tasks is $16,000 (400 hours × $40). 

We estimate that the 731 contracting 

entities would distribute an average of 

2,200 pharmacy notices. Therefore, 

requiring plan sponsors to arrange with 

their network pharmacies to distribute 

pharmacy notices at the point-of-sale 

when prescriptions cannot be filled as 

written (§ 423.562(2)(3)) would result in 

an annual burden of 53,071 hours (2 

minutes or 0.033 hours at point-of-sale 

× 731 contractors × 2,200 pharmacy 

notices per contract). At an estimated 

cost of $40.00 per hour, the estimated 

total annual cost of this change would 

be $2.12 million. 

Comment: One commenter believes 

that our estimate of $40 an hour was too 

low for processing coverage 

determinations and redeterminations. 

Response: We disagree. The estimated 

hourly rate of $40 is a composite rate 

based upon the Bureau of Labor 

statistics National Compensation 

Survey. 

Comment: One commenter asked 

CMS if we expect the pharmacy to 

maintain a copy of the POS notice 

according to the 10 year record retention 

requirement. The commenter argued 

that this would increase the burden 

estimate since it would likely increase 

dispensing fees and present an 

additional hurdle for pharmacies and 

PBMs in response to CMS audit 

requests. 

Response: We do not specify which 

specific records must be retained by Part 

D sponsors for audit purposes. Part D 

sponsors are responsible for 

determining which pertinent documents 

their network pharmacies must retain. 

Therefore, the burden estimate 

associated with the POS notice does not 

account for the record retention 

requirements provided under § 423.505. 

j. Including Costs Incurred by the AIDS 

Drug Assistance Program (ADAP) and 

the Indian Health Services (IHS) Toward 

the Annual Part D Out-of-Pocket 

Threshold (§ 423.100 and § 423.464) 

As provided under § 423.100 and 

§ 423.464, Part D sponsors are required 

to count ADAP and IHS costs towards 

a beneficiary’s TrOOP costs, allowing 

the beneficiary to move through the 

coverage gap portion of the benefit and 

into catastrophic coverage phase. There 

is no burden on IHS facilities since 

claims will be identified as IHS provider 

claims by the National Provider 

Identifier (NPI). However, ADAPs will 

be requested to submit information to 

CMS Coordination of Benefits (COB) 

contractor via a voluntary data sharing 

agreement (VDSA), which will be sent 

to the TrOOP facilitator to ensure proper 

calculation of the TrOOP amounts. 

Several ADAPs already participate in 

the COB file exchange and have 

submitted their VDSAs. The 

approximate cost associated with this 

submission is 30 minutes to complete 

the VDSA per entity. We estimate a 

negligible one-time annual cost to 50 

ADAPs that require VDSAs. 

The burden associated with this 

provision is not expected to impact 

sponsor organization costs, with the 

exception of up-front programming 

costs, which we estimate will be 1 hour 

per sponsor for an approximate cost of 

$40 per sponsor. Including these costs 

toward TrOOP impacts how fast a 

beneficiary will reach the catastrophic 

limit, triggering Federal reinsurance 

payments. Sponsors will not incur 

additional costs due to this requirement. 

The Federal cost impact is estimated at 

$460 million from FY 2011 to FY 2016. 

The additional cost to the Federal 

government (Medicare program) is due 

to more individuals reaching the 

catastrophic coverage phase under the 

Part D benefit. Overall, we expect this 

provision to reduce the costs to ADAPs 

and IHS. 


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k. Cost Sharing for Medicare Covered 

Preventive Services (§ 417.454 and 

§ 422.100) 

We estimate that our implementation 

of sections 4103, 4104, and 4105 of the 

ACA will result in additional program 

costs as beneficiaries will pay no 

portion of the costs for the Personalized 

Prevention Plan Services, the Initial 

Preventive Physical Exam and 

Medicare-covered preventive services 

for which cost sharing is waived under 

Original Medicare (§ 417.454 and 

§ 422.100). We estimate that the FY 

2012 costs to Medicare for increasing 

access to clinical preventive services in 

accord with sections 4103, 4104, and 

4105 of ACA will be $410 million. 

Although slightly less than 30 percent 

of Medicare expenditures for Parts A 

and B are for MA enrollees, we estimate 

that the cost to the MA program of 

increasing access to clinical preventive 

services as described by sections 4103, 

4104, and 4105 of the ACA will be 

significantly less than 30 percent of the 

estimated cost to the Medicare program 

for implementation of these provisions. 

In contrast to the Original Medicare 

program, most MA plans already 

provide some in-network preventive 

services without charging beneficiary 

cost sharing. In contract year 2010, at 

least 78 percent of plans provide many, 

or all, of the Medicare-covered 

preventive services without charging 

beneficiary cost sharing. In fact, almost 

all MA plans currently provide a few of 

the Medicare-covered preventive 

benefits without cost sharing. Therefore, 

we estimate that our requirement for 

MA plans to provide the Medicarecovered preventive services without 

beneficiary cost sharing will not 

increase plan costs by a significant 

amount. 

Based on our finding that 78 percent 

of plans provide some preventive 

benefits without cost sharing in contract 

year 2010, we estimate that for FY 2012 

plans will incur approximately $27.1 

million in costs by providing in-network 

Medicare preventive services without 

charging beneficiary cost sharing as 

provided under § 417.454 and § 422.100. 

Over time, we estimate that the relative 

cost to the MA program for provision of 

improved access to Medicare-covered 

preventive services will be consistent 

with the estimated cost for Medicare, 

which increases with growth in the 

Medicare population. We estimate the 

total cost of this provision to be $147.9 

million between FYs 2011 and 2016. 

Further, although not included in our 

estimates, we believe that the increased 

emphasis on provision of preventive 

services may also result in improved 

beneficiary well-being and subsequently 

decrease their need for, and utilization 

of, more costly medical and surgical 

interventions and may decrease overall 

program costs. 

l. Elimination of the Stabilization Fund 

(§ 422.458) 

Section 10327(c) of the ACA repealed 

section 1858(e) of the ACA, eliminating 

the stabilization fund. Therefore, we are 

deleting paragraph (f) from § 422.458, 

since the statutory basis for the Fund no 

longer exists. The elimination of the 

stabilization fund will have the effect of 

savings for the Federal government, but 

will also result in a loss of financial 

incentives for regional plans to operate 

in regions with no or low MA 

penetration. 

We expect the Federal government to 

save approximately $181.2 million for 

the fiscal years 2011 through 2016 from 

the implementation of this provision. 

The savings are a result of the 

elimination of the national bonus 

payment and recruitment and retention 

bonus payments to MA plans that 

would operate in regions with no or low 

MA penetration. 

The fund will no longer offer a 

financial incentive for regional 

organizations to offer plans in regions 

with low or no MA penetration. The 

funds have never been accessible, 

however, because, since the fund’s 

inception, payments have been delayed 

through legislation. Therefore, the 

formal elimination of the fund will have 

little or no impact on the current 

operation of the MA program. 

m. Improvements to Medication 

Therapy Management Programs 

(§ 423.153) 

Our proposed rule estimated first year 

costs associated with the requirement 

for Part D sponsors to contract with all 

LTC facilities in which their Part D 

enrollees reside to provide appropriate 

MTM services in coordination with 

independent consultant pharmacist 

evaluation and monitoring was 

$96,709,680 ($402,957 estimated cost 

per parent organization or sponsor × 240 

parent organizations or stand alone 

sponsors with Part D LTC residents = 

$96,709,680 estimated cost). Annual 

costs for updating the contracts for 

subsequent years were estimated to be 

$32,236,560 ($134,319 estimated cost 

per parent organization or sponsor × 240 

parent organizations or sponsors with 

Part D LTC residents = $32,236,560 

estimated cost). After considering 

comments on our proposal, we are not 

finalizing the proposed requirement that 

Part D sponsors contract with LTC 

facilities for appropriate MTM services 

in coordination with LTC consultant 

pharmacist evaluation and monitoring, 

and, therefore, are not finalizing our 

original cost estimate associated with 

this proposal. 

Comment: Two commenters requested 

that we include in our costs estimate 

include all costs related to the provision 

of MTM services in LTC settings and not 

merely those costs associated with Part 

D sponsor contracting. 

Response: We are not finalizing the 

proposed requirement for Part D 

sponsors to coordinate MTM with LTC 

consultant pharmacist evaluation and 

monitoring, and are, therefore, not 

finalizing our original impact estimate. 

We plan to work with the industry to 

develop an alternate proposal and a 

more inclusive estimate of the 

associated costs. 

n. Changes To Close the Part D Coverage 

Gap (§ 423.104 and § 423.884) 

With the implementation of 

provisions related to closing of the Part 

D coverage gap, Medicare beneficiaries 

will have improved access to the 

prescription drugs in the coverage gap. 

They will likely enter the catastrophic 

phase of the benefit earlier in the benefit 

year as a result of our changes to close 

the Part D coverage gap, because they 

will be more likely to obtain necessary 

drugs in the coverage gap, thereby 

bringing them to the catastrophic phase 

sooner. Beneficiary cost sharing in the 

coverage gap would be determined on 

the basis of whether the covered Part D 

drug is considered an applicable drug 

under the Medicare coverage gap 

discount program. Different cost sharing 

levels will apply during the coverage 

gap to the drugs that are applicable and 

not applicable under the coverage gap 

discount program. In addition to the 

cost sharing changes, the rate of growth 

of the annual Part D out-of-pocket 

threshold would be reduced from FY 

2014 to FY 2016. Further, in attesting to 

the actuarial equivalence of qualified 

retiree prescription drug plans to the 

standard Medicare Part D coverage, 

sponsors would not take into account 

the value of any discount or coverage 

provided during the coverage gap. 

For changes associated with closing 

the Part D coverage gap, we estimate a 

one-time total cost of $50,400,000 

(12,000 burden hours for each processor 

× 40 processors × $105 for the average 

labor cost of a senior programmer based 

on data from the Bureau of Labor 

Statistics) in the first year for the 40 

pharmacy claims processors to 

implement systems changes. In 

subsequent years, the estimated total 

annual cost is $1,050,000 (250 burden 

hours per processor × 40 processors × 


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$105 for the full cost of labor of a senior 

programmer) to identify changes to the 

applicable drugs under the Medicare 

coverage gap discount program and 

update systems with this information 

each month. The total estimated costs to 

the Medicare program for the 

adjustments to beneficiary cost sharing 

in the coverage gap are $130,400,000 in 

the first year (FY 2011), increasing in 

subsequent years as the coverage gap 

closes and the Part D enrollment 

increases. The estimated annual cost to 

the Medicare program associated with 

decreasing the rate of annual growth in 

the Part D out-of-pocket threshold is 

$40,000,000 in FY 2014, increasing in 

subsequent years as the Medicare Part D 

enrollment increases and the coverage 

gap closes. 

o. Medicare Advantage Benchmark, 

Quality Bonus Payments, and Rebate 

and Application of Coding Adjustment 

(§ 422.252, § 422.258, § 422.266, and 

§ 422.308) 

Prior to enactment of the ACA, MA 

payment benchmarks (county rates) 

were established only partially in 

relationship to average fee-for-service 

costs in a county. Section 1102 of 

reconciliation amendments links all 

county benchmarks to FFS costs, 

effective 2012. As a transition, the ACA 

sets the 2011 MA benchmarks equal to 

the benchmarks for 2010; for subsequent 

years it specifies that, ultimately, the 

benchmarks will be equal to a 

percentage (95, 100, 107.5, or 115 

percent) of the fee-for-service rate in 

each county. During a transition period, 

the benchmarks will be based on a 

blend of the pre-ACA and post-ACA 

benchmarks. The phase-in schedule for 

the new benchmarks will occur over 2 

to 6 years, with the longer transitions for 

counties with the larger benchmark 

decreases under the new method. 

The ACA, as amended, also 

introduces MA bonuses and rebate 

levels that are tied to the plans’ quality 

ratings. Beginning in 2012, benchmarks 

will be increased for plans that receive 

a 4-star or higher rating on a 5-star 

quality rating system. The bonuses will 

be 1.5 percent in 2012, 3.0 percent in 

2013, and 5.0 percent in 2014 and later; 

these bonuses increase the new 

benchmark portion of the blended 

benchmark until all transitions are 

complete. An additional county bonus, 

which is equal to the plan bonus, will 

be provided on behalf of beneficiaries 

residing in specified counties. The 

percentage of the ‘‘benchmark minus 

bid’’ savings provided as a rebate, which 

historically has been 75 percent, will 

also be tied to a plan’s quality rating. In 

2014, when the provision is fully 

phased in, the rebate share will be 50 

percent for plans with a quality rating 

of less than 3.5 stars; 65 percent for a 

quality rating of 3.5 to 4.49; and 70 

percent for a quality rating of 4.5 or 

greater. This provision will provide 

incentives for plan quality to increase. 

Plans will be paid based on quality 

performance rather than just the specific 

services they provide. However, the 

rules for determining quality bonus 

payments for CY 2012 through 2014 will 

be modified under the terms of the 

national quality bonus payment 

demonstration project. 

The ACA amended the statutory 

provision that requires us to make an 

adjustment to MA risk scores for 

differences in coding patterns between 

MA and FFS. The ACA made four 

modifications to this requirement: The 

analysis must be conducted annually; 

the data used in the analysis is to be 

updated as appropriate; the results of 

the analysis are to be incorporated into 

risk scores on a timely basis; and the 

application of an adjustment for 

differences in coding patterns was 

extended past 2010 indefinitely. 

Further, the ACA provides for minimum 

adjustments for MA coding in future 

years. 

Our changes to § 422.252, § 422.258, 

and § 422.266 codify section 1102 of the 

ACA, which links county benchmarks to 

FFS costs and provides eligible plans 

with a quality bonus. These provisions 

will lower payments from us, bringing 

MA payments in line with FFS 

payments. The new provisions will also 

generally reduce MA rebates and 

benchmarks for plans and thereby result 

in less generous benefit packages. We 

estimate that the Federal government 

will save approximately $40.56 billion 

from FY 2011 to FY 2014. The Federal 

government will save approximately 

$76.470 billion from the FY 2011 to FY 

2016. The year-by-year savings in 

millions of dollars are shown in Table 

10. 

p. Quality Bonus Appeals (§ 422.260) 

We estimate a minimal overall impact 

as a result of this provision, as we 

expect only a minority of MA 

organizations to take advantage of the 

opportunity to appeal CMS’ annual 

quality rating. Of those organizations 

that do appeal their rating, a minimal 

number of professional staff working 

over a short period of time would be 

required to prepare and present an 

organization’s appeal. 

We estimate that the total annual 

hourly burden for developing and 

presenting a case to us for review is 

equal to the number of organizations 

likely to request an appeal multiplied by 

the number of hours for the attorneys of 

each appealing MA organization to 

research, draft, and submit their 

arguments to CMS. Based on the star 

rating distributions of previous contract 

years, out of the approximately 350 MA 

contracts that are subject to star rating 

analysis (that is, those not excluded 

from analysis because of low 

enrollment, contract type not required 

to report data, or new contract with no 

performance history), approximately 

250 may receive less than a four-star 

rating. We estimate that 10 percent of 

those contracts (25) will request an 

appeal of their rating under the final 

rule. We further estimate that one 

attorney working for eight hours could 

complete the documentation to be 

submitted to us for each contract, 

resulting in a total burden estimate of 

200 hours (8 hours × 25 contracts = 200 

hours). The estimated annual cost to 

MA organizations associated with this 

provision (assuming an attorney billing 

rate of $250 per hour) is $50,000 (200 

hours × $250 = $50,000). Our intent in 

finalizing this provision is to ensure that 

MA organizations are afforded the 

benefit of reasonable opportunity to 

challenge CMS determinations that 

ultimately affect an organization’s 

payments from the Medicare Trust 

Fund. Granting organizations an avenue 

to challenge CMS’ determinations will 

enhance the transparency and 

credibility of the process CMS uses to 

determine the recipients of quality 

bonus payments. 

q. Timely Transfer of Data and Files 

When CMS Terminates a Contract With 

a Part D Sponsor (§ 423.509) 

We anticipate minimal financial 

impact from our requirement that 

terminated Part D plan sponsors help to 

effectuate a smooth transition for their 

enrollees by providing CMS with 

Medicare beneficiary data including 

information to identify each affected 

beneficiary, pharmacy claims files, true 

out-of-pocket (TrOOP) cost balances, 

and information concerning pending 

grievances and appeals. 

We estimate that the total annual 

burden for this provision to be the cost 

of maintaining sufficient staff to transfer 

the data required under § 423.509. As a 

result, we estimate the total annual 

burden to be the number of Part D 

sponsors we anticipate terminating in a 

contract year (2) × the hourly rate of 

staff to transfer the required data ($75/ 

hour) × the number of hours required to 

provide data to us (20 hours). Therefore, 

the estimated annual cost associated 

with these requirements is $3,000. We 

do not anticipate that this provision will 


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result in a financial benefit to the 

terminated Part D sponsor. 

r. Review of Medical Necessity 

Decisions by a Physician or Other 

Health Care Professional and the 

Employment of a Medical Director 

(§ 422.562, § 422.566, § 423.562, and 

§ 423.566) 

We are modifying the language in the 

proposed rule with respect to the 

requirement for a physician or other 

health care professional to review initial 

determinations involving medical 

necessity. Under this final rule, if the 

plan expects to issue a partially or fully 

adverse decision based on the initial 

review of the request, a physician or 

other appropriate health care 

professional with sufficient medical and 

other expertise, including knowledge of 

Medicare coverage criteria, must review 

the request for medical necessity before 

the plan issues its decision. 

We are finalizing our modifications to 

§ 422.562, § 422.566, § 423.562, and 

§ 423.566 to require MA organizations 

and Part D plan sponsors to employ a 

medical director. We estimate that 95 

percent of MA organizations and Part D 

sponsors already have a medical 

director overseeing decisions of medical 

necessity. Therefore, we believe that 

there will be no increase in cost for the 

majority of MA organizations and Part D 

sponsors. We anticipate that 5 percent 

of MA organizations and Part D 

sponsors will incur a financial impact as 

a result of this provision. 

Of the 5 percent of MA organizations 

and Part D sponsors that do not 

currently employ a medical director, we 

estimate that the total annual burden for 

employing a medical director is equal to 

5 percent of the number of MA 

organization and Part D sponsors (757), 

which equals 38 organizations and 

sponsors, at a salary of $250,000 per 

year. Therefore, the estimated annual 

cost associated with these requirements 

is $9,500,000. 

We believe this approach balances the 

need to ensure proper medical review of 

initial coverage determinations with the 

ability of MA organizations and Part D 

plan sponsors to manage health care 

professional staff resources. We believe 

these provisions will enhance medical 

review activities and overall 

coordination and accountability of plan 

operations. 

s. Agent and Broker Training 

Requirements (§ 422.2274 and 

§ 423.2274) 

Sections 422.2274(b) and (c) and 

423.2274(b) and (c) require MA 

organizations’ and Part D sponsors’ 

agents and brokers to receive training 

and testing via a CMS endorsed or 

approved training program. We are 

considering implementing this 

requirement through a Request for 

Proposal (RFP) competitive process. The 

burden associated with this requirement 

is the time and effort put forth by plan 

sponsors and/or third party vendors to 

develop and submit their proposals for 

CMS review. We estimate that about 12 

entities (plan sponsors and/or third 

party vendors) will submit a proposal 

annually and that the average estimated 

hours per entity to complete the 

proposal is 100 hours. The total 

estimated hourly burden associated 

with this requirement is equal to the 

estimated number of entities (12) 

multiplied by the estimated hours per 

entity (100) = 1,200 hours. We estimate 

the hourly labor cost for the preparer of 

the proposal will be $59.20 (based on 

the U.S. Department of Labor statistics 

for hourly wages for management 

analysts). The annual cost of proposal 

preparation is estimated to be $71,040 

($59.20 × 1200 hours). 

t. Call Center Interpreter Requirements 

(§ 422.111 and § 423.128) 

We estimate the cost for our call 

center requirements at the parent 

organization level because most parent 

organizations have one call center for all 

of their contracts. For the parent 

organizations that currently and 

consistently provide interpreters, their 

costs will not increase. Organizations 

that provide interpreters, but not 

consistently, will need to train their 

CSRs on how to use the interpreter 

service, which can be included in 

regularly scheduled training meetings at 

no increased cost. Lastly, we expect the 

cost for each of the two parent 

organizations that currently do not 

provide interpreters to increase by 

$9,933 per year. This estimated cost is 

based on 1–800–MEDICARE foreign 

language interpreter use, which is 4.5 

percent of all calls. If 4.5 percent of calls 

could require an interpreter over the 

course of a standard 12-hour call center 

day, this would translate into using 

interpreter services for 33 minutes each 

day. Over the course of a year for the 

301 days a call center is required to be 

open, and at a rate of $1.00 per minute, 

based on CMS market research in for 

interpreter costs, the cost for each of the 

two parent organizations would increase 

by $9,933 per year, which is $19,866 for 

both in FY 2012. 

u. Customized Enrollee Data (§ 422.111 

and § 423.128) 

In proposed rule (75 FR 71261 

through 71262), proposed 

§ 422.111(b)(11) and § 423.128(b)(12) 

would require MA organizations and 

PDP sponsors to periodically provide 

each enrollee with enrollee-specific data 

to use to compare utilization and out-ofpocket costs in the current plan year to 

projected utilization and out-of-pocket 

costs for the following plan year. Plans 

would disclose this information to plan 

enrollees in each year in which a 

minimum enrollment period has been 

met, in conjunction with the annual 

renewal materials (currently the annual 

notice of change and evidence of 

coverage documents). 

We estimated that the initial year 

burden associated with this requirement 

would be the time and effort necessary 

for a plan sponsor to complete program 

development and testing, and to 

disclose (print and mail) this 

information to each beneficiary. We 

developed this burden estimate using 

our experience with burden estimates 

for the ANOC/EOC documents under 

OMB control number (OCN) 0928– 

1051as a baseline, then expanding on 

that baseline, and factoring in expected 

programming and development costs to 

provide beneficiary specific 

information. We estimated the total 

annual burden hours associated with 

this provision at 18,620 hours for the 

564 MA organizations and 85 Part D 

sponsors that would be affected 

annually by this requirement. Using the 

same wage/cost estimate as the ANOC/ 

EOC documents, we applied an hourly 

wage cost for GS–10, step 1 analyst at 

an estimated cost of $27.24 per hour. 

Therefore, the estimated total initial 

year cost of this requirement is 

approximately $507,208.00. 

In subsequent years, we estimated 

that the burden associated with this 

requirement would be the time and 

effort necessary for a plan sponsor to 

disclose (print and mail) this 

information to each beneficiary. We 

estimated the total annual burden hours 

associated with this provision at 12,555 

hours for the 564 MA organizations and 

85 Part D sponsors that would be 

affected annually by this requirement. 

At an estimated cost of $27.24 per hour, 

the estimated total initial year cost of 

this requirement would be 

approximately $342,000. 

After considering comments on our 

proposed policy, we have modified both 

the final policy and our cost estimate, as 

described below. 

Comment: Many commenters stated 

that a customized estimate of future 

costs would create significant 

administrative, financial, IT resource, 

and call center burdens on MA plans 

and Part D sponsors, much more than 

CMS has anticipated. They stated that 

the expense and operational burden of 


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the proposal cannot be justified 

economically or in value to 

beneficiaries, considering the potential 

for beneficiary confusion and 

dissatisfaction that may result from 

relying on estimated future costs. One 

commenter suggested that the 

significant costs of producing and 

distributing a custom statement will 

increase administrative costs that in 

turn may increase plan bids and result 

in a negative impact on benefits and or 

premiums. As discussed in section 

II.D.4 of this final rule, we received 

many comments on our proposal to 

authorize CMS to require MA 

organizations and Part D drug sponsors 

to periodically provide each enrollee 

with enrollee specific data to use to 

compare utilization and out-of-pocket 

costs in the current plan year to 

projected utilization and out-of-pocket 

costs for the following plan year. 

Response: Based on the comments 

received, and our modified final policy, 

we have also recalculated our estimate 

of the burden based on the annual 

burden to Part D plan sponsors to 

furnish enrollees with an EOB for 

prescription drug benefits under OMB— 

0938–0964. MA organizations already 

collect enrollee utilization and costsharing information as part of their 

claims processing operations. In 2012, 

the burden associated with this 

proposed requirement would be the 

time and effort necessary for 564 MA 

organizations to complete program 

development and testing of an 

explanation of benefits when Part C 

benefits are provided, and to disclose 

(print and mail) this information to each 

beneficiary. Given that stand alone PDPs 

already produce an EOB in accordance 

with § 423.128(e), the revised burden 

estimate includes only MA 

organizations. We estimate that in the 

first year it will require each entity 200 

hours on an annual basis to disseminate 

the required materials, for a total annual 

burden of 112,800 hours. This first year 

estimate builds from the estimated 

annual burden for the Part D EOB, 

expanding the total hour requirement to 

include additional hours required to 

initiate and complete program 

development and testing of an EOB. The 

estimated first year cost is $3,938,976. 

This estimate is based upon the hourly 

rate at the GS–11/step 6 ($34.92) 

multiplied by the number of burden 

hours (112,800). 

In subsequent years, the burden 

associated with this requirement will be 

the time and effort necessary for about 

564 MA organizations to provide an 

explanation of benefits when Part C 

benefits are provided to enrollees. We 

estimate that it will require each entity 

160 hours on an annual basis to 

disseminate the required materials, for a 

total annual burden of 90,240 hours. 

The decreased estimate of burden hours 

relative to the first year reflects the 

completion of program development in 

the first year and brings the estimated 

hours in line with the current estimated 

number of hours for the Part D EOB. The 

estimated annual cost is $3,151,181. 

This estimate is based upon the hourly 

rate at the GS–11/step 6 ($34.92) 

multiplied by the number of burden 

hours (90,240). 

The anticipated effect of our modified 

provision to require MA organizations 

to provide an explanation of Part C 

benefits would be greater access to 

individualized information for 

beneficiaries to track their own 

utilization of services and to use in 

making decisions about their enrollment 

and their health care options. While this 

new EOB requirement will result in less 

of a cost burden for MA plans than the 

burden of calculating out-of-pocket 

costs including an estimate of costs in 

the next plan year, we continue to 

believe that plans should already have 

the systems in place to collect the 

required out-of-pocket cost information 

as part of their claims processing 

operations and for calculating MOOP 

limits. Therefore, over time, we 

anticipate that plans would continue to 

refine and work to make their processes 

for disclosing this information as well as 

the annual notice of change, evidence of 

coverage, and other plan documents 

more efficient, thereby mitigating the 

burden in future years. 

v. Extending the Mandatory Maximum 

Out-of-Pocket (MOOP) Amount 

Requirements to Regional PPOs 

(§ 422.100 and § 422.101) 

Sections 422.100(f) and 422.101(d) 

extend the mandatory MOOP and 

catastrophic limit requirements to RPPO 

plans. Each RPPO plan must establish 

an annual MOOP limit on total enrollee 

cost sharing liability for Parts A and B 

services, the dollar amount of which 

would be set annually by CMS. All cost 

sharing (that is, deductibles, 

coinsurance, and copayments) for Parts 

A and B services will be included in 

RPPO plans’ MOOPs. While this change 

is significant in that it will help 

beneficiaries to understand and 

anticipate their possible health care 

expenditures, as with the requirement to 

establish a mandatory MOOP for local 

MA plans, we do not believe that this 

change would by itself have a 

significant cost impact on RPPO plan 

participation or plan costs. 

We estimate that any impact on 

enrollee premiums will be very limited 

for several reasons. First, since 

implementation of the MMA, RPPOs 

have been required to establish a MOOP 

for in-network cost sharing and a 

catastrophic limit; however those 

amounts are currently at the discretion 

of MA organizations offering RPPO 

plans. For FY 2011, we encouraged 

RPPO plans to adopt either the 

mandatory or voluntary MOOPs 

established in CMS guidance. For FY 

2011, the voluntary MOOP limits for 

local PPO plans were set at $3,400 innetwork and $5,100 catastrophic (inand out-of-network), and the mandatory 

MOOP limits for local PPO plans were 

set for FY 2011 at $6,700 in-network 

and $10,000 catastrophic (in- and outof-network). Based on data for FY 2011 

approved bids, we found that only 3 

regional PPO plans (4 percent of all 

RPPOs) did not meet or exceed our 

voluntary or mandatory in-network or 

catastrophic maximum out-of-pocket 

limits. Based on this information, it is 

our expectation that the impact on 

RPPO plans will be very small. 

Second, it is our intention to continue 

setting both the MOOP and Parts A and 

B cost-sharing thresholds at levels that, 

while affording reasonable financial 

protection for those beneficiaries with 

high health care needs, do not result in 

significant new operating costs for MA 

plans or increased out-of-pocket costs 

for beneficiaries to the extent that MA 

plans pass along any increased costs to 

their enrollees in the form of premium 

increases. Given a competitive 

marketplace and Medicare beneficiary 

sensitivity to premium amounts, we 

believe that MA plans may choose 

instead to modify their benefit packages 

to reduce costs elsewhere. Furthermore, 

we estimated that beneficiaries in 

regional PPO plans that currently offer 

the FY 2011 voluntary or mandatory 

MOOP limits (about 92 percent of RPPO 

plans) would experience no cost 

increases as a result of these provisions. 

In our April 2010 final rule, we 

estimated that the maximum impact of 

these requirements on beneficiary 

premiums for those plans that currently 

have no MOOP limit of any kind (8 

percent of all prospective FY 2011 

RPPO plans) would average $5 in the 

absence of other adjustments to benefit 

packages to account for the annual 

MOOP requirements. However, in this 

case, the RPPO plans already offer 

MOOP and catastrophic limits, so we 

estimated that any premium impact 

would be less than $5. 

By setting the parameters for the 

annual mandatory MOOP limit, we 

believe that we will make it easier for 

plans to compete on a level playing 

field. 


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w. Translated Marketing Materials 

(§ 422.2264 and § 423.2264) 

Our final rule slightly modifies 

existing subregulatory guidance, so the 

impact to plan sponsors (MA 

organizations and PDP sponsors) 

depends upon whether, and to what 

extent, they are currently translating 

marketing materials. In the preamble, 

we indicate that moving to a 5 percent 

translation standard (from 10 percent) 

and focusing on the primary language 

spoken by individuals in the service 

area who have limited ability to read, 

write, speak, or understand English will 

result in a slight burden reduction. For 

2011, 321 contract sponsors are required 

to translate marketing materials at the 

10 percent translation standard. Under 

the 5 percent primary language 

translation standard, we used 2011 data 

to determine that sponsors would be 

required to translate marketing materials 

for only 305 contracts, which is 16 

contracts fewer than under the 10 

percent standard. In 2010, sponsors 

were required to provide translated 

marketing materials for 307 contracts. 

Because the number of contracts (307) 

from 2010 is extremely close to the 

revised number of contracts (305) that 

we estimate for 2011, we are not 

changing our impact estimate from the 

2010 estimate. We acknowledge that the 

original estimates would have been 

higher if we had used 2011 data when 

originally compiling these estimates. At 

the beginning of 2010, we conducted a 

translated marketing material 

monitoring study in which preliminary 

findings revealed that some sponsors 

had produced a few materials. However, 

we do not yet know the specific number 

of sponsors that are providing all 

translated materials. Our research 

indicates that the average translation 

cost is 20 cents per word, and that will 

cost approximately $18,325 for a 

sponsor to produce all of the required 

plan materials in one language for the 

first year because there are 

approximately 17 documents containing 

91,623 words for translation. In 

subsequent years, sponsors will only 

need to edit existing documents with 

the new data and any changes required 

by CMS, which could result in 

approximately 5 percent of the 

documents being changed. As a result, 

after the first year of translating all 

required documents, plan sponsors will 

need to spend $916 updating translated 

materials. Because we do not have final 

data from our translated materials study, 

we do not know what proportion of 

sponsors would have to develop a 

complete set of translated materials for 

the first year and what proportion 

would only need to update existing 

documents. Because not all required 

translated marketing materials are plan 

benefit package (PBP) specific, if a plan 

sponsor translates the document for one 

PBP, it could use the document for all 

PBPs offered that year. For the purpose 

of this analysis, we assume that the 

sponsors of all 307 contracts would 

have to translate all materials for the 

first year at a total cost of $5,625,775. In 

subsequent years, sponsors will only 

need to edit existing translated 

documents, which we estimate will cost 

a total of $281,212 annually for all 

sponsors. As mentioned in the 

preamble, CMS hopes to further reduce 

burden in the future by providing 

pretranslated model materials. However, 

as we do not have funding committed 

for this effort at this time, we have not 

changed the burden estimates to reflect 

this goal. 

Comment: One industry commenter 

identified that this impact analysis did 

not include the cost of an employee’s 

time involved with coordinating the 

translated materials effort. 

Response: We did not include 

employee time because, as stated in the 

Collection of Information Requirements 

section of this final rule, the 

requirement to provide translated 

materials is not a new responsibility for 

Medicare Part C and D plans. We do not 

have complete data on which plan 

sponsors are providing translated 

materials, and which ones are not. The 

number of employees that would be 

involved with coordinating this effort is 

also unknown. Therefore, to err on the 

side of caution, we presumed all 

sponsors would have to develop first 

year translations. Thus, we believe the 

overall cost is an over estimate that 

would more than compensate for not 

including employee coordination time. 

We are therefore finalizing our proposed 

impact estimate without modification. 

BILLING CODE 4120–01–P 


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BILLING CODE 4120–01–C 


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2. Expected Effects on Beneficiaries 

a. Cost Sharing for Specified Services at 

Original Medicare Levels (§ 417.454 and 

422.100) 

We believe that the requirement that 

MA plan cost sharing may not exceed 

that required under Original Medicare 

for chemotherapy services, renal 

dialysis services, and skilled nursing 

facility care will provide additional 

transparency and cost sharing and 

predictability for beneficiaries as they 

evaluate their health plan options, and 

also will strengthen our beneficiary 

protections against discriminatory cost 

sharing and benefit designs. 

b. Approval of SNPs by NCQA (§ 422.4, 

§ 422.101, and § 422.152) 

We believe that our requirement that 

all SNPs be approved by NCQA based 

on evaluation of each plan’s model of 

care (MOC) will result in SNP options 

that are appropriate for special needs 

beneficiaries and address their targeted 

populations’ particular health care 

needs. SNP MOCs provide the structure 

for care management processes and 

systems that enable SNPs to provide 

coordinated care for special needs 

individuals. By ensuring that these 

documents provide an adequate 

framework for coordinated care for the 

vulnerable beneficiaries eligible to 

enroll in SNPs through the NCQA SNP 

approval process, we believe the quality 

of care under SNPs will be positively 

impacted. 

c. Determination of Part D Low-Income 

Benchmark Premium (§ 423.780) 

This final rule supports pharmacy and 

formulary consistency for the 

beneficiary. Particularly in regions with 

high MA–PD penetration, this final rule 

will reduce the year-to-year volatility in 

reassignments of LIS beneficiaries and 

would help avoid the disruption that is 

inherent anytime a beneficiary is 

switched from one plan to another. 

d. Voluntary De Minimis Policy for 

Subsidy Eligible Individuals (§ 423.34 

and § 423.780) 

The voluntary de minimis provisions 

permit Part D plans to volunteer to 

waive a de minimis amount of the Part 

D premium above the low income 

benchmark and, thus, avoid losing LIS 

beneficiaries to reassignment. We 

perform reassignments to ensure that 

beneficiaries whom we originally 

assigned to a zero premium plan will 

not incur a new premium liability when 

their current plan’s premium goes above 

the LIS benchmark in the following 

year. The number of reassignments has 

ranged between 1 and 2 million over 

each of the past 4 years. While 

reassignments are effective at avoiding 

new premium liabilities, they can create 

confusion and disrupt continuity of 

care. We expect that the de minimis 

provisions will reduce reassignments. 

e. Increase in Part D Premiums Due to 

the Income Related Monthly 

Adjustment Amount (D–IRMAA) 

(§ 423.44, § 423.286, § 423.293) 

Beginning in CY 2011, we estimate 

that approximately 1.05 million of the 

29.2 million Medicare beneficiaries 

enrolled in the Part D program will 

exceed the minimum income threshold 

amount and will be assessed an income 

related monthly adjustment amount. 

During calendar year 2011, we expect 

that implementation of the Part D— 

IRMAA provisions, at § 423.286(d)(4) 

and § 423.293(d), will increase the 

Medicare Trust Fund by $270 million, 

with a net increase to the Medicare 

Trust Fund over a 5-year period from FY 

2011 through FY 2016 of $4.77 billion. 

The Part D—IRMAA 2011 income levels 

and premium adjustment amounts are 

as follows: 


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Approximately 3.6 percent of 

Medicare beneficiaries will be impacted. 

We estimate that the number of 

beneficiaries impacted per tier will be as 

follows: 

f. Elimination of Medicare Part D CostSharing for Individuals Receiving Home 

and Community-Based Services 

(§ 423.772 and § 423.782) 

The expected benefit of the 

elimination of the Medicare Part D costsharing for individuals receiving home 

and community based services 

provision is greater access to 

prescription drug coverage for a 

population that traditionally has high 

medical needs. These individuals are 

already eligible for the full low income 

subsidy, and likely qualify for the $1.10/ 

$3.30 copayment level now. The 

elimination of the copayment will 

provide financial relief for those who 

are able to pay at that level and greater 

access for those who are not. 

g. Appropriate Dispensing of 

Prescription Drugs in Long-Term Care 

Facilities under PDPs and MA–PD Plans 

(§ 423.154) and Dispensing Fees 

(§ 423.100) 

We expect that Part D enrollees who 

use a 14-day supply (or less) of Part D 

drugs described in the requirements 

under section 423.154 (a) will benefit 

from the savings resulting from a 

reduction in cost sharing that would be 

associated with a full 30-day supply 

whenever a Part D drug is discontinued 

within the first 2 weeks from the start 

date of the drug. We would expect that 

many drugs discontinued due to adverse 

drug reactions or side effects will be 

discontinued within the first 2 weeks. In 

addition, Part D enrollees residing in 

LTC facilities that elect to use more 

efficient dispensing systems, such as 

automated dose dispensing, may also 

benefit from additional interactions 

with nursing staff a result of decreased 

medication preparation time associated 

with automated dose dispensing. Over 

time, we expect a decrease in drug 

expenditures in the Part D program will 

be reflected by a reduction in Part D 

premiums. 

h. Complaint System for Medicare 

Advantage Organizations and PDPs 

(§ 422.504(a) and § 423.505(b)) 

We expect this provision to reduce 

the volume of calls using 1–800– 

MEDICARE as members will have 

online access to the complaint tracking 

system to file complaints regarding their 

MA or prescription drug benefit plan. 

We also expect the provision will 

benefit Medicare beneficiaries by 

offering another means for them to file 

their complaints. Electronic complaint 

filing should also save time for those 

beneficiaries who choose to use this 

method. 

i. Uniform Exceptions and Appeals 

Process for Prescription Drug Plans and 

MA–PD Plans (§ 423.128, and § 423.562) 

We expect that as a result of 

implementation of this provision, 

beneficiaries and the health care 

providers or representatives that assist 

them will benefit from a more 

streamlined approach to the exceptions 

and appeals process than what is in 

place currently. They will have access 

to the appeals process via a Web site or 

a customer call center, if their plan 

sponsor has not already adopted this 

approach. 

j. Including Costs Incurred by the AIDS 

Drug Assistance Program (ADAP) and 

the Indian Health Services (IHS) Toward 

the Annual Part D Out-of-Pocket 

Threshold (§ 423.100 and § 423.464) 

Prior to implementation of this 

provision, beneficiaries in both 

programs had difficulty reaching the 

catastrophic phase of the Part D benefit. 

This provision will not only enable 

beneficiaries to reach the catastrophic 

limit where they will experience 

significant reductions to their drug 

costs, but will relieve the ADAPs and 

IHS from incurring excessive 

prescription costs. 

k. Cost Sharing for Medicare Covered 

Preventive Service (§ 417.454 and 

§ 422.100) 

We believe that our requirement for 

MA organizations and section 1876 cost 

plans to provide in-network Medicarecovered preventive benefits at zero cost 

sharing puts MA enrollees on a level 

playing field with enrollees in Original 

Medicare. Furthermore, we believe that 

the increased emphasis on provision of 

preventives services will result in 

improved beneficiary well-being and 

subsequently decrease their need for, 

and utilization of, more costly medical 

and surgical interventions, and possibly 

in decreased overall program costs. 

l. Elimination of the Stabilization Fund 

(§ 422.458) 

As previously stated, the formal 

elimination of the fund will have little 

or no impact on the current operation of 

the MA program. Thus, we do not 

believe this provision will have any 

impact on beneficiaries. 

m. Improvements to Medication 

Therapy Management Programs 

(§ 423.153) 

We expect that beneficiaries will 

benefit from this provision. 

Standardized formats for the action plan 

and summary resulting from annual 

Comprehensive Medication Reviews 

(CMR) will enable beneficiaries to have 

a better understanding of the CMR 

review findings and recommendations. 

Also, the opportunity for sponsors to 

use telehealth technology will improve 

access to MTM services for 

beneficiaries, particularly those in 

remote locations or unable to travel. 

n. Changes To Close the Part D Coverage 

Gap (§ 423.104 and § 423.884) 

Under these provisions to close the 

Part D coverage gap, beneficiaries would 

pay less for drugs in the coverage gap, 

and would reach the out-of-pocket 

threshold earlier in the benefit year. We 

expect that, because beneficiaries 

should find their prescription drugs 


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more affordable, there would be greater 

adherence to drug therapies and fewer 

instances of adverse health outcomes 

arising from failure to take medications 

as prescribed. 

o. Medicare Advantage Benchmark, 

Quality Bonus Payments, and Rebate 

and Application of Coding Adjustment 

(§ 422.252, § 422.258 and § 422.266, and 

§ 422.308) 

We have not determined an impact on 

beneficiaries as a result of this 

provision. 

p. Quality Bonus Appeals (§ 422.260) 

While we expect the QBP system will 

encourage and incentivize MA plans to 

transform their delivery systems and 

processes to provide beneficiaries with 

high-quality and efficient care, we do 

not anticipate the QBP appeals process 

will have any effect on beneficiaries. 

q. Timely Transfer of Data and Files 

When CMS Terminates a Contract With 

a Part D Sponsor (§ 423.509) 

Our intent in implementing this 

provision is to ensure that terminated 

Part D plan sponsors transfer to CMS the 

necessary data to provide a smooth 

transition for beneficiaries into a new 

Part D plan similar to when the Part D 

sponsor terminates the contract or CMS 

and the Part D plan sponsor mutually 

terminate the contract. We anticipate 

that this provision will benefit 

beneficiaries by ensuring that TrOOP 

and gross covered drug cost data are 

transferred from the terminated plan to 

the beneficiaries’ new plan, enabling the 

members to be correctly positioned in 

the new plan’s benefit. 

r. Review of Medical Necessity 

Decisions by a Physician or other Health 

Care Professional and the Employment 

of a Medical Director (§ 422.562, 

§ 422.566, § 423.562, and § 423.566) 

We are modifying the language in the 

proposed rule with respect to the 

requirement for a physician or other 

health care professional to review initial 

determinations involving medical 

necessity. Under this final rule, if the 

plan expects to issue a partially or fully 

adverse decision based on the initial 

review of the request, a physician or 

other appropriate health care 

professional with sufficient medical and 

other expertise, including knowledge of 

Medicare coverage criteria, must review 

the request for medical necessity before 

the plan issues its decision. This 

requirement will favorably impact 

beneficiaries by ensuring their requests 

for coverage receive medical review by 

an individual with appropriate clinical 

expertise, without imposing any burden 

on beneficiaries because the 

requirements for requesting an 

organization or coverage determination 

are not modified by this requirement. 

s. Agent and Broker Training 

Requirements (§ 422.2274 and 

§ 423.2274) 

Requiring all agents and brokers to 

receive training and testing via a CMS 

endorsed or approved training program 

will further ensure that beneficiaries are 

educated about Medicare health plan 

options by plan agents and brokers who 

are thoroughly and consistently trained 

on the fundamentals of Medicare 

regulations. We believe that such 

thorough and consistent training will 

help ensure that beneficiaries receive 

accurate information about their 

Medicare health care options and make 

the best choices about their health care 

coverage options for their particular 

health care needs. 

t. Call Center Interpreter Requirements 

(§ 422.111 and § 423.128) 

The expected benefit of our call center 

interpreter requirements is that all 

beneficiaries, regardless of language 

spoken, will have access to all the 

information they need to make 

appropriate decisions about their health 

care to utilize their Medicare benefits 

most effectively. 

u. Customized Enrollee Data (§ 422.111 

and § 423.128) 

We believe that our requirement that 

MA organizations send enrollees an 

explanation of benefits will ensure that 

the beneficiaries periodically receive 

information about their Part C 

utilization and out-of-pocket costs to 

help them make the best choices about 

their health care coverage options for 

their particular health care needs. 

v. Extending the Mandatory Maximum 

Out-of-Pocket (MOOP) Amount 

Requirements to Regional PPOs 

(§ 422.100 and § 422.101) 

We believe extending the mandatory 

MOOP requirement to RPPOs will 

provide significant protection for MA 

enrollees from out-of-pocket costs so 

that beneficiaries will better understand 

and anticipate their out-of-pocket 

expenditures. This requirement 

increases transparency for beneficiaries, 

and will ensure all RPPO plan enrollees 

are protected against high out-of-pocket 

costs and are better able to compare 

plans by focusing on differences in 

premium and plan quality. 

w. Translated Marketing Materials 

(§ 422.2264 and § 423.2264) 

The expected benefit of our 

requirement to codify existing 

subregulatory guidance with respect to 

translated marketing materials is to help 

limited-English proficient beneficiaries 

obtain access to the information they 

need to make appropriate decisions 

about their health care to utilize their 

Medicare benefits most effectively. 

Comment: One commenter indicated 

that the impact analysis in the proposed 

rule improperly indicated that we 

would be helping all beneficiaries have 

access to translated materials. 

Response: We agree with the 

commenter, and have revised the impact 

discussion in this final rule to remove 

language insinuating that all 

beneficiaries speaking all languages will 

have access to translated materials. 

E. Alternatives Considered 

The alternatives that were considered 

are summarized as follows. 

1. Cost Sharing for Specified Services at 

Original Medicare Levels (§ 417.454 and 

§ 422.100) 

We considered using the authority 

granted to the Secretary by section 3202 

to limit MA cost sharing for service 

categories in addition to those specified 

in the ACA. However, we decided that 

it is preferable to restrict our 

implementation of section 3202 of the 

ACA to the specified service categories, 

allowing ourselves time to evaluate the 

effects of those provisions, as well as 

other recently-established policies 

before using the new authority to adopt 

those cost sharing limits for an 

expanded list of service categories. 

Although we proposed to use our 

authority under sections 1856(b)(1) and 

1857(e)(1) of the Act to limit the cost 

sharing for home health services to 

Original Medicare levels we have 

decided not to finalize our proposal, as 

discussed elsewhere in this final rule. 

2. Cost Sharing for Medicare-Covered 

Preventive Services (§ 417.454 and 

§ 422.100) 

We are proposing to implement 

regulations to require MA organizations 

and 1876 cost plans to provide innetwork Medicare-covered preventive 

benefits at zero cost sharing, consistent 

with the new regulations for Original 

Medicare-covered preventive benefits. 

More specifically, we are requiring that 

all MA organizations provide Medicarecovered preventive services, as specified 

by CMS, without enrollee cost sharing 

charges. 

We considered allowing plans to 

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covered preventive services or to 

voluntarily adopt zero cost sharing for 

the specified preventive services. We 

determined that in light of the 

importance of preventive services in 

managed and coordinated care, and the 

requirements at section 1852(a)(1)(A) of 

the Act (except as provided in section 

1859(b)(3) of the Act for MSA plans and 

in section 1852(a)(6) of the Act for MA 

regional plans) that each MA plan must 

provide to its members all Parts A and 

B benefits included under the Original 

Medicare fee-for-service program as 

defined at section 1852(a)(1)(B) of the 

Act, that requiring the same level of cost 

sharing for the specified preventive 

services for enrollees of Medicare health 

plans as required under Original 

Medicare would be the more 

appropriate policy. 

3. Quality Bonus Appeals (§ 422.260) 

We considered not affording bonus 

payment appeal rights to MA 

organizations. We rejected this option 

partly in recognition of the obligation 

the law generally imposes on us to 

afford entities affected by CMS 

determinations concerning contract 

performance or payment to have an 

opportunity to challenge such 

determinations. We also believe, as 

noted previously, that the appeals 

process promotes fairness in and 

enhances the credibility of the bonus 

payment determination process. 

4. Timely Transfer of Data and Files 

When CMS Terminates a Contract With 

a Part D Sponsor (§ 423.509) 

We did not consider alternatives to 

our provision regarding the timely 

transfer of data and files following the 

CMS termination of a Part D sponsor’s 

contract. These data are necessary for 

the proper adjudication of all Part D 

benefits when a beneficiary changes 

plans, such as calculating the true outof-pocket cost and determining whether 

the beneficiary has any outstanding 

claims for which the terminating 

contract is responsible. Because of these 

important beneficiary protections, we 

did not consider alternatives to these 

requirements. 

5. Review of Medical Necessity 

Decisions by a Physician or Other 

Health Care Professional and the 

Employment of a Medical Director 

(§ 422.562, § 422.566, § 423.562, and 

§ 423.566) 

We did not consider alternatives 

regarding review of medical necessity 

decisions by a physician or other health 

care professional and employment of a 

medical director, as a majority of MA 

organizations and Part D sponsors 

already employ a medical director to 

oversee decisions of medical necessity. 

As noted previously, we are modifying 

our proposed rule language on the 

requirement for a physician or other 

health care professional to review initial 

determinations involving medical 

necessity. Under this final rule, if the 

plan expects to issue a partially or fully 

adverse decision based on the initial 

review of the request, a physician or 

other appropriate health care 

professional with sufficient medical and 

other expertise, including knowledge of 

Medicare coverage criteria, must review 

the request for medical necessity before 

the plan issues its decision. 

6. Agent and Broker Training 

Requirements (§ 422.2274 and 

§ 423.2274) 

Sections 422.2274(b) and (c) and 

423.2274(b) and (c) require MA 

organizations’ and Part D sponsors’ 

agents and brokers to receive training 

and testing via a CMS-endorsed or 

-approved training program. The 

alternative we considered was to 

continue to allow plans to conduct 

training and testing on their own or 

through third party vendor(s) and for 

CMS to continue to review some 

of these training programs upon 

request by third party vendors for 

comprehensiveness and accuracy. 

However, we believe that it is in the best 

interest of beneficiaries who are 

educated about Medicare health plan 

options by plan agents and brokers that 

those agents and brokers be consistently 

and thoroughly trained on the 

fundamentals of Medicare regulations. 

We believe the best method to achieve 

this end is to require agents and brokers 

to receive training and testing through 

one or more CMS-endorsed or 

-approved training programs. 

7. Call Center Interpreter Requirements 

(§ 422.111 and § 423.128) 

Compliance with Title VI of the Civil 

Rights Act of 1964 to serve all 

individuals regardless of national origin 

is a contractual requirement for MA and 

Part D sponsors; therefore, we did not 

consider any other alternatives to our 

call center interpreter requirements. 

8. Customized Enrollee Data (§ 422.111 

and § 423.128) 

In our November 2010 proposed rule 

(75 FR 71249 through 71250), we 

considered an alternative to require MA 

organizations and PDP sponsors to 

provide each enrollee with specific data 

to use to compare utilization and out-ofpocket costs in the current plan year to 

projected utilization and out-of-pocket 

costs for the following plan year. We 

further considered requiring plans to 

disclose this information to plan 

enrollees in each year in which a 

minimum enrollment period has been 

met, in conjunction with the annual 

renewal materials (currently the annual 

notice of change/evidence of coverage, 

or ANOC/EOC). However, we are not 

finalizing this policy alternative in our 

final rule. Instead, as discussed in 

section II.D.4 of this final rule, we 

intend to work with MA organizations, 

Part D sponsors and beneficiary 

advocates to develop an explanation of 

benefits for Part C benefits modeled 

after the EOB currently required for Part 

D enrollees at § 423.128(e). 

9. Extending the Mandatory Maximum 

Out-of-Pocket (MOOP) Amount 

Requirements to Regional PPOs 

(§ 422.100 and § 422.101) 

The alternative we considered was 

not extending the mandatory MOOP and 

catastrophic limit requirements to RPPO 

plans, but instead to permit plans to 

continue to establish their own innetwork MOOP and catastrophic limits 

without a maximum limit set by CMS 

while encouraging them to adopt either 

the mandatory or voluntary MOOPs 

established in CMS guidance. However, 

as we discussed in our April 2010 final 

rule, (75 FR 19711), we believe RPPOs 

should be subject to the same 

requirements with respect to a MOOP as 

local PPO plans. As discussed 

elsewhere in this preamble, we believe 

that the alternative chosen will make it 

easier for beneficiaries to understand 

and compare MA plans and will provide 

significant protection for MA enrollees 

from out of pocket costs. 

10. Translated Marketing Materials 

(§ 422.2264 and § 423.2264) 

Compliance with Title VI of the Civil 

Rights Act of 1964 to serve all 

individuals regardless of national origin 

is a contractual requirement for MA and 

Part D sponsors. Therefore, we did not 

consider any other alternatives to our 

translated marketing materials 

requirements. 

Comment: One commenter was 

concerned that we did not consider any 

alternatives to codifying the existing 

population-based translation threshold 

stated in our subregulatory guidance 

(that is, the 10 percent translation 

standard). 

Response: In response to numerous 

comments regarding the translation 

standard itself, we conducted several 

analyses using 2011 plan service area 

data and the most recent American 

Community Survey datasets. We 

analyzed the effect of keeping our 

standard at 10 percent, the effect of 


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moving to a 10 percent standard 

focusing on primary language, the effect 

of moving to 5 percent standard 

focusing on primary language, the effect 

of moving to a simple 5 percent 

standard, and the effect of using a 5 

percent or 500 person standard. After 

reviewing the results from these 

sensitivity analyses, we determined that 

a 5 percent threshold that focuses on 

primary language spoken would be the 

most appropriate approach for 

beneficiaries and plans. We are 

therefore maintaining this 5 percent 

threshold in the final rule. 

11. Increases to the Applicable 

Percentage for Quality (§ 422.258(d)) 

The ACA requires a 5-star rating 

system. We considered whether the 5- 

star rating system should be consistent 

with the current 5-star rating system in 

place for beneficiary choice or should be 

a separate system. We believe that plans 

should be rated the same for consumer 

choice and payment. There should not 

be two different systems to rate the 

quality and performance of MA plans. 

Thus, the plan ratings are the basis for 

the star rating system for quality bonus 

payments. 

F. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 14, we have 

prepared an accounting statement 

showing the classification of the costs, 

benefits, and transfers associated with 

the provisions of this final rule. The 

accounting statement is based on 

estimates provided in Tables H10 

through 13, (our best estimate of the 

costs, savings, and transfers as a result 

of the changes) and discounted at the 7 

percent and 3 percent for the time 

period of FY 2011 through FY 2016. 

List of Subjects 

42 CFR Part 417 

Administrative practice and 

procedure, Grant programs-health, 

Health care, Health insurance, Health 

maintenance organizations (HMO), Loan 

programs—health, Medicare, and 

Reporting and recordkeeping 

requirements. 

42 CFR Part 422 

Administrative practice and 

procedure, Health facilities, Health 

maintenance organizations (HMO), 

Medicare, Penalties, Privacy, and 

Reporting and recordkeeping 

requirements. 

42 CFR Part 423 

Administrative practice and 

procedure, Emergency medical services, 

Health facilities, Health maintenance 

organizations (HMO), Health 

professionals, Medicare, Penalties, 

Privacy, and Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, the Centers for Medicare & 

Medicaid Services announces the 

effective date of June 6, 2011 for 

amendments to 42 CFR 422.564, 

422.624, and 422.626 published April 4, 

2003 at 68 FR 16652 and further amends 

42 CFR chapter IV as set forth below: 

PART 417—HEALTH MAINTENANCE 

ORGANIZATIONS, COMPETITIVE 

MEDICAL PLANS, AND HEALTH CARE 

PREPAYMENT PLANS 

■ 1. The authority citation for part 417 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh), secs. 1301, 1306, and 1310 of the 

Public Health Service Act (42 U.S.C., 300e, 

300e–5, and 300e–9), and 31 U.S.C. 9701. 

Subpart J—Qualifying Conditions for 

Medicare Contracts 

■ 2. Section 417.402 is amended by 

revising paragraph (c) introductory text 

to read as follows: 

§ 417.402 Effective date of initial 

regulations. 

* * * * * 

(c) Mandatory HMO or CMP and 

contract non-renewal or service area 

reduction. CMS will non-renew all or a 

portion of an HMO’s or CMP’s 

contracted service area using procedures 

in § 417.492(b) and § 417.494(a) for any 

period beginning on or after January 1, 

2013, where— 

* * * * * 

Subpart K—Enrollment, Entitlement, 

and Disenrollment Under Medicare 

Contract 

■ 3. Section 417.430 is amended as 

follows: 

■ A. Revising the paragraph heading for 

paragraph (a). 

■ B. Revising paragraphs (a)(1), (b)(3), 

and (b)(4). 

§ 417.430 Application procedures. 

(a) Application forms and other 

enrollment mechanisms. (1) The 

application form must comply with 

CMS instructions regarding content and 

format and be approved by CMS. The 

application must be completed by an 

HMO or CMP eligible (or soon to 

become eligible) individual and include 

authorization for disclosure between the 

HHS and its designees and the HMO or 

CMP. 

* * * * * 

(b) * * * 


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(3) The HMO or CMP gives the 

beneficiary prompt notice of acceptance 

or denial in a format specified by CMS. 

(4) The notice of acceptance. If the 

HMO or CMP is currently enrolled to 

capacity, explains the procedures that 

will be followed when vacancies occur. 

* * * * * 

4. Section 417.454 is amended by 

adding paragraphs (d) and (e) to read as 

follows. 

§ 417.454 Charges to Medicare enrollees. 

* * * * * 

(d) Limit on charges for specified 

preventive services. An HMO may not 

charge deductibles, copayments, or 

coinsurance for in-network Medicarecovered preventive services (as defined 

in § 410.152(l)). 

(e) Services for which cost sharing 

may not exceed cost sharing under 

original Medicare. On an annual basis, 

CMS will evaluate whether there are 

service categories for which HMOs’ cost 

sharing may not exceed that required 

under original Medicare and specify in 

regulation which services are subject to 

that cost sharing limit. The following 

services are subject to this limit on cost 

sharing: 

(1) Chemotherapy administration 

services to include chemotherapy drugs 

and radiation therapy integral to the 

treatment regimen. 

(2) Renal dialysis services as defined 

at section 1881(b)(14)(B) of the Act. 

(3) Skilled nursing care defined as 

services provided during a covered stay 

in a skilled nursing facility during the 

period for which cost sharing would 

apply under Original Medicare. 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

■ 5. The authority citation for part 422 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

Subpart A—General Provisions 

■ 6. Section 422.2 is amended by adding 

the definitions of ‘‘fiscally sound 

operation,’’ ‘‘fully integrated dual 

eligible special needs plan,’’ and ‘‘senior 

housing facility plan’’ in alphabetical 

order to read as follows: 

§ 422.2 Definitions. 

* * * * * 

Fiscally sound operation means an 

operation which at least maintains a 

positive net worth (total assets exceed 

total liabilities). 

* * * * * 

Fully integrated dual eligible special 

needs plan means a CMS approved 

MA–PD dual eligible special needs plan 

that— 

(1) Enrolls special needs individuals 

entitled to medical assistance under a 

Medicaid State plan, as defined in 

section 1859(b)(6)(B)(ii) of the Act and 

§ 422.2; 

(2) Provides dual eligible beneficiaries 

access to Medicare and Medicaid 

benefits under a single managed care 

organization; 

(3) Has a capitated contract with a 

State Medicaid agency that includes 

coverage of specified primary, acute, 

and long-term care benefits and 

services, consistent with State policy; 

(4) Coordinates the delivery of 

covered Medicare and Medicaid health 

and long-term care services using 

aligned care management and specialty 

care network methods for high-risk 

beneficiaries; and 

(5) Employs policies and procedures 

approved by CMS and the State to 

coordinate or integrate member 

materials, enrollment, communications, 

grievance and appeals, and quality 

improvement. 

* * * * * 

Senior housing facility plan means an 

MA coordinated care plan that— 

(1) Restricts enrollment to individuals 

who reside in a continuing care 

retirement community as defined in 

§ 422.133(b)(2); 

(2) Provides primary care services 

onsite and has a ratio of accessible 

physicians to beneficiaries that CMS 

determines is adequate consistent with 

prevailing patterns of community health 

care referenced at § 422.112(a)(10); 

(3) Provides transportation services 

for beneficiaries to specialty providers 

outside of the facility; and 

(4) Was participating as of December 

31, 2009 in a demonstration established 

by CMS for not less than 1 year. 

* * * * * 

■ 7. Section 422.4 is amended as 

follows: 

■ A. Revising paragraphs (a)(1)(iii) and 

(iv). 

■ B. Adding paragraph (a)(1)(vi). 

The revisions and additions read as 

follows: 

§ 422.4 Types of MA plans. 

* * * * * 

(a) * * * 

(1) * * * 

(iii) Coordinated care plans include 

plans offered by any of the following: 

(A) Health maintenance organizations 

(HMOs); 

(B) Provider-sponsored organizations 

(PSOs), subject to paragraph (a)(1)(vi) of 

this section. 

(C) Regional or local preferred 

provider organizations (PPOs) as 

specified in paragraph (a)(1)(v) of this 

section. 

(D) Other network plans (except PFFS 

plans). 

(iv) A specialized MA plan for special 

needs individuals (SNP) includes any 

type of coordinated care plan that meets 

CMS’s SNP requirements and 

exclusively enrolls special needs 

individuals as defined by § 422.2 of this 

subpart. All MA plans wishing to offer 

a SNP will be required to be approved 

by the National Commission on Quality 

Assurance (NCQA) effective January 1, 

2012. This approval process applies to 

existing SNPs as well as new SNPs 

joining the program. All SNPs must 

submit their model of care (MOC) to 

CMS for NCQA evaluation and approval 

as per CMS guidance. 

* * * * * 

(vi) In accordance with § 422.370, 

CMS does not waive the State licensure 

requirement for organizations seeking to 

offer a PSO. 

* * * * * 

Subpart B—Eligibility, Election, and 

Enrollment 

■ 8. Add § 422.53 to read as follows: 

§ 422.53 Eligibility to elect an MA plan for 

senior housing facility residents. 

(a) Basic eligibility requirements. To 

be eligible to elect an MA senior 

housing facility plan, the individual 

must meet both of the following: 

(1) Be a resident of an MA senior 

housing facility defined in § 422.2. 

(2) Be eligible to elect an MA plan 

under § 422.50. 

(b) Restricting enrollment. An MA 

senior housing facility plan must restrict 

enrollment to only those individuals 

who reside in a continuing care 

retirement community as defined at 

§ 422.133(b)(2). 

(c) Establishing eligibility for 

enrollment. An MA senior housing 

facility plan must verify the eligibility of 

each individual enrolling in its plan 

using a CMS approved process. 

■ 9. Section 422.62 is amended as 

follows: 

■ A. Revising paragraphs (a)(2)(i), 

(a)(2)(iii), and (a)(5). 

■ B. Adding paragraphs (a)(2)(iv) and 

(a)(7). 

The revisions and additions read as 

follows: 

§ 422.62 Election of coverage under an MA 

plan. 

(a) * * * 

(2) * * ** 

(i) For 2002 through 2010, except for 

2006, the annual coordinated election 


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period for the following calendar year is 

November 15 through December 31. 

* * * * * 

(iii) Beginning in 2011, the annual 

coordinated election period for the 

following calendar year is October 15 

through December 7. 

(iv) During the annual coordinated 

election period, an individual eligible to 

enroll in an MA plan may change his or 

her election from an MA plan to 

Original Medicare or to a different MA 

plan, or from Original Medicare to an 

MA plan. If an individual changes his 

or her election to Original Medicare, he 

or she may also elect a PDP. 

* * * * * 

(5) Open enrollment and 

disenrollment from 2007 through 2010. 

(i) Open enrollment period. For 2007 

through 2010, except as provided in 

paragraphs (a)(5)(ii), (iii), and (a)(6) of 

this section, an individual who is not 

enrolled in an MA plan but is eligible 

to elect an MA plan may make an 

election into an MA plan once during 

the first 3 months of the year. 

(ii) Newly eligible MA individual. An 

individual who becomes MA eligible in 

2007 through 2010 may elect an MA 

plan or change his or her election once 

during the period that begins the month 

the individual is entitled to both Part A 

and Part B and ends on the last day of 

the third month of the entitlement, or on 

December 31, whichever is earlier, 

subject to the limitations in paragraphs 

(a)(5)(i)(A) and (a)(5)(i)(B) of this 

section. 

(iii) Single election limitation. The 

limitation to one election or change in 

paragraphs (a)(5)(i) and (a)(5)(ii) of this 

section does not apply to elections or 

changes made during the annual 

coordinated election period specified in 

paragraph (a)(2) of this section, or 

during a special election period 

specified in paragraph (b) of this 

section. 

* * * * * 

(7) Annual 45-day period for 

disenrollment from MA plans to 

Original Medicare. For 2011 and 

subsequent years, at any time from 

January 1 through February 14, an 

individual who is enrolled in an MA 

plan may elect Original Medicare once 

during this 45-day period. An 

individual who chooses to exercise this 

election may also make a coordinating 

election to enroll in a PDP as specified 

in § 423.38(d). 

* * * * * 

■ 10. Section 422.68 is amended by 

adding paragraph (f) to read as follows: 

§ 422.68 Effective dates of coverage and 

change from coverage. 

* * * * * 

(f) Annual 45-day period for 

disenrollment from MA plans to 

Original Medicare. Beginning in 2011, 

an election made from January 1 

through February 14 to disenroll from 

an MA plan to Original Medicare, as 

described in § 422.62(a)(7), is effective 

the first day of the first month following 

the month in which the election is 

made. 

■ 11. Section 422.74 is amended by 

adding paragraphs (d)(1)(v) and (vi) to 

read as follows: 

§ 422.74 Disenrollment by the MA 

organization. 

* * * * * 

(d) * * * 

(1) * * * 

(v) Extension of grace period for good 

cause and reinstatement. When an 

individual is disenrolled for failure to 

pay the plan premium, CMS may 

reinstate enrollment in the MA plan, 

without interruption of coverage, if the 

individual shows good cause for failure 

to pay within the initial grace period, 

and pays all overdue premiums within 

3 calendar months after the 

disenrollment date. The individual must 

establish by a credible statement that 

failure to pay premiums within the 

initial grace period was due to 

circumstances for which the individual 

had no control, or which the individual 

could not reasonably have been 

expected to foresee. 

(vi) No extension of grace period. A 

beneficiary’s enrollment in the MA plan 

may not be reinstated if the only basis 

for such reinstatement is a change in the 

individual’s circumstances subsequent 

to the involuntary disenrollment for 

non-payment of premiums. 

* * * * * 

Subpart C—Benefits and Beneficiary 

Protections 

■ 12. Section 422.100 is amended by 

adding paragraphs (j) and (k) to read as 

follows. 

§ 422.100 General requirements. 

* * * * * 

(j) Services for which cost sharing may 

not exceed cost sharing under Original 

Medicare. On an annual basis, CMS will 

evaluate whether there are service 

categories for which MA plans’ innetwork cost sharing may not exceed 

that required under Original Medicare 

and specify in regulation which services 

are subject to that cost sharing limit. 

The following services are subject to 

this limit on cost sharing: 

(1) Chemotherapy administration 

services to include chemotherapy drugs 

and radiation therapy integral to the 

treatment regimen. 

(2) Renal dialysis services as defined 

at section 1881(b)(14)(B) of the Act. 

(3) Skilled nursing care defined as 

services provided during a covered stay 

in a skilled nursing facility during the 

period for which cost sharing would 

apply under Original Medicare. 

(k) Cost sharing for in-network 

preventive services. MA organizations 

may not charge deductibles, 

copayments, or coinsurance for innetwork Medicare-covered preventive 

services (as defined in § 410.152(l)). 

■ 13. Section 422.101 is amended as 

follows: 

A. Revising paragraphs (d)(2) and (3). 

B. Adding paragraph (f)(2)(vi). 

The revisions and addition read as 

follows. 

§ 422.101 Requirements relating to basic 

benefits. 

* * * * * 

(d) * * * 

(2) Catastrophic limit. MA regional 

plans are required to establish a 

catastrophic limit on beneficiary out-ofpocket expenditures for in-network 

benefits under the Original Medicare 

fee-for-service program (Part A and Part 

B benefits) that is no greater than the 

annual limit set by CMS. 

(3) Total catastrophic limit. MA 

regional plans are required to establish 

a total catastrophic limit on beneficiary 

out-of-pocket expenditures for innetwork and out-of-network benefits 

under the Original Medicare fee-forservice program. This total out-of-pocket 

catastrophic limit, which would apply 

to both in-network and out-of-network 

benefits under Original Medicare, may 

be higher than the in-network 

catastrophic limit in paragraph (d)(2) of 

this section, but may not increase the 

limit described in paragraph (d)(2) of 

this section and may be no greater than 

the annual limit set by CMS. 

* * * * * 

(f) * * * 

(2) * * * 

(vi) All MAOs wishing to offer or 

continue to offer a SNP will be required 

to be approved by the National 

Committee for Quality Assurance 

(NCQA) effective January 1, 2012 and 

subsequent years. All SNPs must submit 

their model of care (MOC) to CMS for 

NCQA evaluation and approval in 

accordance with CMS guidance. 

■ 14. Section 422.106 is amended as 

follows: 

■ A. Revising paragraph (d)(1). 

■ B. Adding paragraphs (d)(4) through 

(d)(6). 


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The revision and additions read as 

follows. 

§ 422.106 Coordination of benefits with 

employer or union group health plans and 

Medicaid. 

* * * * * 

(d) * * * 

(1) CMS may waive or modify any 

requirement in this part or Part D that 

hinders the design of, the offering of, or 

the enrollment in, an employersponsored group MA plan (including an 

MA–PD plan) offered by one or more 

employers, labor organizations, or the 

trustees of a fund established by one or 

more employers or labor organizations 

(or combination thereof), or that is 

offered, sponsored or administered by 

an entity on behalf of one or more 

employers or labor organizations, to 

furnish benefits to the employers’ 

employees, former employees (or 

combination thereof) or members or 

former members (or combination 

thereof) of the labor organizations. Any 

entity seeking to offer, sponsor, or 

administer such an MA plan described 

in this paragraph may request, in 

writing, from CMS, a waiver or 

modification of requirements in this 

part that hinder the design of, the 

offering of, or the enrollment in, such 

MA plan. 

* * * * * 

(4) An employer-sponsored group MA 

plan means MA coverage offered to 

retirees who are Medicare eligible 

individuals under employment-based 

retiree health coverage, as defined in 

paragraph (d)(5) of this section, 

approved by CMS as an MA plan. 

(5) Employment-based retiree 

coverage means coverage of health care 

costs under a group health plan, as 

defined in paragraph (d)(6) of this 

section, based on an individual’s status 

as a retired participant in the plan, or as 

the spouse or dependent of a retired 

participant. The term includes coverage 

provided by voluntary insurance 

coverage, or coverage as a result of a 

statutory or contractual obligation. 

(6) Group health plans include plans 

as defined in section 607(1) of ERISA, 

(29 U.S.C. 1167(1)). They also include 

the following plans: 

(i) A Federal or State governmental 

plan, which is a plan providing medical 

care that is established or maintained 

for its employees by the Government of 

the United States, by the government of 

any State or political subdivision of a 

State (including a county or local 

government), or by any agency or 

instrumentality or any of the foregoing, 

including a health benefits plan offered 

under 5 U.S.C. 89 (the Federal 

Employee Health Benefit Plan (FEHBP)). 

(ii) A collectively bargained plan, 

which is a plan providing medical care 

that is established or maintained under 

or by one or more collective bargaining 

agreements. 

(iii) A church plan, which is a plan 

providing medical care that is 

established and maintained for its 

employees or their beneficiaries by a 

church or by a convention or association 

of churches that is exempt from tax 

under section 501 of the Internal 

Revenue Code of 1986 (26 U.S.C. 501). 

(iv) Any of the following plans: 

(A) An account-based medical plan 

such as a Health Reimbursement 

Arrangement (HRA) as defined in 

Internal Revenue Service Notice 2002– 

45, 2002–28 I.R.B. 93. 

(B) A health Flexible Spending 

Arrangement (FSA) as defined in 

Internal Revenue Code (Code) section 

106(c)(2). 

(C) A health savings account (HSA) as 

defined in Code section 223. 

(D) An Archer MSA as defined in 

Code section 220, to the extent they are 

subject to ERISA as employee welfare 

benefit plans providing medical care (or 

would be subject to ERISA but for the 

exclusion in ERISA section 4(b), 29 

U.S.C.1003(b), for governmental plans 

or church plans). 

■ 15. Section 422.107 is amended by 

revising paragraph (d)(1)(ii) to read as 

follows: 

§ 422.107 Special needs plans and dualeligibles: Contract with State Medicaid 

Agency. 

* * * * * 

(d) * * * 

(1) * * * 

(ii) Existing dual-eligible SNPs that do 

not have a State Medicaid agency 

contract— 

(A) May continue to operate through 

the 2012 contract year provided they 

meet all other statutory and regulatory 

requirements. 

(B) May not expand their service areas 

during contract years 2010 through 

2012. 

* * * * * 

■ 16. Amend § 422.111 as follows: 

■ A. Adding paragraph (b)(12). 

■ B. Removing paragraph (f)(12). 

■ C. Adding paragraph (h). 

The additions read as follows. 

§ 422.111 Disclosure requirements. 

* * * * * 

(b) * * * 

(12) Claims information. CMS may 

require an MA organization to furnish 

directly to enrollees, in the manner 

specified by CMS and in a form easily 

understandable to such enrollees, a 

written explanation of benefits, when 

benefits are provided under this part. 

* * * * * 

(h) Provision of specific information. 

Each MA organization must have 

mechanisms for providing specific 

information on a timely basis to current 

and prospective enrollees upon request. 

These mechanisms must include all of 

the following: 

(1) A toll-free customer service call 

center that meets all of the following: 

(i) Is open during usual business 

hours. 

(ii) Provides customer telephone 

service in accordance with standard 

business practices. 

(iii) Provides interpreters for nonEnglish speaking and limited English 

proficient (LEP) individuals. 

(2) An Internet Web site that includes, 

at a minimum the following: 

(i) The information required in 

paragraph (b) of this section. 

(ii) Copies of its evidence of coverage, 

summary of benefits, and information 

(names, addresses, phone numbers, and 

specialty) on the network of contracted 

providers. Such posting does not relieve 

the MA organization of its responsibility 

under § 422.111(a) to provide hard 

copies to enrollees. 

(3) The provision of information in 

writing, upon request. 

■ 17. Section 422.112 is amended by 

revising paragraph (a)(10) introductory 

text to read as follows: 

§ 422.112 Access to services. 

(a) * * * 

(10) Prevailing patterns of community 

health care delivery. MA plans that meet 

Medicare access and availability 

requirements through direct contracting 

network providers must do so consistent 

with the prevailing community pattern 

of health care delivery in the areas 

where the network is being offered. 

Factors making up community patterns 

of health care delivery that CMS will 

use as a benchmark in evaluating a 

proposed MA plan health care delivery 

network include, but are not limited to 

the following: 

* * * * * 

■ 18. Amend § 422.113 by revising 

paragraph (b)(2)(v) to read as follows: 

§ 422.113 Special rules for ambulance 

services, emergency and urgently needed 

services, and maintenance and poststabilization care services. 

(b) * * * 

(2) * * * 

(v) With a limit on charges to 

enrollees for emergency department 

services that CMS will determine 

annually, or what it would charge the 

enrollee if he or she obtained the 


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services through the MA organization, 

whichever is less. 

* * * * * 

Subpart D—Quality Improvement 

■ 19. Amend § 422.152 by revising 

paragraph (g) introductory text to read 

as follows: 

§ 422.152 Quality improvement program. 

* * * * * 

(g) Special requirements for 

specialized MA plans for special needs 

individuals. All special needs plans 

(SNPs) must be approved by the 

National Committee for Quality 

Assurance (NCQA) effective January 1, 

2012 and subsequent years. SNPs must 

submit their model of care (MOC) to 

CMS for NCQA evaluation and 

approval, in accordance with CMS 

guidance. A SNP must conduct a quality 

improvement program that— 

* * * * * 

■ 20. Amend § 422.156 by revising 

paragraph (b)(1) to read as follows: 

§ 422.156 Compliance deemed on the 

basis of accreditation. 

* * * * * 

(b) * * * 

(1) Quality improvement. The 

deeming process should focus on 

evaluating and assessing the overall 

quality improvement (QI) program. 

However, the quality improvement 

projects (QIPs) and the chronic care 

improvement programs (CCIPs) will be 

excluded from the deeming process. 

* * * * * 

Subpart E—Relationships With 

Providers 

■ 21. Amend § 422.214 by adding 

paragraphs (c) and (d) to read as follows: 

§ 422.214 Special rules for services 

furnished by noncontract providers. 

* * * * * 

(c) Deemed request for Medicare 

payment rate. A noncontract section 

1861(u) of the Act provider of services 

that furnishes services to MA enrollees 

and submits the same information that 

it would submit for payment under 

Original Medicare is deemed to be 

seeking to be paid the amount it would 

be paid under Original Medicare unless 

the provider expressly notifies the MA 

organization in writing that it is billing 

an amount less than such amount. 

(d) Regional PPO payments in nonnetwork areas. An MA Regional PPO 

must pay non-contract providers the 

Original Medicare payment rate in those 

portions of its service area where it is 

providing access to services by nonnetwork means under § 422.111(b)(3)(ii) 

of this part. 

Subpart F—Submission of Bids, 

Premiums, and Related Information 

and Plan Approval 

■ 22. Section 422.252 is amended as 

follows: 

■ A. Adding the definitions ‘‘low 

enrollment contract’’ and ‘‘new MA 

plan.’’ 

■ B. Revising the definition of 

‘‘unadjusted MA area-specific non-drug 

monthly benchmark amount.’’ 

The additions and revision read as 

follows: 

§ 422.252 Terminology. 

* * * * * 

Low enrollment contract means a 

contract that could not undertake 

Healthcare Effectiveness Data and 

Information Set (HEDIS) and Health 

Outcome Survey (HOS) data collections 

because of a lack of a sufficient number 

of enrollees to reliably measure the 

performance of the health plan. 

* * * * * 

New MA plan means a MA contract 

offered by a parent organization that has 

not had another MA contract in the 

previous 3 years. 

* * * * * 

Unadjusted MA area-specific nondrug monthly benchmark amount 

means, for local MA plans serving one 

county, the county capitation rate CMS 

publishes annually that reflects the 

nationally average risk profile for the 

risk factors CMS applies to payment 

calculations as set forth at § 422.308(c) 

of this part, (that is, a standardized 

benchmark). For local MA plans serving 

multiple counties it is the weighted 

average of county rates in a plan’s 

service area, weighted by the plan’s 

projected enrollment per county. The 

rules for determining county capitation 

rates are specific to a time period, as set 

forth at § 422.258(a). Effective 2012, the 

MA area-specific non-drug monthly 

benchmark amount is called the 

blended benchmark amount, and is 

determined according to the rules set 

forth under § 422.258(d) of this part. 

* * * * * 

■ 23. Section 422.254 is amended by 

adding paragraph (a)(5) to read as 

follows: 

§ 422.254 Submission of bids. 

(a) * * * 

(5) CMS may decline to accept any or 

every otherwise qualified bid submitted 

by an MA organization or potential MA 

organization. 

* * * * * 

■ 24. Section 422.256 is amended by 

revising paragraph (a) introductory text 

to read as follows: 

§ 422.256 Review, negotiation, and 

approval of bids. 

(a) Authority. Subject to paragraphs 

(a)(2), (d), and (e) of this section, CMS 

has the authority to review the aggregate 

bid amounts submitted under § 422.252 

and conduct negotiations with MA 

organizations regarding these bids 

(including the supplemental benefits) 

and the proportions of the aggregate bid 

attributable to basic benefits, 

supplemental benefits, and prescription 

drug benefits and may decline to 

approve a bid if the plan sponsor 

proposes significant increases in cost 

sharing or decreases in benefits offered 

under the plan. 

* * * * * 

■ 25. Section 422.258 is amended as 

follows: 

■ A. Revising paragraphs (a)(1) and (2). 

■ B. In paragraph (c)(3)(i), removing the 

phrase ‘‘county capitation rate’’ and 

adding the phrase ‘‘amount determined 

under paragraph (a) of this section for 

the year’’ in its place. 

■ C. Adding paragraph (d). 

The revisions and additions read as 

follows: 

§ 422.258 Calculation of benchmarks. 

(a) * * * 

(1) For MA local plans with service 

areas entirely within a single MA local 

area: 

(i) For years before 2007, one-twelfth 

of the annual MA capitation rate 

(described at § 422.306) for the area, 

adjusted as appropriate for the purpose 

of risk adjustment. 

(ii) For years 2007 through 2010, onetwelfth of the applicable amount 

determined under section 1853(k)(1) of 

the Act for the area for the year, 

adjusted as appropriate for the purpose 

of risk adjustment. 

(iii) For 2011, one-twelfth of the 

applicable amount determined under 

1853(k)(1) for the area for 2010. 

(iv) Beginning with 2012, one-twelfth 

of the blended benchmark amount 

described in paragraph (d) of this 

section, subject to paragraph (d)(8) of 

this section and adjusted as appropriate 

for the purpose of risk adjustment. 

(2) For MA local plans with service 

areas including more than one MA local 

area, an amount equal to the weighted 

average of amounts described in 

paragraph (a)(1) of this section for the 

year for each local area (county) in the 

plan’s service area, using as weights the 

projected number of enrollees in each 

MA local area that the plan used to 

calculate the bid amount, and adjusted 


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as appropriate for the purpose of risk 

adjustment. 

* * * * * 

(d) Determination of the blended 

benchmark amount—(1) General rules. 

For the purpose of paragraphs (a) and 

(b) of this section, the term blended 

benchmark amount for an area for a year 

means the sum of two components: the 

applicable amount determined under 

section 1853(k)(1) of the Act and the 

specified amount determined under 

section 1853(n)(2) of Act. The weights 

for each component are based on the 

phase-in period assigned each area, as 

described in paragraphs (d)(8) and (d)(9) 

of this section. At the conclusion of an 

area’s phase-in period, the blended 

benchmark for an area for a year equals 

the section 1853(n)(2) of the Act 

specified amount described in 

paragraph (d)(2) of this section. The 

blended benchmark amount for an area 

for a year (which takes into account 

paragraph (d)(8) of this section), cannot 

exceed the applicable amount described 

in paragraph (d)(2) of this section that 

would be in effect but for the 

application of this paragraph. 

(2) Applicable amount. For the 

purpose of paragraphs (a) and (b) of this 

section, the applicable amount 

determined under section 1853(k)(1) of 

the Act for a year is— 

(i) In a rebasing year (described at 

§ 422.306(b)(2), an amount equal to the 

greater of the average FFS expenditure 

amount at § 422.306(b)(2) for an area for 

a year and the minimum percentage 

increase rate at § 422.306(a) for an area 

for a year. 

(ii) In a year when the amounts at 

§ 422.306(b)(2) are not rebased, the 

minimum percentage increase rate at 

§ 422.306(a) for the area for the year. 

(iii) In no case the blended benchmark 

amount for an area for a year, 

determined taking into account 

paragraph (d)(8) of this section, be 

greater than the applicable amount at 

paragraph (d)(2) of this section for an 

area for a year. 

(iv) Paragraph (d) of this section does 

not apply to the PACE program under 

section 1894 of Act. 

(3) Specified amount. For the purpose 

of paragraphs (a) and (b) of this section, 

the specified amount under section 

1853(n)(2) of the Act is the product of 

the base payment amount for an area for 

a year (adjusted as required under 

§ 422.306(c)) multiplied by the 

applicable percentage described in 

paragraph (d)(5) of this section for an 

area for a year. 

(4) Base payment amount. The base 

payment amount is as follows: 

(i) For 2012, the average FFS 

expenditure amount specified in 

§ 422.306(b)(2), determined for 2012. 

(ii) For subsequent years, the average 

FFS expenditure amount specified in 

§ 422.306(b)(2). 

(5) Applicable percentage. Subject to 

paragraph (d)(7) of this section, the 

applicable percentage is one of four 

values assigned to an area based on 

Secretary’s determination of the quartile 

ranking of the area’s average FFS 

expenditure amount (described at 

§ 422.306(b)(2) and adjusted as required 

at § 422.306(c)), relative to this amount 

for all areas. 

(i) For the 50 States or the District of 

Columbia, a county with an average FFS 

expenditure amount adjusted under 

§ 422.306(c) that falls in the— 

(A) Highest quartile of such rates for 

all areas for the previous year receives 

an applicable percentage of 95 percent; 

(B) Second highest quartile of such 

rates for all areas for the previous year 

receives an applicable percentage of 100 

percent; 

(C) Third highest quartile of such 

rates for all areas for the previous year 

receives an applicable percentage of 

107.5 percent; or 

(D) Lowest quartile of such rates for 

all areas for the previous year receives 

an applicable percentage of 115 percent. 

(ii) To determine the applicable 

percentages for a territory, the Secretary 

ranks such areas for a year based on the 

level of the area’s § 422.306(b)(2) 

amount adjusted under § 422.306(c), 

relative to the quartile rankings 

computed under paragraph (d)(5)(i) of 

this section. 

(6) Additional rules for determining 

the applicable percentage. (i) In a 

contract year when the average FFS 

expenditure amounts from the previous 

year were rebased (according to the 

periodic rebasing requirement at 

§ 422.306(b)(2)), the Secretary must 

determine an area’s applicable 

percentage based on a quartile ranking 

of the previous year’s rebased FFS 

amounts adjusted under § 422.306(c). 

(ii) If, for a year after 2012, there is a 

change in the quartile in which an area 

is ranked compared to the previous 

year’s ranking, the applicable 

percentage for the area in the year must 

be the average of the applicable 

percentage for the previous year and the 

applicable percentage that would 

otherwise apply for the area for the year 

in the absence of this transitional 

provision. 

(7) Increases to the applicable 

percentage for quality. Beginning with 

2012, the blended benchmark under 

paragraphs (a) and (b) of this section 

will reflect the level of quality rating at 

the plan or contract level, as determined 

by the Secretary. The quality rating for 

a plan is determined by the Secretary 

according to a 5-star rating system 

(based on the data collected under 

section 1852(e) of the Act). Specifically, 

the applicable percentage under 

paragraph (d)(5) of this section must be 

increased according to criteria in 

paragraphs (d)(7)(i) through (v) of this 

section if the plan or contract is 

determined to be a qualifying plan or a 

qualifying plan in a qualifying county 

for the year. 

(i) Qualifying plan. Beginning with 

2012, a qualifying plan means a plan 

that had a quality rating of 4 stars or 

higher based on the most recent data 

available for such year. For a qualifying 

plan, the applicable percentage at 

paragraph (d)(5) of this section must be 

increased as follows: 

(A) For 2012, by 1.5 percentage 

points. 

(B) For 2013, by 3.0 percentage points. 

(C) For 2014 and subsequent years, by 

5.0 percentage points. 

(ii) Qualifying county. (A) A 

qualifying county means a county that 

meets the following three criteria: 

(1) Has an MA capitation rate that, in 

2004, was based on the amount 

specified in section 1853(c)(1)(B) of the 

Act for a Metropolitan Statistical Area 

with a population of more than 250,000. 

(2) Of the MA-eligible individuals 

residing in the county, at least 25 

percent of such individuals were 

enrolled in MA plans as of December 

2009. 

(3) Has per capita fee-for-service 

spending that is lower than the national 

monthly per capita cost for expenditures 

for individuals enrolled under the 

Original Medicare fee-for-service 

program for the year. 

(B) Beginning with 2012, for a 

qualifying plan serving a qualifying 

county, the increase to the applicable 

percentage described at paragraph 

(d)(7)(i) of this section must be doubled 

for the qualifying county. 

(iii) MA organizations that fail to 

report data as required by the Secretary 

must be counted as having a rating of 

fewer than 3.5 stars at the plan or 

contract level, as determined by the 

Secretary. 

(iv) Application of applicable 

percentage increases to low enrollment 

contracts. (A) For 2012, for an MA plan 

that the Secretary determines is unable 

to have a quality rating because of low 

enrollment, the Secretary treats this 

plan as a qualifying plan under 

paragraph (d)(7)(i) of this section. 

(B) For 2013 and subsequent years, 

the Secretary develops a methodology to 

apply to MA plans with low enrollment 


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(as defined by the Secretary) to 

determine whether a low enrollment 

contract is a qualifying plan. 

(v) Application of increases in 

applicable percentage to new MA plans. 

A new MA plan (as defined at 

§ 422.252) that meets criteria specified 

by the Secretary must be treated as a 

qualifying plan under paragraph (d)(7)(i) 

of this section, except that the 

applicable percentage must be increased 

as follows: 

(A) For 2012, by 1.5 percentage 

points. 

(B) For 2013, by 2.5 percentage points. 

(C) For 2014 and subsequent years, by 

3.5 percentage points. 

(8) Determination of phase-in period 

for the blended benchmark amount. For 

2012 through 2016, the blended 

benchmark amount for an area for a year 

depends on the phase-in period 

assigned to that area. The Secretary 

assigns one of three phase-in periods to 

each area: 2-year, 4 year, or 6 year. The 

phase-in period assigned to an area is 

based on the size of the difference 

between the 2010 applicable amount at 

paragraph (d)(2) of this section and the 

projected 2010 benchmark amount 

defined at paragraph (d)(8)(i) of this 

section. 

(i) The projected 2010 benchmark 

amount is calculated once for the 

purpose of determining the phase-in 

period for an area. It is equal to one-half 

of the 2010 applicable amount at 

paragraph (d)(2) of this section and onehalf of the specified amount at 

paragraph (d)(3) modified to apply to 

2010 (as described in (d)(8)(ii) of this 

section). 

(ii) To assign a phase-in period to an 

area, the specified amount is modified 

as if it applies to 2010, and is the 

product of— 

(A) The 2010 base payment amount 

adjusted as required under § 422.306(c) 

of this part; and 

(B) The applicable percentage 

determined as if the reference to the 

‘‘previous year’’ at paragraph (d)(5) of 

this section were deemed a reference to 

2010 and increased as follows: 

(1) The increase at paragraph (d)(7)(i) 

of this section for a qualifying plan in 

the area is applied as if the reference to 

a qualifying plan for 2012 were deemed 

a reference for 2010; and 

(2) The increase at paragraph (d)(7)(ii) 

of this section is applied as if the 

determination of a qualifying county 

were made for 2010. 

(iii) Two-year phase-in. An area is 

assigned the 2-year phase-in period if 

the difference between the applicable 

amount at paragraph (d)(2) of this 

section and the projected 2010 

benchmark amount at paragraph (d)(8)(i) 

of this section is less than $30. 

(iv) Four-year phase-in. An area is 

assigned the 4-year phase-in period if 

the difference between the applicable 

amount at paragraph (d)(2) of this 

section and the projected 2010 

benchmark amount at paragraph (d)(8)(i) 

of this section is at least $30 but less 

than $50. 

(v) Six-year phase-in. An area is 

assigned the 6-year phase-in period if 

the difference between the applicable 

amount at paragraph (d)(2) of this 

section and the projected 2010 

benchmark amount at paragraph (d)(8)(i) 

of this section is at least $50. 

(9) Impact of phase-in period on 

calculation of the blended benchmark 

amount. (i) Weighting for the 2-year 

phase-in. (A) For 2012, the blended 

benchmark is the sum of one-half of the 

applicable amount at paragraph (d)(2) of 

this section and one-half of the specified 

amount at paragraph (d)(3) of this 

section. 

(B) For 2013 and subsequent years, 

the blended benchmark equals the 

specified amount. 

(ii) Weighting for the 4-year phase-in. 

The blended benchmark is the sum of 

the applicable amount at paragraph 

(d)(2) of this section and the specified 

amount at paragraph (d)(2) of this 

section in the following proportions: 

(A) For 2012, three-fourths of the 

applicable amount for the area for the 

year and one-fourth of the specified 

amount for the area and year. 

(B) For 2013, one-half of the 

applicable amount for the area for the 

year and one-half of the specified 

amount for the area and year. 

(C) For 2014, one-fourth of the 

applicable amount for the area for the 

year and three-fourths of the specified 

amount for the area and year. 

(D) For 2015 and subsequent years, 

the blended benchmark equals the 

specified amount for the area and year. 

(iii) Weighting for the 6-year phase-in. 

The blended benchmark is the sum of 

the applicable amount at paragraph 

(d)(2) and the specified amount at 

paragraph (d)(3) of this section in the 

following proportions: 

(A) For 2012, five-sixths of the 

applicable amount for the area and year 

and one-sixth of the specified amount 

for the area and year. 

(B) For 2013, two-thirds of the 

applicable amount for the area and year 

and one-third of the specified amount 

for the area and year. 

(C) For 2014, one-half of the 

applicable amount for the area and year 

and one-half of the specified amount for 

the area and for year. 

(D) For 2015, one-third of the 

applicable amount for the area and year 

and two-thirds of the specified amount 

for the area and for year. 

(E) For 2016, one-sixth of the 

applicable amount for the area and year 

and five-sixths of the specified amount 

for the area and for year. 

(F) For 2017 and subsequent years, 

the blended benchmark equals the 

specified amount for the area and year. 

■ 26. Section 422.260 is added to read 

as follows: 

§ 422.260 Appeals of quality bonus 

payment determinations. 

(a) Scope. The provisions of this 

section pertain to the administrative 

review process to appeal quality bonus 

payment status determinations based on 

section 1853(o) of the Act. 

(b) Definitions. The following 

definitions apply to this section: 

Quality bonus payment (QBP) 

means— 

(i) Enhanced CMS payments to MA 

organizations based on the 

organization’s demonstrated quality of 

its Medicare contract operations; or 

(ii) Increased beneficiary rebate 

retention allowances based on the 

organization’s demonstrated quality of 

its Medicare contract operations. 

Quality bonus payment (QBP) 

determination methodology means the 

formula CMS adopts for evaluating 

whether MA organizations qualify for a 

QBP. 

Quality bonus payment (QBP) status 

means a MA organization’s standing 

with respect to its qualification to— 

(i) Receive a quality bonus payment, 

as determined by CMS; or 

(ii) Retain a portion of its beneficiary 

rebates based on its quality rating, as 

determined by CMS. 

(c) Administrative review process for 

QBP status appeals. (1) Reconsideration 

request. An MA organization may 

request reconsideration of its QBP 

status. 

(i) The MA organization requesting 

reconsideration of its QBP status must 

do so by providing written notice to 

CMS within 10 business days of the 

release of its QBP status. The request 

must specify the given measure(s) in 

question and the basis for 

reconsideration such as a calculation 

error or incorrect data was used to 

determine the QBP status. The error 

could impact an individual measure’s 

value or the overall star rating. 

(ii) The reconsideration official’s 

decision is final and binding unless a 

request for an informal hearing is filed 

in accordance with paragraph (2) of this 

section. 


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(2) Informal hearing request. An MA 

organization may request an informal 

hearing on the record following the 

reconsideration official’s decision 

regarding its QBP status. 

(i) The MA organization seeking an 

appeal of the reconsideration official’s 

decision regarding its QBP status must 

do so by providing written notice to 

CMS within 10 business days of the 

issuance of the reconsideration 

decision. The notice must specify the 

errors the MA organization asserts that 

CMS made in making the QBP 

determination and how correction of 

those errors could result in the 

organization’s qualification for a QBP or 

a higher QBP. 

(ii) The MA organization may not 

request an informal hearing of its QBP 

status unless it has already requested 

and received a reconsideration decision 

in accordance with paragraph (c)(1) of 

this section. 

(iii) The informal hearing request 

must pertain only to the measure(s) and 

value(s) in question that precipitated the 

request for reconsideration. 

(iv) The informal hearing is 

conducted by a CMS hearing officer on 

the record. The hearing officer receives 

no testimony, but may accept written 

statements with exhibits from each 

party in support of their position in the 

matter. 

(v) The MA organization must provide 

clear and convincing evidence that 

CMS’ calculations of the measure(s) and 

value(s) in question were incorrect. 

(vi) The hearing officer issues the 

decision by electronic mail to the MA 

organization. 

(vii) The hearing officer’s decision is 

final and binding. 

(3) Limits to requesting an 

administrative review. (i) CMS may 

limit the measures or bases for which a 

contract may request an administrative 

review of its QBP status. 

(ii) An administrative review cannot 

be requested for the following: the 

methodology for calculating the star 

ratings (including the calculation of the 

overall star ratings); cut-off points for 

determining measure thresholds; the set 

of measures included in the star rating 

system; and the methodology for 

determining QBP determinations for 

low enrollment contracts and new MA 

plans. 

(4) Designation of a hearing officer. 

CMS designates a hearing officer to 

conduct the appeal of the QBP status. 

The officer must be an individual who 

did not directly participate in the initial 

QBP determination. 

(d) Reopening of QBP determinations. 

CMS may, on its own initiative, revise 

an MA organization’s QBP status at any 

time after the initial release of the QBP 

determinations through April 1 of each 

year. CMS may take this action on the 

basis of any credible information, 

including the information provided 

during the administrative review 

process that demonstrates that the 

initial QBP determination was incorrect. 

■ 27. Amend § 422.266 by revising 

paragraph (a) to read as follows: 

§ 422.266 Beneficiary rebates. 

(a) Calculation of rebate. (1) For 2006 

through 2011, an MA organization must 

provide to the enrollee a monthly rebate 

equal to 75 percent of the average per 

capita savings (if any) described in 

§ 422.264(b) for MA local plans and 

§ 422.264(d) for MA regional plans. 

(2) For 2012 and subsequent years, an 

MA organization must provide to the 

enrollee a monthly rebate equal to a 

specified percentage of the average per 

capita savings (if any) at § 422.264(b) for 

MA local plans and § 422.264(d) for MA 

regional plans. For 2012 and 2013, this 

percentage is based on a combination of 

the (a)(1) rule of 75 percent and the 

(a)(2)(ii) rules that set the percentage 

based on the plan’s quality rating under 

a 5 star rating system, as determined by 

the Secretary under § 422.258(d)(7). For 

2014 and subsequent years, this 

percentage is determined based only on 

the paragraph (a)(2)(ii) of this section. 

(i) Applicable rebate percentage for 

2012 and 2013. Subject to paragraphs 

(a)(2)(iii) and (iv) of this section, the 

transitional applicable rebate percentage 

is, for a year, the sum of two amounts 

as follows: 

(A) For 2012. Two-thirds of the old 

proportion of 75 percent of the average 

per capita savings; and one-third of the 

new proportion assigned the plan under 

paragraph (a)(2)(ii) of this section, based 

on the quality rating specified in 

§ 422.258(d)(7). 

(B) For 2013. One-third of the old 

proportion of 75 percent of the average 

per capita savings; and two-thirds of the 

new proportion assigned the plan under 

paragraph (d)(2)(ii) of this section, based 

on the quality rating at § 422.258(d)(7). 

(ii) Final applicable rebate 

percentage. For 2014 and subsequent 

years, and subject to paragraphs 

(a)(2)(iii) and (iv) of this section, the 

final applicable rebate percentage is as 

follows: 

(A) In the case of a plan with a quality 

rating under such system of at least 4.5 

stars, 70 percent of the average per 

capita savings; 

(B) In the case of a plan with a quality 

rating under such system of at least 3.5 

stars and less than 4.5 stars, 65 percent 

of the average per capita savings. 

(C) In the case of a plan with a quality 

rating under such system of less than 

3.5 stars, 50 percent of the average per 

capita savings. 

(iii) Treatment of low enrollment 

contracts. For 2012, in the case of a plan 

described at § 422.258(d)(7)(iv), the plan 

must be treated as having a rating of 4.5 

stars for the purpose of determining the 

beneficiary rebate amount. 

(iv) Treatment of new MA plans. For 

2012 or a subsequent year, a new MA 

plan defined at § 422.252 that meets the 

criteria specified by the Secretary for 

purposes of § 422.258(d)(7)(v) must be 

treated as a qualifying plan under 

§ 422.258(d)(7)(i), except that plan must 

be treated as having a rating of 3.5 stars 

for purposes of determining the 

beneficiary rebate amount. 

* * * * * 

Subpart G—Payments to Medicare 

Advantage Organizations 

■ 28. Amend § 422.308 by adding 

paragraphs (c)(4) through (6) to read as 

follows: 

* * * * * 

(c) * * * 

(4) Authority to apply frailty 

adjustment under PACE payment rules 

for certain specialized MA plans for 

special needs individuals. (i) 

Application of payment rules. For plan 

year 2011 and subsequent plan years, in 

the case of a plan described in 

paragraph (c)(4)(ii) of this section, the 

Secretary may apply the payment rules 

under section 1894(d) of the Act (other 

than paragraph (3) of that section) rather 

than the payment rules that would 

otherwise apply under this part, but 

only to the extent necessary to reflect 

the costs of treating high concentrations 

of frail individuals. 

(ii) Plan described. A plan described 

in this paragraph is a fully integrated 

dual-eligible special needs plan, as 

defined at § 422.2, and has a similar 

average level of frailty (as determined by 

the Secretary) as the PACE program. 

(5) Application of coding adjustment. 

(i) In applying the adjustment under 

paragraph (c)(1) of this section for 

health status to payment amounts, the 

Secretary ensures that such adjustment 

reflects changes in treatment and coding 

practices in the fee-for-service sector 

and reflects differences in coding 

patterns between MA plans and 

providers under Part A and B to the 

extent that the Secretary has identified 

such differences. 

(ii) In order to ensure payment 

accuracy, the Secretary annually 

conducts an analysis of the differences 

described in paragraph (c)(5)(i) of this 

section. 


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(A) The Secretary completes such 

analysis by a date necessary to ensure 

that the results of such analysis are 

incorporated on a timely basis into the 

risk scores for 2008 and subsequent 

years. 

(B) In conducting such analysis, the 

Secretary uses data submitted with 

respect to 2004 and subsequent years, as 

available and updated as appropriate. 

(iii) In calculating each year’s 

adjustment, the adjustment factor is as 

follows: 

(A) For 2014, not less than the 

adjustment factor applied for 2010, plus 

1.3 percentage points. 

(B) For each of the years 2015 through 

2018, not less than the adjustment factor 

applied for the previous year, plus 0.25 

percentage points. 

(C) For 2019 and each subsequent 

year, not less than 5.7 percent. 

(iv) Such adjustment is applied to risk 

scores until the Secretary implements 

risk adjustment using MA diagnostic, 

cost, and use data. 

(6) Improvements to risk adjustment 

for special needs individuals with 

chronic health conditions—(i) General 

rule. For 2011 and subsequent years, for 

purposes of the adjustment under 

paragraph (c)(1) of this section with 

respect to individuals described in 

paragraph (c)(6)(ii) of the section, the 

Secretary uses a risk score that reflects 

the known underlying risk profile and 

chronic health status of similar 

individuals. Such risk score is used 

instead of the default risk score for new 

enrollees in MA plans that are not 

specialized MA plans for special needs 

individuals (as defined in section 

1859(b)(6) of the Act). 

(ii) Individuals described. An 

individual described in this clause is a 

special needs individual described in 

section 1859(b)(6)(B)(iii) of the Act who 

enrolls in a specialized MA plan for 

special needs individuals on or after 

January 1, 2011. 

(iii) Evaluation. For 2011 and 

periodically thereafter, the Secretary 

evaluates and revises the risk 

adjustment system under this paragraph 

in order to, as accurately as possible, 

account for— 

(A) Higher medical and care 

coordination costs associated with 

frailty, individuals with multiple, 

comorbid chronic conditions, and 

individuals with a diagnosis of mental 

illness; and 

(B) Costs that may be associated with 

higher concentrations of beneficiaries 

with the conditions specified in 

paragraph (c)(6)(iii)(A) of this section. 

(iv) Publication of evaluation and 

revisions. The Secretary publishes, as 

part of an announcement under section 

1853(b) of the Act, a description of any 

evaluation conducted under paragraph 

(c)(6)(iii) of this section during the 

preceding year and any revisions made 

under paragraph (c)(6)(iii) of this section 

as a result of such evaluation. 

* * * * * 

Subpart J—Special Rules for MA 

Regional Plans 

§ 422.458 [Amended] 

■ 29. In § 422.458, paragraph (f) is 

removed. 

Subpart K—Application Procedures 

and Contracts for Medicare Advantage 

Organizations 

■ 30. Amend § 422.502 as follows: 

■ A. Redesignating paragraph (b) as 

paragraph (b)(1). 

■ B. Adding paragraph (b)(2). 

■ C. Revising paragraph (c)(2)(i). 

The revisions read as follows: 

§ 422.502 Evaluation and determination 

procedures. 

* * * * * 

(b) * * * 

(2) In the absence of 14 months of 

performance history, CMS may deny an 

application based on a lack of 

information available to determine an 

applicant’s capacity to comply with the 

requirements of the MA program. 

(c) * * * 

(2) * * * 

(i) If CMS finds that the applicant 

does not appear to be able to meet the 

requirements for an MA organization, 

CMS gives the applicant notice of intent 

to deny the application and a summary 

of the basis for this preliminary finding. 

* * * * * 

■ 32. Amend § 422.504 as follows: 

■ A. Redesignating paragraph (a)(14) as 

paragraph (a)(16). 

■ B. Adding new paragraphs (a)(14) and 

(a)(15). 

■ C. Revising newly redesignated 

paragraph (a)(16). 

■ D. Adding paragraph (n). 

The additions and revision read as 

follows. 

§ 422.504 Contract provisions. 

* * * * * 

(a) * * * 

(14) Maintain a fiscally sound 

operation by at least maintaining a 

positive net worth (total assets exceed 

total liabilities). 

(15) Address complaints received by 

CMS against the MAO by— 

(i) Addressing and resolving 

complaints in the CMS complaint 

tracking system. 

(ii) Displaying a link to the electronic 

complaint form on the Medicare.gov 

Internet Web site on the MA plan’s main 

Web page. 

(16) An MA organization’s 

compliance with paragraphs (a)(1) 

through (15) and (c) of this section is 

material to performance of the contract. 

* * * * * 

(n) Release of summary CMS payment 

data. The contract must provide that the 

MA organization acknowledges that 

CMS releases to the public summary 

reconciled CMS payment data after the 

reconciliation of Part C and Part D 

payments for the contract year as 

follows: 

(1) For Part C, the following data— 

(i) Average per member per month 

CMS payment amount for A/B (original 

Medicare) benefits for each MA plan 

offered, standardized to the 1.0 (average 

risk score) beneficiary. 

(ii) Average per member per month 

CMS rebate payment amount for each 

MA plan offered (or, in the case of MSA 

plans, the monthly MSA deposit 

amount). 

(iii) Average Part C risk score for each 

MA plan offered. 

(iv) County level average per member 

per month CMS payment amount for 

each plan type in that county, weighted 

by enrollment and standardized to the 

1.0 (average risk score) beneficiary in 

that county. 

(2) For Part D plan sponsors, plan 

payment data in accordance with 

§ 423.505(o) of this subchapter. 

■ 33. Amend § 422.506 by adding 

paragraph (a)(5) to read as follows: 

§ 422.506 Nonrenewal of contract. 

(a) * * * 

(5) During the same 2-year period as 

specified in paragraph (a)(4) of this 

section, CMS will not contract with an 

organization whose covered persons 

also served as covered persons for the 

non-renewing sponsor. A ‘‘covered 

person’’ as used in this paragraph means 

one of the following: 

(i) All owners of nonrenewed or 

terminated organizations who are 

natural persons, other than shareholders 

who have an ownership interest of less 

than 5 percent. 

(ii) An owner in whole or part interest 

in any mortgage, deed of trust, note or 

other obligation secured (in whole or in 

part) by the organization, or any of the 

property or assets thereof, which whole 

or part interest is equal to or exceeds 5 

percent of the total property, and assets 

of the organization. 

(iii) A member of the board of 

directors or board of trustees of the 

entity, if the organization is organized as 

a corporation. 

* * * * * 


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■ 34. Amend § 422.508 by adding 

paragraph (d) to read as follows: 

§ 422.508 Modification or termination of 

contract by mutual consent. 

* * * * * 

(d) Prohibition against Part C program 

participation by organizations whose 

owners, directors, or management 

employees served in a similar capacity 

with another organization that mutually 

terminated its Medicare contract within 

the previous 2 years. During the same 2- 

year period, CMS will not contract with 

an organization whose covered persons 

also served as covered persons for the 

mutually terminating sponsor. A 

‘‘covered person’’ as used in this 

paragraph means one of the following: 

(1) All owners of nonrenewal or 

terminated organizations who are 

natural persons, other than shareholders 

who have an ownership interest of less 

than 5 percent. 

(2) An owner in whole or part interest 

in any mortgage, deed of trust, note or 

other obligation secured (in whole or in 

part) by the organization, or any of the 

property or assets thereof, which whole 

or part interest is equal to or exceeds 5 

percent of the total property, and assets 

of the organization. 

(3) A member of the board of directors 

of the entity, if the organization is 

organized as a corporation. 

■ 35. Amend § 422.512 as follows: 

A. Redesignating paragraph (e) as 

(e)(1). 

B. Adding a new paragraph (e)(2). 

§ 422.512 Termination of contract by the 

MA organization. 

* * * * * 

(e) * * * 

(2) During the same 2-year period 

specified in paragraph (e)(1) of this 

section, CMS will not contract with an 

organization whose covered persons 

also served as covered persons for the 

terminating sponsor. A ‘‘covered person’’ 

as used in this paragraph means one of 

the following: 

(i) All owners of nonrenewal or 

terminated organizations who are 

natural persons, other than shareholders 

who have an ownership interest of less 

than 5 percent. 

(ii) An owner in whole or part interest 

in any mortgage, deed of trust, note or 

other obligation secured (in whole or in 

part) by the organization, or any of the 

property or assets thereof, which whole 

or part interest is equal to or exceeds 5 

percent of the total property and assets 

of the organization. 

(iii) A member of the board of 

directors of the entity, if the 

organization is organized as a 

corporation. 

Subpart M—Grievances, Organization 

Determinations, and Appeals 

■ 36. Amend § 422.562 by adding 

paragraph (a)(4) to read as follows: 

§ 422.562 General provisions. 

* * * * * 

(a) * * * 

(4) An MA organization must employ 

a medical director who is responsible 

for ensuring the clinical accuracy of all 

organization determinations and 

reconsiderations involving medical 

necessity. The medical director must be 

a physician with a current and 

unrestricted license to practice 

medicine in a State, Territory, 

Commonwealth of the United States 

(that is, Puerto Rico), or the District of 

Columbia. 

* * * * * 

■ 37. Amend § 422.566 by adding 

paragraph (d) to read as follows: 

§ 422.566 Organization determinations. 

* * * * * 

(d) Who must review organization 

determinations. If the MA organization 

expects to issue a partially or fully 

adverse medical necessity (or any 

substantively equivalent term used to 

describe the concept of medical 

necessity) decision based on the initial 

review of the request, the organization 

determination must be reviewed by a 

physician or other appropriate health 

care professional with sufficient 

medical and other expertise, including 

knowledge of Medicare coverage 

criteria, before the MA organization 

issues the organization determination 

decision. The physician or other health 

care professional must have a current 

and unrestricted license to practice 

within the scope of his or her profession 

in a State, Territory, Commonwealth of 

the United States (that is, Puerto Rico), 

or the District of Columbia. 

■ 38. Amend § 422.622 by revising 

paragraph (g)(1) to read as follows: 

§ 422.622 Requesting immediate QIO 

review of the decision to discharge from the 

inpatient hospital. 

* * * * * 

(g) * * * 

(1) Right to request a reconsideration. 

If the enrollee is still an inpatient in the 

hospital and is dissatisfied with the 

determination, he or she may request a 

reconsideration according to the 

procedures described in § 422.626(g). 

* * * * * 

■ 39. Amend § 422.626 by revising 

paragraph (g)(3) to read as follows: 

§ 422.626 Fast-track appeals of service 

terminations to independent review entities 

(IREs). 

(g) * * * 

(3) If the IRE reaffirms its decision, in 

whole or in part, the enrollee may 

appeal the IRE’s reconsidered 

determination to an ALJ, the MAC, or a 

Federal court, as provided for under this 

subpart. 

* * * * * 

Subpart V—Medicare Advantage 

Marketing Requirements 

■ 40. Amend § 422.2264 by revising 

paragraph (e) to read as follows: 

§ 422.2264 Guidelines for CMS review. 

* * * * * 

(e) For markets with a significant nonEnglish speaking population, provide 

materials in the language of these 

individuals. Specifically, MA 

organizations must translate marketing 

materials into any non-English language 

that is the primary language of at least 

5 percent of the individuals in a plan 

benefit package (PBP) service area. 

■ 41. Amend § 422.2272 by adding 

paragraph (e) to read as follows: 

§ 422.2272 Licensing of marketing 

representatives and confirmation of 

marketing resources. 

* * * * * 

(e) Terminate upon discovery any 

unlicensed agent or broker employed as 

a marketing representative and notify 

any beneficiaries enrolled by an 

unqualified agent or broker of the 

agent’s or broker’s status and, if 

requested, of their options to confirm 

enrollment or make a plan change 

(including a special election period, as 

described in § 422.62(b)(3)(ii)). 

■ 42. Amend § 422.2274 by revising the 

introductory text and paragraphs (b) and 

(c) to read as follows: 

§ 422.2274 Broker and agent requirements. 

For purposes of this section 

‘‘compensation’’ includes pecuniary or 

nonpecuniary remuneration of any kind 

relating to the sale or renewal of a 

policy including, but not limited to, 

commissions, bonuses, gifts, prizes, 

awards, and finder’s fees. 

‘‘Compensation’’ does not include the 

payment of fees to comply with State 

appointment laws, training, 

certification, and testing costs; 

reimbursement for mileage to, and from, 

appointments with beneficiaries; or 

reimbursement for actual costs 

associated with beneficiary sales 

appointments such as venue rent, 

snacks, and materials. If a MA 

organization markets through 


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independent (that is, non-employee) 

brokers or agents, the requirements in 

paragraph (a) of this section must be 

met. The requirements in paragraphs (b) 

through (e) of this section must be met 

if a MA organization markets through 

any broker or agent, whether 

independent (that is, non-employee) or 

employed. 

* * * * * 

(b) It must ensure that all agents 

selling Medicare products are trained 

annually through a CMS endorsed or 

approved training program or as 

specified by CMS, on Medicare rules 

and regulations specific to the plan 

products they intend to sell. 

(c) It must ensure agents selling 

Medicare products are tested annually 

by CMS endorsed or approved training 

program or as specified by CMS. 

* * * * * 

PART 423—MEDICARE PROGRAM; 

MEDICARE PRESCRIPTION DRUG 

PROGRAM 

■ 43. The authority citation for part 423 

continues to read as follows: 

Authority: Secs. 1102, 1860D–1 through 

1860D–42, and 1871 of the Social Security 

Act (42 U.S.C. 1302, 1395w–101 through 

1395w–152, and 1395hh). 

Subpart A—General Provisions 

■ 44. Amend § 423.4 by adding the 

definitions of ‘‘fiscally sound operation’’ 

and ‘‘pharmacist’’ to read as follows: 

§ 423.4 Definitions. 

* * * * * 

Fiscally sound operation means an 

operation which at least maintains a 

positive net worth (total assets exceed 

total liabilities). 

* * * * * 

Pharmacist means any individual 

who holds a current valid license to 

practice pharmacy in a State or territory 

of the United States or the District of 

Columbia. 

* * * * * 

Subpart B—Eligibility and Enrollment 

■ 45. Amend § 423.34 as follows: 

■ A. Revising paragraphs (c) and (d)(1). 

■ B. Adding paragraph (d)(4). 

The revisions and addition read as 

follows: 

§ 423.34 Enrollment of low-income 

subsidy eligible individuals. 

* * * * * 

(c) Reassigning low income subsidy 

eligible individuals—(1) General rule. 

Notwithstanding § 423.32(e) of this 

subpart, during the annual coordinated 

election period, CMS may reassign 

certain low income subsidy eligible 

individuals in another PDP if CMS 

determines that the further enrollment 

is warranted, except as specified in 

paragraph (c)(2) of this section. 

(2) Part D prescription drug plans that 

waive a de minimis premium amount. If 

a Part D plan offering basic prescription 

drug coverage in the area where the 

beneficiary resides has a monthly 

beneficiary premium amount that 

exceeds the low-income subsidy amount 

by a de minimis amount, and the Part 

D plan volunteers to waive that de 

minimis amount in accordance with 

§ 423.780, then CMS does not reassign 

low income subsidy individuals who 

would otherwise be enrolled under 

paragraph (d)(1) of this section on the 

basis that the monthly beneficiary 

premium exceeds the low-income 

subsidy by a de minimis amount. A Part 

D plan that volunteers to waive such a 

de minimis amount agrees to do so for 

each month during the contract year for 

which a beneficiary qualifies for 100 

percent low-income premium subsidy 

as provided in § 423.780(f). 

(d) Automatic enrollment rules—(1) 

General rule. Except for low income 

subsidy eligible individuals who are 

qualifying covered retirees with a group 

health plan sponsor, as specified in 

paragraph (d)(3) of this section, CMS 

enrolls those individuals who fail to 

enroll in a Part D plan into a PDP 

offering basic prescription drug 

coverage in the area where the 

beneficiary resides that has a monthly 

beneficiary premium amount that does 

not exceed the low income subsidy 

amount (as defined in § 423.780(b) of 

this part). In the event that there is more 

than one PDP in an area with a monthly 

beneficiary premium at or below the 

low income premium subsidy amount, 

individuals are enrolled in such PDPs 

on a random basis. 

* * * * * 

(4) Enrollment in PDP plans that 

voluntarily waive a de minimis 

premium amount. CMS may include in 

the process specified in paragraph (d)(1) 

of this section that PDPs that voluntarily 

waive a de minimis amount as specified 

in § 423.780, if CMS determines that 

such inclusion is warranted. 

* * * * * 

■ 46. Amend § 423.38 as by revising 

paragraph (b) and adding paragraph (d) 

to read as follows: 

§ 423.38 Enrollment periods. 

* * * * * 

(b) Annual coordinated election 

period—(1) For 2006. This period begins 

on November 15, 2005 and ends on May 

15, 2006. 

(2) For 2007 through 2010. The 

annual coordinated election period for 

the following calendar year is November 

15 through December 31. 

(3) For 2011 and subsequent years. 

Beginning with 2011, the annual 

coordinated election period for the 

following calendar year is October 15 

through December 7. 

* * * * * 

(d) Enrollment period to coordinate 

with MA annual 45-day disenrollment 

period. Beginning in 2011, an 

individual enrolled in an MA plan who 

elects Original Medicare from January 1 

through February 14, as described in 

§ 422.62(a)(7), may also elect a PDP 

during this time. 

■ 47. Amend § 423.40 by adding 

paragraph (d) to read as follows: 

§ 423.40 Effective dates. 

* * * * * 

(d) PDP enrollment period to 

coordinate with the MA annual 

disenrollment period. Beginning in 

2011, an enrollment made from January 

1 through February 14 by an individual 

who has disenrolled from an MA plan 

as described in § 422.62(a)(7) will be 

effective the first day of the month 

following the month in which the 

enrollment in the PDP is made. 

■ 48. Amend § 423.44 by revising the 

section heading and adding paragraphs 

(d)(1)(vi), (d)(1)(vii), and (e) as follows: 

§ 423.44 Involuntary disenrollment from 

Part D coverage. 

* * * * * 

(d) * * * 

(1) * * * 

(vi) Extension of grace period for good 

cause and reinstatement. When an 

individual is disenrolled for failure to 

pay the plan premium, CMS may 

reinstate enrollment in the PDP, without 

interruption of coverage, if the 

individual shows good cause for failure 

to pay within the initial grace period, 

and pays all overdue premiums within 

3 calendar months after the 

disenrollment date. The individual must 

establish by a credible statement that 

failure to pay premiums within the 

initial grace period was due to 

circumstances for which the individual 

had no control, or which the individual 

could not reasonably have been 

expected to foresee. 

(vii) No extension of grace period. A 

beneficiary’s enrollment in the PDP may 

not be reinstated if the only basis for 

such reinstatement is a change in the 

individual’s circumstances subsequent 

to the involuntary disenrollment for 

non-payment of premiums. 

* * * * * 


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(e) Involuntary disenrollment by 

CMS—(1) General rule. CMS will 

disenroll individuals who fail to pay the 

Part D income related monthly 

adjustment amount (Part D—IRMAA) 

specified in § 423.286(d)(4) and 

§ 423.293(d) of this part. 

(2) Initial grace period. For all Part 

D—IRMAA amounts directly billed to 

an enrollee in accordance with 

§ 423.293(d)(2), the grace period ends 

with the last day of the third month 

after the billing month. 

(3) Extension of grace period for good 

cause and reinstatement. When an 

individual is disenrolled for failing to 

pay the Part D—IRMAA within the 

initial grace period specified in 

paragraph (e)(2) of this section, CMS (or 

an entity acting on behalf of CMS) may 

reinstate enrollment, without 

interruption of coverage, if the 

individual shows good cause as 

specified in § 423.44(d)(1)(vi), pays all 

Part D—IRMAA arrearages, and any 

overdue premiums due the Part D plan 

sponsor within 3 calendar months after 

the disenrollment date. 

(4) Notice of termination. Where CMS 

has disenrolled an individual in 

accordance with paragraph (e)(1) of this 

section, the Part D plan sponsor must 

provide notice of termination in a form 

and manner determined by CMS. 

(5) Effective date of disenrollment. 

After a grace period and notice of 

termination has been provided in 

accordance with paragraphs (e)(2) and 

(4) of this section, the effective date of 

disenrollment is the first day following 

the last day of the initial grace period. 

Subpart C—Benefits and Beneficiary 

Protections 

■ 49. Amend § 423.100 as follows: 

■ A. Adding the definitions of 

‘‘Applicable beneficiary,’’ ‘‘Applicable 

drug under the Medicare coverage gap 

discount program,’’ and ‘‘Coverage gap.’’ 

■ B. Revising paragraph (2) of the 

definition of ‘‘Dispensing fees’’ and 

paragraph (2)(ii) of the definition of 

‘‘Incurred costs.’’ 

The additions and revisions read as 

follows: 

§ 423.100 Definitions. 

* * * * * 

Applicable beneficiary means an 

individual who, on the date of 

dispensing a covered Part D drug— 

(1) Is enrolled in a prescription drug 

plan or an MA–PD plan; 

(2) Is not enrolled in a qualified 

retiree prescription drug plan; 

(3) Is not entitled to an income-related 

subsidy under section 1860D–14(a) of 

the Act; 

(4) Has reached or exceeded the initial 

coverage limit under section 1860D– 

2(b)(3) of the Act during the year; 

(5) Has not incurred costs for covered 

part D drugs in the year equal to the 

annual out-of-pocket threshold specified 

in section 1860D–2(b)(4)(B) of the Act; 

and 

(6) Has a claim that— 

(i) Is within the coverage gap; 

(ii) Straddles the initial coverage 

period and the coverage gap; 

(iii) Straddles the coverage gap and 

the annual out-of-pocket threshold; or 

(iv) Spans the coverage gap from the 

initial coverage period and exceeds the 

annual out-of-pocket threshold. 

Applicable drug means a Part D drug 

that is— 

(1)(i) Approved under a new drug 

application under section 505(b) of the 

Federal Food, Drug, and Cosmetic Act 

(FDCA); or 

(ii) In the case of a biological product, 

licensed under section 351 of the Public 

Health Service Act (other than a product 

licensed under subsection (k) of such 

section 351); and 

(2)(i) If the PDP sponsor of the 

prescription drug plan or the MA 

organization offering the MA–PD plan 

uses a formulary, which is on the 

formulary of the prescription drug plan 

or MA–PD plan that the applicable 

beneficiary is enrolled in; 

(ii) If the PDP sponsor of the 

prescription drug plan or the MA 

organization offering the MA–PD plan 

does not use a formulary, for which 

benefits are available under the 

prescription drug plan or MA–PD plan 

that the applicable beneficiary is 

enrolled in; or 

(iii) Is provided to a particular 

applicable beneficiary through an 

exception or appeal for that particular 

applicable beneficiary. 

* * * * * 

Coverage gap means the period in 

prescription drug coverage that occurs 

between the initial coverage limit and 

the out-of-pocket threshold. For 

purposes of applying the initial 

coverage limit, Part D sponsors must 

apply their plan specific initial coverage 

limit under basic alternative, enhanced 

alternative or actuarially equivalent Part 

D benefit designs. 

* * * * * 

Dispensing fees * * * 

(2) Include only pharmacy costs 

associated with ensuring that possession 

of the appropriate covered Part D drug 

is transferred to a Part D enrollee. 

Pharmacy costs include, but are not 

limited to, any reasonable costs 

associated with a pharmacist’s time in 

checking the computer for information 

about an individual’s coverage, 

performing quality assurance activities 

consistent with § 423.153(c)(2), 

measurement or mixing of the covered 

Part D drug, filling the container, 

physically providing the completed 

prescription to the Part D enrollee, 

delivery, special packaging, and salaries 

of pharmacists and other pharmacy 

workers as well as the costs associated 

with maintaining the pharmacy facility 

and acquiring and maintaining 

technology and equipment necessary to 

operate the pharmacy. Dispensing fees 

should take into consideration the 

number of dispensing events in a billing 

cycle, the incremental costs associated 

with the type of dispensing 

methodology, and with respect to Part D 

drugs dispensed in LTC facilities, the 

techniques to minimize the dispensing 

of unused drugs. Dispensing fees may 

also take into account costs associated 

with data collection on unused Part D 

drugs and restocking fees associated 

with return for credit and reuse in longterm care pharmacies, when return for 

credit and reuse is permitted under the 

State in law and is allowed under the 

contract between the Part D sponsor and 

the pharmacy. 

* * * * * 

Incurred costs * * * 

(2) * * * 

(ii) Under a State Pharmaceutical 

Assistance Program (as defined in 

§ 423.464); by the Indian Health Service, 

an Indian tribe or tribal organization, or 

an urban Indian organization (as defined 

in section 4 of the Indian Health Care 

Improvement Act) or under an AIDS 

Drug Assistance Program (as defined in 

part B of title XXVI of the Public Health 

Service); or 

* * * * * 

■ 50. Amend § 423.104 as follows: 

■ A. Revising paragraphs (d)(2)(i) 

introductory text, (d)(2)(ii), (d)(3) 

introductory text, and (d)(4). 

■ B. Redesignating paragraph 

(d)(5)(iii)(B) as (d)(5)(iii)(F). 

■ C. Adding new paragraphs (d) 

(5)(iii)(B) through (E). 

■ D. Revising newly redesignated 

paragraph (d)(5)(iii)(F). 

■ E. Adding paragraph (d)(5)(v). 

The revisions and additions read as 

follows: 

§ 423.104 Requirements related to 

qualified prescription drug coverage. 

* * * * * 

(d) * * * 

(2) * * * 

(i) Subject to paragraph (d)(4) of this 

section, coinsurance for actual costs for 

covered Part D drugs covered under the 

Part D plan above the annual deductible 


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specified in paragraph (d)(1) of this 

section, and up to the initial coverage 

limit under paragraph (d)(3) of this 

section, that is— 

* * * * * 

(ii) Tiered copayments. A Part D plan 

providing actuarially equivalent 

standard coverage may apply tiered 

copayments, provided that any tiered 

copayments are consistent with 

paragraphs (d)(2)(i)(B) and (d)(4) of this 

section and are approved as described 

in § 423.272(b)(2). 

(3) Initial coverage limit. Except as 

provided in paragraphs (d)(4) and (d)(5) 

of this section, the initial coverage limit 

is equal to— 

* * * * * 

(4) Cost-sharing in the coverage gap 

for applicable beneficiaries. (i) 

Coinsurance in the coverage gap (as 

defined in § 423.100) for costs for 

covered Part D drugs that are not 

applicable drugs (as defined in 

§ 423.100) under the Medicare coverage 

gap discount program that is— 

(A) Equal to the generic gap 

coinsurance percentage described in 

paragraph (d)(4)(iii) of this section; or 

(B) Actuarially equivalent to an 

average expected coinsurance for 

covered Part D drugs that are not 

applicable drugs under the Medicare 

coverage gap discount program, as 

determined through processes and 

methods established under § 423.265 (c) 

and (d). 

(ii) Coinsurance in the coverage gap 

for the actual cost minus the dispensing 

fee and any vaccine administration fee 

for covered Part D drugs that are 

applicable drugs under the Medicare 

coverage gap discount program that is— 

(A) Equal to the difference between 

the applicable gap coinsurance 

percentage described in paragraph 

(d)(4)(iv) of this section and the 

discount percentage determined under 

the Medicare coverage gap discount 

program; or 

(B) Actuarially equivalent to an 

average expected coinsurance for 

covered Part D drugs that are applicable 

drugs under the Medicare coverage gap 

discount program, as determined 

through processes and methods 

established under § 423.265 (c) and (d). 

(iii) Generic gap coinsurance 

percentage. The generic gap coinsurance 

percentage is equal to— 

(A) For 2011, 93 percent. 

(B) For years 2012 through 2019, the 

amount specified in this paragraph for 

the previous year, decreased by 7 

percentage points. 

(C) For 2020 and each subsequent 

year, 25 percent. 

(iv) Applicable gap coinsurance 

percentage. The applicable gap 

coinsurance percentage is equal to— 

(A) For 2013 and 2014, 97.5 percent. 

(B) For 2015 and 2016, 95 percent. 

(C) For 2017, 90 percent. 

(D) For 2018, 85 percent. 

(E) For 2019, 80 percent. 

(F) For 2020 and subsequent years, 75 

percent. 

(5) * * * 

(iii) * * * 

(B) For each year 2007 through 2013. 

The amount specified in this paragraph 

for the previous year, increased by the 

annual percentage increase specified in 

paragraph (d)(5)(iv) of this section, and 

rounded to the nearest multiple of $50. 

(C) For years 2014 and 2015. The 

amount specified in this paragraph for 

the previous year, increased by the 

annual percentage increase specified in 

paragraph (d)(5)(iv) of this section, 

minus 0.25 percentage point. 

(D) For each year 2016 through 2019. 

The amount specified in this paragraph 

for the previous year, increased by the 

lesser of— 

(1) The annual percentage increase 

specified in (d)(5)(v) of this section plus 

2 percentage points; or 

(2) The annual percentage increase 

specified in (d)(5)(iv) of this section. 

(E) For 2020. The amount specified in 

this paragraph for 2013 increased by the 

annual percentage increases specified in 

paragraph (d)(5)(iv) of this section for 

2014 through 2020, and rounded to the 

nearest $50. 

(F) For 2021 and subsequent years. 

The amount specified in this paragraph 

for the previous year, increased by the 

annual percentage increase specified in 

paragraph (d)(5)(iv) of this section, and 

rounded to the nearest $50. 

* * * * * 

(v) Additional annual percentage 

increase. The annual percentage 

increase for each year is equal to the 

annual percentage increase in the 

consumer price index for all urban 

consumers (United States city average) 

for the 12-month period ending in July 

of the previous year. 

* * * * * 

■ 51. Section 423.120 is amended as 

follows: 

■ A. Revising paragraphs (b)(3)(iii)(B) 

and (b)(3)(iv). 

■ B. Adding paragraph (d). 

The revisions and addition read as 

follows. 

§ 423.120 Access to covered Part D drugs. 

* * * * * 

(b) * * * 

(iii) * * * 

(B) In the long-term care setting, the 

temporary supply of non-formulary Part 

D drugs (including Part D drugs that are 

on a sponsor’s formulary but require 

prior authorization or step therapy 

under a sponsor’s utilization 

management rules) must be for up to at 

least 91 days and may be up to at least 

98 days, consistent with the dispensing 

increment, with refills provided, if 

needed, unless a lesser amount is 

actually prescribed by the prescriber. 

(iv) Ensure written notice is provided 

to each affected enrollee within 3 

business days after adjudication of the 

temporary fill. For long-term care 

residents dispensed multiple supplies of 

a Part D drug, in increments of 14-daysor-less, consistent with the requirements 

under § 423.154, the written notice must 

be provided within 3 business days after 

adjudication of the first temporary fill. 

* * * * * 

(d) Treatment of compounded drug 

products. With respect to multiingredient compounds, a Part D sponsor 

must— 

(1) Make a determination as to 

whether the compound is covered under 

Part D. 

(i) A compound that contains at least 

one ingredient covered under Part B as 

prescribed and dispensed or 

administered is considered a Part B 

compound, regardless of whether other 

ingredients in the compound are 

covered under Part B as prescribed and 

dispensed or administered. 

(ii) Only compounds that contain at 

least one ingredient that independently 

meets the definition of a Part D drug, 

and that do not meet the criteria under 

paragraph (d)(1)(i) of this section, may 

be covered under Part D. For purposes 

of this paragraph (d) these compounds 

are referred to as Part D compounds. 

(iii) For a Part D compound to be 

considered on-formulary, all ingredients 

that independently meet the definition 

of a Part D drug must be considered onformulary (even if the particular Part D 

drug would be considered off-formulary 

if it were provided separately—that is, 

not as part of the Part D compound). 

(iv) For a Part D compound that is 

considered off-formulary— 

(A) Transition rules apply such that 

all ingredients in the Part D compound 

that independently meet the definition 

of a Part D drug must become payable 

in the event of a transition fill under 

§ 423.120(b)(3); and 

(B) All ingredients that independently 

meet the definition of a Part D drug 

must be covered if an exception under 

§ 423.578(b) is approved for coverage of 

the compound. 

(2) Establish consistent rules for 

beneficiary payment liabilities for both 

ingredients of the Part D compound that 


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independently meet the definition of a 

Part D drug and non-Part D ingredients. 

(i) For low income subsidy 

beneficiaries the copayment amount is 

based on whether the most expensive 

ingredient that independently meets the 

definition of a Part D drug in the Part 

D compound is a generic or brand name 

drug (as described under § 423.782). 

(ii) For any non-Part D ingredient of 

the Part D compound (including drugs 

described under § 423.104(f)(1)(ii)(A)), 

the Part D sponsor’s contract with the 

pharmacy must prohibit balance billing 

the beneficiary for the cost of any such 

ingredients. 

■ 52. Amend § 423.128 as follows: 

■ A. Revising paragraph (b)(7). 

■ B. Adding paragraphs (d)(1)(iii) and 

(d)(1)(iv). 

The revision and additions read as 

follows: 

§ 423.128 Dissemination of Part D plan 

information. 

* * * * * 

(b) * * * 

(7) Grievance, coverage 

determination, and appeal procedures. 

All grievance, coverage determination, 

and appeal rights and procedures 

required under § 423.562 et. seq., 

including— 

(i) Access to a uniform model form 

used to request a coverage 

determination under § 423.568 or 

§ 423.570, and a uniform model form 

used to request a redetermination under 

§ 423.582 or § 423.584, to the extent 

such uniform model forms have been 

approved for use by CMS; 

(ii) Immediate access to the coverage 

determination and redetermination 

processes via an Internet Web site; and 

(iii) A system that transmits codes to 

network pharmacies so that the network 

pharmacy is notified to populate and/or 

provide a printed notice at the point-ofsale to an enrollee explaining how the 

enrollee can request a coverage 

determination by contacting the plan 

sponsor’s toll free customer service line 

or by accessing the plan sponsor’s 

internet Web site. 

* * * * * 

(d) * * * 

(1) * * * 

(iii) Provides interpreters for nonEnglish speaking and limited English 

proficient (LEP) individuals. 

(iv) Provides immediate access to the 

coverage determination and 

redetermination processes. 

* * * * * 

Subpart D—Cost Control and Quality 

Improvement Requirements 

■ 53. Amend § 423.150 as follows: 

■ A. Redesignating paragraphs (b) 

through (g) as paragraphs (c) through 

(h). 

■ B. Adding a new paragraph (b) to read 

as follows: 

§ 423.150 Scope. 

* * * * * 

(b) Appropriate dispensing of 

prescription drugs in long-term care 

facilities under PDPs and MA–PD plans. 

* * * * * 

■ 54. Amending § 423.153 as follows: 

■ A. Revising paragraph (d)(1)(vii)(B). 

■ B. Adding paragraph (d)(1)(vii)(D). 

The revision and addition read as 

follows: 

§ 423.153 Drug utilization management, 

quality assurance, and medication therapy 

management programs (MTMPs). 

* * * * * 

(d) * * * 

(1) * * * 

(vii) * * * 

(B) Annual comprehensive 

medication review with written 

summaries. The comprehensive 

medication review must include an 

interactive, person-to-person, or 

telehealth consultation performed by a 

pharmacist or other qualified provider 

unless the beneficiary is in a long-term 

care setting and may result in a 

recommended medication action plan. 

* * * * * 

(D) Standardized action plans and 

summaries that comply with 

requirements as specified by CMS for 

the standardized format. 

* * * * * 

■ 55. Section 423.154 is added to read 

as follows: 

§ 423.154 Appropriate dispensing of 

prescription drugs in long-term care 

facilities under PDPs and MA–PD plans. 

(a) In general. Except as provided in 

paragraph (b) of this section, when 

dispensing covered Part D drugs to 

enrollees who reside in long-term care 

facilities, a Part D sponsor must— 

(1) Require all pharmacies servicing 

long-term care facilities, as defined in 

§ 423.100 to— 

(i) Dispense solid oral doses of brandname drugs, as defined in § 423.4, to 

enrollees in such facilities in no greater 

than 14-day increments at a time; 

(ii) Permit the use of uniform 

dispensing techniques for Part D drugs 

dispensed to enrollees in long-term care 

facilities under paragraph (a)(1)(i) of this 

section as defined by each of the longterm care facilities in which such 

enrollees reside; and 

(2) Collect and report information, in 

a form and manner specified by CMS, 

on the dispensing methodology used for 

each dispensing event described by 

paragraph (a)(1) of this section, and on 

the nature and quantity of unused brand 

and generic drugs, as defined in § 423.4, 

dispensed by the pharmacy to enrollees 

residing in a LTC facility. Reporting on 

unused drugs is waived for Part D 

sponsors for drugs dispensed by 

pharmacies that dispense both brand 

and generic drugs, as defined in § 423.4, 

in no greater than 7-day increments. 

(b) Exclusions. CMS excludes from 

the requirements under paragraph (a) of 

this section— 

(1) Solid oral doses of antibiotics; or 

(2) Solid oral doses that are dispensed 

in their original container as indicated 

in the Food and Drug Administration 

Prescribing Information or are 

customarily dispensed in their original 

packaging to assist patients with 

compliance (for example, oral 

contraceptives). 

(c) Waivers. CMS waives the 

requirements under paragraph (a) of this 

section for pharmacies when they 

service intermediate care facilities for 

the mentally retarded (ICFs/MR) and 

institutes for mental disease (IMDs) as 

defined in § 435.1010 and for I/T/U 

pharmacies (as defined in § 423.100). 

(d) Applicability date. The 

applicability date for this section is 

January 1, 2013. Nothing precludes a 

Part D sponsor and pharmacy from 

mutually agreeing to an earlier 

implementation date. 

(e) Copayments. Regardless of the 

number of incremental dispensing 

events, the total cost sharing for a Part 

D drug to which the dispensing 

requirements under this paragraph (a) 

apply must be no greater than the total 

cost sharing that would be imposed for 

such Part D drug if the requirements 

under paragraph (a) of this section did 

not apply. 

(f) Unused drugs returned to the 

pharmacy. The terms and conditions 

that must be offered by a Part D sponsor 

under § 423.120(a)(5) must include 

provisions that address the disposal of 

drugs that have been dispensed to an 

enrollee in a long-term care facility but 

not used and which have been returned 

to the pharmacy, in accordance with 

Federal and State regulations, as well as 

whether return for credit and reuse is 

authorized where permitted under State 

law. 

Subpart F—Submission of Bids and 

Monthly Beneficiary Premiums; Plan 

Approval 

■ 56. Amend § 423.265 by adding 

paragraph (b)(3) to read as follows: 


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§ 423.265 Submission of bids and related 

information. 

* * * * * 

(b) * * * 

(3) CMS may decline to accept any or 

every bid submitted by a Part D sponsor 

or potential Part D sponsor. 

* * * * * 

■ 57. Amend § 423.272 by adding 

paragraph (b)(4) to read as follows: 

§ 423.272 Review and negotiation of bid 

and approval of plans submitted by 

potential Part D sponsors. 

* * * * * 

(b) * * * 

(4) CMS may decline to approve a bid 

if the Part D sponsor proposes 

significant increases in cost sharing or 

decreases in benefits offered under the 

plan. 

* * * * * 

■ 58. Amend § 423.286 as follows: 

■ A. Revising paragraph (a). 

■ B. Adding paragraph (d)(4). 

The revision and addition read as 

follows: 

§ 423.286 Rules regarding premiums. 

(a) General rule. Except as provided in 

paragraphs (d)(3), (d)(4), and (e) of this 

section, and with regard to employer 

group waivers, the monthly beneficiary 

premium for a Part D plan in a PDP 

region is the same for all Part D eligible 

individuals enrolled in the plan. The 

monthly beneficiary premium for a Part 

D plan is the base beneficiary premium, 

as determined in paragraph (c) of this 

section, adjusted as described in 

paragraph (d) of this section for the 

difference between the bid and the 

national average monthly bid amount, 

any supplemental benefits and for any 

late enrollment penalties. 

* * * * * 

(d) * * * 

(4) Increase for income-related 

monthly adjustment amount (Part D— 

IRMAA). Beginning January 1, 2011, 

Medicare beneficiaries enrolled in a 

Medicare Part D plan must pay an 

income-related monthly adjustment 

amount in addition to the Part D 

premium as determined under 

paragraph (c) of this section and 

adjusted under paragraph (d) of this 

section, if the enrollee’s modified 

adjusted gross income exceeds the 

threshold amounts specified in 20 CFR 

418.2115. 

(i) Social Security Administration 

determination. (A) SSA determines 

which Part D enrollees are subject to the 

Part D—IRMAA and the amount each 

enrollee will have to pay. 

(B) If an individual disagrees with 

SSA’s determination that such 

individual is subject to the Part D— 

IRMAA, or about the amount the 

individual must pay, an individual may 

file an appeal or request a new initial 

determination consistent with 20 CFR 

part 418. 

(ii) Calculating the income-related 

monthly adjustment amount. The 

income-related monthly adjustment is 

equal to the product of the quotient 

obtained by dividing the applicable 

premium percentage specified in 

§ 418.2120 (35, 50, 65, or 80 percent) 

that is based on the level of the Part D 

enrollee’s modified adjusted gross 

income for the calendar year reduced by 

25.5 percent; and the base beneficiary 

premium as determined under 

paragraph (c) of this section. 

* * * * * 

■ 59. Amend § 423.293 as follows: 

■ A. Redesignating paragraphs (d) and 

(e) as (e) and (f), respectively. 

■ B. Add new paragraph (d). 

§ 423.293 Collection of monthly 

beneficiary premium. 

* * * * * 

(d) Collection of the income-related 

monthly adjustment amount (Part D— 

IRMAA). (1) Collection through 

withholding. Where the Social Security 

Administration has determined the 

income-related monthly adjustment 

amount for an individual whose income 

exceeds the income threshold amounts 

specified at 20 CFR 418.2115, the Part 

D—IRMAA must be paid through 

withholding from the enrollee’s Social 

Security benefit payments, or benefit 

payments by the Railroad Retirement 

Board (RRB) or the Office of Personnel 

Management (OPM) in the manner that 

the Part B premium is withheld. 

(2) Collection through direct billing. In 

cases where an enrollee’s benefit 

payment check is not sufficient to have 

the Part D—IRMAA withheld, or if an 

enrollee is not receiving such benefits, 

the beneficiary must be billed directly 

for the Part D—IRMAA. The beneficiary 

will have the option of paying the 

amount through an electronic funds 

transfer mechanism (such as automatic 

charges of an account at a financial 

institution or a credit or debit card 

account) or according to other means 

that CMS may specify. 

(3) Failure to pay the income-related 

monthly adjustment amount: General 

rule. CMS will terminate Part D 

coverage for any individual who fails to 

pay the Part D—IRMAA as determined 

by the Social Security Administration. 

CMS will terminate an enrollee’s Part D 

coverage as specified in § 423.44(e). 

* * * * * 

Subpart J—Coordination Under Part D 

Plan With Other Prescription Drug 

Coverage 

■ 60. Amend § 423.464 by revising 

paragraph (f)(2) to read as follows: 

§ 423.464 Coordination of benefits with 

other providers of prescription drug 

coverage. 

* * * * * 

(f) * * * 

(2) Treatment under out-of-pocket 

rule. (i) For purposes of determining 

whether a Part D plan enrollee has 

satisfied the out-of-pocket threshold 

provided under § 423.104(d)(5)(iii), a 

Part D plan must— 

(A) Include the enrollee’s incurred 

costs (as defined in § 423.100); and 

(B) Exclude expenditures for covered 

Part D drugs made by insurance or 

otherwise, a group health plan, or other 

third party payment arrangements, 

including expenditures by plans 

offering other prescription drug 

coverage. 

(ii) A Part D enrollee must disclose all 

these expenditures to a Part D plan in 

accordance with requirements under 

§ 423.32(b)(ii). 

* * * * * 

Subpart K—Application Procedures 

and Contracts With PDP Sponsors 

■ 61. Amend § 423.503 as follows: 

■ A. Redesignating paragraph (b) as 

paragraph (b)(1). 

■ B. Adding paragraph (b)(2). 

■ C. Revising paragraph (c)(2)(i). 

The revisions and addition read as 

follows: 

§ 423.503 Evaluation and determination 

procedures for applications to be 

determined qualified to act as a sponsor. 

* * * * * 

(b) * * * 

(2) In the absence of 14 months of 

performance history, CMS may deny an 

application based on a lack of 

information available to determine an 

applicant’s capacity to comply with the 

requirements of the Part D program. 

* * * * * 

(c) * * * 

(2) * * * 

(i) If CMS finds that the applicant 

does not appear qualified to contract as 

a Part D sponsor, it gives the applicant 

notice of intent to deny the application 

and a summary of the basis for this 

preliminary finding. 

* * * * * 

■ 62. Amend § 423.505 as follows: 

■ A. Adding paragraphs (b)(22) and 

(b)(23). 

■ B. Adding paragraph (o). 


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The additions read as follows: 

§ 423.505 Contract provisions. 

* * * * * 

(b) * * * 

(22) Address complaints received by 

CMS against the Part D sponsor by— 

(i) Addressing and resolving 

complaints in the CMS complaint 

tracking system. 

(ii) Displaying a link to the electronic 

complaint form on the Medicare.gov 

Internet Web site on the Part D plan’s 

main Web page. 

(23) Maintain a fiscally sound 

operation by at least maintaining a 

positive net worth (total assets exceed 

total liabilities). 

* * * * * 

(o) Release of summary CMS payment 

data. The contract must provide that the 

Part D sponsor acknowledges that CMS 

releases to the public summary 

reconciled Part D payment data after the 

reconciliation of Part D payments for the 

contract year as follows: 

(1) The average per member per 

month Part D direct subsidy 

standardized to the 1.0 (average risk 

score) beneficiary for each Part D plan 

offered. 

(2) The average Part D risk score for 

each Part D plan offered. 

(3) The average per member per 

month Part D plan low-income cost 

sharing subsidy for each Part D plan 

offered. 

(4) The average per member per 

month Part D Federal reinsurance 

subsidy for each Part D plan offered. 

(5) The actual Part D reconciliation 

payment data summarized at the Parent 

Organization level including breakouts 

of risk sharing, reinsurance, and low 

income cost sharing reconciliation 

amounts. 

■ 63. Amend § 423.507 as follows: 

■ A. Redesignating paragraph (a)(4) as 

paragraph (a)(5). 

■ B. Adding a new paragraph (a)(4) to 

read as follows: 

§ 423.507 Nonrenewal of contract. 

(a) * * * 

(4) During the same 2-year period 

specified under paragraph (a)(3) of this 

section, CMS will not contract with an 

organization whose covered persons 

also served as covered persons for the 

non-renewing sponsor. A ‘‘covered 

person’’ as used in this paragraph means 

one of the following: 

(i) All owners of nonrenewed or 

terminated organizations who are 

natural persons, other than shareholders 

who have an ownership interest of less 

than 5 percent. 

(ii) An owner of a whole or part 

interest in a mortgage, deed of trust, 

note or other obligation secured (in 

whole or in part) by the organization, or 

by any of the property or assets thereof, 

which whole or part interest is equal to 

or exceeds 5 percent of the total 

property and assets of the organization. 

(iii) A member of the board of 

directors or board of trustees of the 

entity, if the organization is organized as 

a corporation. 

* * * * * 

■ 64. Amend § 423.508 by adding 

paragraph (f) to read as follows: 

§ 423.508 Modification or termination of 

contract by mutual consent. 

* * * * * 

(f) Prohibition against Part D program 

participation by organizations whose 

owners, directors, or management 

employees served in a similar capacity 

with another organization that mutually 

terminated its Medicare contract within 

the previous 2 years. During the 2-year 

period specified in paragraph (e) of this 

section, CMS will not contract with an 

organization whose covered persons 

also served as covered persons for the 

mutually terminating sponsor. A 

‘‘covered person’’ as used in this 

paragraph means one of the following: 

(1) All owners of nonrenewed or 

terminated organizations who are 

natural persons, other than shareholders 

who have an ownership interest of less 

than 5 percent. 

(2) An owner of a whole or part 

interest in a mortgage, deed of trust, 

note or other obligation secured (in 

whole or in part) by the organization, or 

any of the property or assets thereof, 

which whole or part interest is equal to 

or exceeds 5 percent of the total 

property, and assets of the organization. 

(3) A member of the board of directors 

or board of trustees of the entity, if the 

organization is organized as a 

corporation. 

■ 65. Amend § 423.509 by adding 

paragraph (e) to read as follows: 

§ 423.509 Termination of contract by CMS. 

* * * * * 

(e) Timely transfer of data and files. 

If a contract is terminated under 

paragraph (a) of this section, the Part D 

plan sponsor must ensure the timely 

transfer of any data or files. 

■ 66. Amend § 423.510 as follows: 

■ A. Redesignating paragraph (e) as 

(e)(1). 

■ B. Adding a new paragraph (e)(2). 

The addition reads as follows: 

§ 423.510 Termination of contract by Part 

D sponsor. 

* * * * * 

(e) * * * 

(2) During the same 2-year period 

specified in (e)(1) of this section, CMS 

will not contract with an organization 

whose covered persons also served as 

covered persons for the terminating 

sponsor. A ‘‘covered person’’ as used in 

this paragraph means one of the 

following: 

(i) All owners of nonrenewed or 

terminated organizations who are 

natural persons, other than shareholders 

who have an ownership interest of less 

than 5 percent. 

(ii) An owner of a whole or part 

interest in a mortgage, deed of trust, 

note or other obligation secured (in 

whole or in part) by the organization, or 

any of the property or assets thereof, 

which whole or part interest is equal to 

or exceeds 5 percent of the total 

property and assets of the organization. 

(iii) A member of the board of 

directors or board of trustees of the 

entity, if the organization is organized as 

a corporation. 

* * * * * 

Subpart M—Grievances, Coverage 

Determinations, and Appeals 

■ 67. Amend § 423.562 as follows: 

■ A. Redesignating paragraphs (a)(1)(ii) 

and (iii) as paragraphs (a)(1)(iii) and (iv), 

respectively. 

■ B. Adding new paragraph (a)(1)(ii). 

■ C. Revising paragraph (a)(3). 

■ D. Adding paragraph (a)(5). 

The revision and additions read as 

follows: 

§ 423.562 General provisions. 

(a) * * * 

(1) * * * 

(ii) Use a single, uniform exceptions 

and appeals process which includes, 

procedures for accepting oral and 

written requests for coverage 

determinations and redeterminations 

that are in accordance with § 423.128 

(b)(7) and (d)(1)(iii). 

* * * * * 

(3) A Part D plan sponsor must 

arrange with its network pharmacies to 

distribute notices instructing enrollees 

how to contact their plans to obtain a 

coverage determination or request an 

exception if they disagree with the 

information provided by the pharmacist. 

These notices must comply with the 

standards established in 

§ 423.128(b)(7)(iii). 

* * * * * 

(5) A Part D plan sponsor must 

employ a medical director who is 

responsible for ensuring the clinical 

accuracy of all coverage determinations 

and redeterminations involving medical 

necessity. The medical director must be 

a physician with a current and 

unrestricted license to practice 

medicine in a State, Territory, 


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21576 Federal Register / Vol. 76, No. 73 / Friday, April 15, 2011 / Rules and Regulations 

Commonwealth of the United States 

(that is, Puerto Rico), or the District of 

Columbia. 

* * * * * 

■ 68. Amend § 423.566 by adding 

paragraph (d) to read as follows: 

§ 423.566 Coverage determinations. 

* * * * * 

(d) Who must review coverage 

determinations. If the Part D plan 

sponsor expects to issue a partially or 

fully adverse medical necessity (or any 

substantively equivalent term used to 

describe the concept of medical 

necessity) decision based on the initial 

review of the request, the coverage 

determination must be reviewed by a 

physician or other appropriate health 

care professional with sufficient 

medical and other expertise, including 

knowledge of Medicare coverage 

criteria, before the Part D plan sponsor 

issues the coverage determination 

decision. The physician or other health 

care professional must have a current 

and unrestricted license to practice 

within the scope of his or her profession 

in a State, Territory, Commonwealth of 

the United States (that is, Puerto Rico), 

or the District of Columbia. 

■ 69. Amend § 423.568 by revising 

paragraph (f) to read as follows: 

§ 423.568 Standard timeframe and notice 

requirements for coverage determinations. 

* * * * * 

(f) Written notice for denials by a Part 

D plan sponsor. If a Part D plan sponsor 

decides to deny a drug benefit, in whole 

or in part, it must give the enrollee 

written notice of the determination. The 

initial notice may be provided orally, so 

long as a written follow-up notice is 

mailed to the enrollee within 3 calendar 

days of the oral notification. 

* * * * * 

Subpart P—Premium and Cost-Sharing 

Subsidies for Low-Income Individuals 

■ 70. Section 423.772 is amended by 

adding the definition of ‘‘Individual 

receiving home and community-based 

services’’ to read as follows: 

§ 423.772 Definitions. 

* * * * * 

Individual receiving home and 

community-based services means a fullbenefit dual-eligible individual who is 

receiving services under a home and 

community-based program authorized 

for a State in accordance with one of the 

following: 

(1) Section 1115 of the Act. 

(2) Section 1915(c) or (d) of the Act. 

(3) State plan amendment under 

section 1915(i) of the Act. 

(4) Services are provided through 

enrollment in a Medicaid managed care 

organization with a contract under 

section 1903(m) of the Act or section 

1932 of the Act. 

* * * * * 

■ 71. Amend § 423.780 as follows: 

■ A. Revising paragraph (b)(2)(ii)(C). 

■ B. Adding paragraph (f). 

The revision and addition read as 

follows: 

§ 423.780 Premium subsidy. 

* * * * * 

(b) * * * 

(2) * * * 

(ii) * * * 

(C) The MA monthly prescription 

drug beneficiary premium (as defined 

under section 1854(b)(2)(B) of the Act) 

for a MA–PD plan and determined 

before the application of the monthly 

rebate computed under section 

1854(b)(1)(C)(i) of the Act for that plan 

and year involved. 

* * * * * 

(f) Waiver of de minimis premium 

amounts. CMS will permit a Part D plan 

to waive a de minimis amount that is 

above the monthly beneficiary premium 

defined in § 423.780(b)(2)(ii)(A) or (B) 

for full subsidy individuals as defined 

in § 423.780(a) or § 423.780(d)(1), 

provided waiving the de minimis 

amount results in a monthly beneficiary 

premium that is equal to the established 

low income benchmark as defined in 

§ 423.780(b)(2). 

■ 72. In § 423.782, revise paragraph 

(a)(2)(ii) to read as follows: 

§ 423.782 Cost-sharing subsidy. 

* * * * * 

(a) * * * 

(2) * * * 

(ii) Full-benefit dual-eligible 

individuals who are institutionalized or 

who are receiving home and 

community-based services have no costsharing for Part D drugs covered under 

their PDP or MA–PD plans. 

* * * * * 

Subpart R—Payments to Sponsors of 

Retiree Prescription Drug Plans 

■ 73. Amend § 423.884 as follows: 

■ A. Redesignating paragraph (c)(3)(ii) 

and (c)(3)(iii) as paragraphs (c)(3)(iii) 

and (c)(3)(iv), respectively. 

■ B. Adding a new subparagraph 

(c)(3)(ii). 

■ C. Revising paragraphs (d) 

introductory text, (d)(1)(i) and (ii), and 

(d)(5)(iii)(C). 

The addition and revisions read as 

follows: 

§ 423.884 Requirements for qualified 

retiree prescription drug plans. 

* * * * * 

(c) * * * 

(3) * * * 

(ii) Acknowledge that at the same 

time CMS releases Part C and Part D 

summary payment data in accordance 

with § 422.504(n) and § 423.505(o) CMS 

will also release Part D retiree drug 

subsidy payment data for the most 

recently reconciled year including the 

name of the eligible sponsor, the total 

gross aggregate dollar amount of the 

CMS subsidy, and the number of 

eligible retirees; 

* * * * * 

(d) Actuarial attestation—general. 

The sponsor of the plan must provide to 

CMS an attestation in a form and 

manner specified by CMS that the 

actuarial value of the retiree 

prescription drug coverage under the 

plan is at least equal to the actuarial 

value of the defined standard 

prescription coverage (as defined at 

§ 423.100), not taking into account the 

value of any discount or coverage 

provided during the coverage gap (as 

defined at § 423.100). The attestation 

must meet all of the following 

standards: 

(1) * * * 

(i) The actuarial gross value of the 

retiree prescription drug coverage under 

the plan for the plan year is at least 

equal to the actuarial gross value of the 

defined standard prescription drug 

coverage under Part D for the plan year 

in question, not taking into account the 

value of any discount or coverage 

provided during the coverage gap. 

(ii) The actuarial net value of the 

retiree prescription drug coverage under 

the plan for that plan year is at least 

equal to the actuarial net value of the 

defined standard prescription drug 

coverage under Part D for that plan year 

in question, not taking into account the 

value of any discount or coverage 

provided during the coverage gap. 

* * * * * 

(5) * * * 

(iii) * * * 

(C) The valuation of defined standard 

prescription drug coverage for a given 

plan year is based on the initial 

coverage limit cost-sharing and out-ofpocket threshold for defined standard 

prescription drug coverage under Part D 

in effect at the start of such plan year, 

not taking into account the value of any 

discount or coverage provided during 

the coverage gap. 


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Federal Register / Vol. 76, No. 73 / Friday, April 15, 2011 / Rules and Regulations 21577 

Subpart V—Part D Marketing 

Requirements 

■ 74. In § 423.2264, revise paragraph (e) 

to read as follows: 

§ 423.2264 Guidelines for CMS review. 

* * * * * 

(e) For markets with a significant nonEnglish speaking population, provide 

materials in the language of these 

individuals. Specifically, Part D plan 

sponsors must translate marketing 

materials into any non-English language 

that is the primary language of at least 

5 percent of the individuals in a plan 

benefit package (PBP) service area. 

■ 75. Amend § 423.2272 by adding 

paragraph (e) to read as follows: 

§ 423.2272 Licensing of marketing 

representatives and confirmation of 

marketing resources. 

* * * * * 

(e) Terminate upon discovery any 

unlicensed agent or broker employed as 

a marketing representative and notify 

any beneficiaries enrolled by an 

unqualified agent or broker of the 

agent’s or broker’s status and, if 

requested, of their options to confirm 

enrollment or make a plan change 

(including a special election period, as 

described in § 423.38(c)(8)(i)(C)). 

■ 76. Amend § 423.2274 by revising the 

introductory text and paragraphs (b) and 

(c) to read as follows: 

§ 423.2274 Broker and agent requirements. 

For purposes of this section 

‘‘compensation’’ includes pecuniary or 

nonpecuniary remuneration of any kind 

relating to the sale or renewal of a 

policy including, but not limited to, 

commissions, bonuses, gifts, prizes, 

awards, and finder’s fees. 

‘‘Compensation’’ does not include the 

payment of fees to comply with State 

appointment laws, training, 

certification, and testing costs; 

reimbursement for mileage to, and from, 

appointments with beneficiaries; or 

reimbursement for actual costs 

associated with beneficiary sales 

appointments such as venue rent, 

snacks, and materials. If a Part D 

sponsor markets through independent 

(that is, non-employee) brokers or 

agents, the requirements in paragraph 

(a) of this section must be met. The 

requirements in paragraphs (b) through 

(e) of this section must be met if a Part 

D sponsor markets through any broker 

or agent, whether independent (that is, 

non-employee) or employed. 

* * * * * 

(b) It must ensure that all agents 

selling Medicare products are trained 

annually, through a CMS endorsed or 

approved training program or as 

specified by CMS, on Medicare rules 

and regulations specific to the plan 

products they intend to sell. 

(c) It must ensure agents selling 

Medicare products are tested annually 

by CMS endorsed or approved training 

program or as specified by CMS. 

* * * * * 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.773, Medicare— 

Hospital Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program). 

Dated: March 16, 2011. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: March 31, 2011. 

Kathleen Sebelius, 

Secretary. 

[FR Doc. 2011–8274 Filed 4–5–11; 4:15 pm] 

BILLING CODE 4120–01–P 


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