[Federal Register Volume 76, Number 73 (Friday, April 15, 2011)]
[Rules and Regulations]
[Pages 21432-21577]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8274]



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Vol. 76

Friday,

No. 73

April 15, 2011

Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 417, 422 and 423



 Medicare Program; Changes to the Medicare Advantage and the Medicare 
Prescription Drug Benefit Programs for Contract Year 2012 and Other 
Changes; Final Rule

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

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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.

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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 (Sec.  417.454 and Sec.  422.100)
    2. Simplification of Beneficiary Election Periods (Sec.  422.62, 
Sec.  422.68, Sec.  423.38, and Sec.  423.40)
    3. Special Needs Plan (SNP) Provisions (Sec.  422.2, Sec.  
422.4, Sec.  422.101, Sec.  422.107, and Sec.  422.152)
    a. Adding a Definition of Fully Integrated Dual Eligible SNP 
(Sec.  422.2)
    b. Extending SNP Authority
    c. Dual-Eligible SNP Contracts With State Medicaid Agencies 
(Sec.  422.107)
    d. Approval of Special Needs Plans by the National Committee for 
Quality Assurance (Sec. Sec.  422.4, 422.101, and 422.152)
    4. Section 1876 Cost Contractor Competition Requirements (Sec.  
417.402)
    5. Making Senior Housing Facility Demonstration Plans Permanent 
(Sec.  422.2 and Sec.  422.53)
    6. Authority to Deny Bids (Sec.  422.254, Sec.  422.256, Sec.  
423.265, and Sec.  423.272)
    7. Determination of Part D Low-Income Benchmark Premium (Sec.  
423.780)
    8. Voluntary De Minimis Policy for Subsidy Eligible Individuals 
(Sec.  423.34 and Sec.  423.780)
    a. Reassigning LIS Individuals (Sec.  423.34)
    b. Enrollment of LIS-Eligible Individuals (Sec.  423.34)
    c. Premium Subsidy (Sec.  423.780)
    9. Increase In Part D Premiums Due to the Income Related Monthly 
Adjustment Amount (D-IRMAA) (Sec.  423.44, Sec.  423.286, and Sec.  
423.293)
    a. Rules Regarding Premiums (Sec.  423.286)
    b. Collection of Monthly Beneficiary Premium (Sec.  423.293)
    c. Involuntary Disenrollment by CMS (Sec.  423.44)
    10. Elimination of Medicare Part D Cost-Sharing for Individuals 
Receiving Home and Community-Based Services (Sec.  423.772 and Sec.  
423.782)
    11. Appropriate Dispensing of Prescription Drugs in Long-Term 
Care Facilities Under PDPs and MA-PD Plans (Sec.  423.154)
    12. Complaint System for Medicare Advantage Organizations and 
PDPs (Sec.  422.504 and Sec.  423.505)
    13. Uniform Exceptions and Appeals Process for Prescription Drug 
Plans and MA-PD Plans (Sec.  423.128 and Sec.  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 (Sec.  423.100 and Sec.  423.464)
    15. Cost Sharing for Medicare-Covered Preventive Services (Sec.  
417.454 and Sec.  422.100)
    16. Elimination of the Stabilization Fund (Sec.  422.458)
    17. Improvements to Medication Therapy Management Programs 
(Sec.  423.153)
    18. Changes to Close the Part D Coverage Gap (Sec.  423.104 and 
Sec.  423.884)
    19. Payments to Medicare Advantage Organizations (Sec.  422.308)
    a. Authority to Apply Frailty Adjustment Under PACE Payment 
Rules for Certain Specialized MA Plans for Special Needs Individuals 
(Sec.  422.308)
    b. Application of Coding Adjustment (Sec.  422.308)
    c. Improvements to Risk Adjustment for Special Needs Individuals 
With Chronic Health Conditions (Sec.  422.308)
    20. Medicare Advantage Benchmark, Quality Bonus Payments, and 
Rebate (Sec.  422.252, Sec.  422.258, and Sec.  422.266)
    a. Terminology (Sec.  422.252)
    b. Calculation of Benchmarks (Sec.  422.258)
    c. Increases to the Applicable Percentage for Quality (Sec.  
422.258(d))
    d. Beneficiary Rebates (Sec.  422.266)
    21. Quality Bonus Payment and Rebate Retention Appeals (Sec.  
422.260)
    C. Clarify Various Program Participation Requirements
    1. Clarify Payment Rules for Non-Contract Providers (Sec.  
422.214)
    2. Pharmacist Definition (Sec.  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 (Sec.  
422.506, Sec.  422.508, Sec.  422.512, Sec.  423.507, Sec.  423.508, 
and Sec.  423.510)
    4. Timely Transfer of Data and Files When CMS Terminates a 
Contract With a Part D Sponsor (Sec.  423.509)
    5. Review of Medical Necessity Decisions by a Physician or Other 
Health Care Professional and the Employment of a Medical Director 
(Sec.  422.562, Sec.  422.566, Sec.  423.562, and Sec.  423.566)
    6. Compliance Officer Training (Sec.  422.503 and Sec.  423.504)
    7. Removing Quality Improvement Projects and Chronic Care 
Improvement Programs from CMS Deeming Process (Sec.  422.156)
    8. Definitions of Employment-Based Retiree Health Coverage and 
Group Health Plan for MA Employer/Union-Only Group Waiver Plans 
(Sec.  422.106)
    D. Strengthening Beneficiary Protections
    1. Agent and Broker Training Requirements (Sec.  422.2274 and 
Sec.  423.2274)
    a. CMS-Approved or Endorsed Agent and Broker Training and 
Testing (Sec.  422.2274 and Sec.  423.2274)
    b. Extending Annual Training Requirements to All Agents and 
Brokers (Sec.  422.2274 and Sec.  423.2274)
    2. Call Center and Internet Web site Requirements (Sec.  422.111 
and Sec.  423.128)
    a. Extension of Customer Call Center and Internet Web site 
Requirements to MA Organizations (Sec.  422.111)
    b. Call Center Interpreter Requirements (Sec.  422.111 and Sec.  
423.128)

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    3. Require Plan Sponsors to Contact Beneficiaries to Explain 
Enrollment by an Unqualified Agent/Broker (Sec.  422.2272 and Sec.  
423.2272)
    4. Customized Enrollee Data (Sec.  422.111 and Sec.  423.128)
    5. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount 
Requirements to Regional PPOs (Sec.  422.100 and Sec.  422.101)
    6. Prohibition on Use of Tiered Cost Sharing by MA Organizations 
(Sec.  422.262)
    7. Delivery of Adverse Coverage Determinations (Sec.  423.568)
    8. Extension of Grace Period for Good Cause and Reinstatement 
(Sec.  422.74 and Sec.  423.44)
    9. Translated Marketing Materials (Sec.  422.2264 and Sec.  
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 
(Sec.  422.112)
    2. Maintaining a Fiscally Sound Operation (Sec.  422.2, Sec.  
422.504, Sec.  423.4, and Sec.  423.505)
    3. Release of Part C and Part D Payment Data (Sec.  422.504, 
Sec.  423.505, and Sec.  423.884)
    4. Required Use of Electronic Transaction Standards for Multi-
Ingredient Drug Compounds; Payment for Multi-Ingredient Drug 
Compounds (Sec.  423.120)
    5. Denial of Applications Submitted by Part C and Part D 
Sponsors With Less Than 14 Months Experience Operating Their 
Medicare Contracts (Sec.  422.502 and Sec.  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 
(Sec.  422.4)
    2. Cost Plan Enrollment Mechanisms (Sec.  417.430)
    3. Fast-track Appeals of Service Terminations to Independent 
Review Entities (IREs) (Sec.  422.626)
    4. Part D Transition Requirements (Sec.  423.120)
    5. Revision to Limitation on Charges to Enrollees for Emergency 
Department Services (Sec.  422.113)
    6. Clarify Language Related to Submission of a Valid Application 
(Sec.  422.502 and Sec.  423.503)
    7. Modifying the Definition of Dispensing Fees (Sec.  423.100)
    III. Collection of Information Requirements
    A. ICRs Regarding Cost Sharing for Specified Services at 
Original Medicare Levels (Sec.  417.454 and Sec.  422.100)
    B. ICRs Regarding SNP Provisions (Sec.  422.101, Sec.  422.107, 
and Sec.  422.152)
    1. Dual-Eligible SNP Contracts with State Medicaid Agencies 
(Sec.  422.107)
    2. ICRs Regarding NCQA Approval of SNPs (Sec.  422.101 and Sec.  
422.152)
    C. ICRs Regarding Voluntary De Minimis Policy for Subsidy 
Eligible Individuals (Sec.  423.34 and Sec.  423.780)
    D. ICRs Regarding Increase In Part D Premiums Due to the Income 
Related Monthly Adjustment Amount (D-IRMAA) (Sec.  423.44)
    E. ICRs Regarding Elimination of Medicare Part D Cost-Sharing 
for Individuals Receiving Home and Community-Based Services (Sec.  
423.772 and Sec.  423.782)
    F. ICRs Regarding Appropriate Dispensing of Prescription Drugs 
in Long-Term Care Facilities Under PDPs and MA-PD plans (Sec.  
423.154) and Dispensing Fees (Sec.  423.100)
    G. ICRs Regarding Complaint System for Medicare Advantage 
Organizations and PDPs (Sec.  422.504 and Sec.  423.505)
    H. ICRs Regarding Uniform Exceptions and Appeals Process for 
Prescription Drug Plans and MA-PD Plans (Sec.  423.128 and Sec.  
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 (Sec.  423.100 and Sec.  423.464)
    J. ICRs Regarding Improvements to Medication Therapy Management 
Programs (Sec.  423.153)
    K. ICRs Regarding Changes to Close the Part D Coverage Gap 
(Sec.  423.104 and Sec.  423.884)
    L. ICRs Regarding Medicare Advantage Benchmark, Quality Bonus 
Payments, and Rebate (Sec.  422.252, Sec.  422.258 and Sec.  
422.266)
    M. ICRs Regarding Quality Bonus Appeals (Sec.  422.260)
    N. ICRs Regarding Timely Transfer of Data and Files When CMS 
Terminates a Contract With a Part D Sponsor (Sec.  423.509)
    O. ICRs Regarding Agent and Broker Training Requirements (Sec.  
422.2274 and Sec.  423.2274)
    P. ICRs Regarding Call Center and Internet Web site Requirements 
(Sec.  422.111 and Sec.  423.128)
    Q. ICRs Regarding Requiring Plan Sponsors to Contact 
Beneficiaries to Explain Enrollment by an Unqualified Agent/Broker 
(Sec.  422.2272 and Sec.  423.2272)
    R. ICRs Regarding Customized Enrollee Data (Sec.  422.111 and 
Sec.  423.128)
    S. ICRs Regarding Extending the Mandatory Maximum Out-of-Pocket 
(MOOP) Amount Requirements to Regional PPOs (Sec.  422.100(f) and 
Sec.  422.101(d))
    T. ICRs Regarding Prohibition on Use of Tiered Cost Sharing by 
MA Organizations (Sec.  422.100 and Sec.  422.262)
    U. ICRs Regarding Translated Marketing Materials (Sec.  422.2264 
and Sec.  423.2264)
    V. ICRs Regarding Expanding Network Adequacy Requirements to 
Additional MA Plan Types (Sec.  422.112)
    W. ICRs Regarding Maintaining a Fiscally Sound Operation (Sec.  
422.2, Sec.  422.504, Sec.  423.4, and Sec.  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 (Sec.  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 cost-sharing, assessing bids for meaningful 
differences, and ensuring that cost-sharing 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:
    <bullet> Implementing the provisions of the ACA.
    <bullet> Clarifying various program participation requirements.
    <bullet> Strengthening beneficiary protections.
    <bullet> Strengthening our ability to distinguish stronger 
applicants for Part C and Part D program participation and to remove 
consistently poor performers.
    <bullet> 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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[GRAPHIC] [TIFF OMITTED] TR15AP11.003

BILLING CODE 4120-01-C
1. Cost Sharing for Specified Services at Original Medicare Levels 
(Sec.  417.454 and Sec.  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 Sec.  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 Sec.  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 Sec.  
417.101 was technically incorrect and have corrected the regulation 
citation so that our proposed addition is new paragraph (e) to Sec.  
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 Sec.  417.454 and Sec.  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 
well-defined 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-of-pocket (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 Sec.  422.100 that the cost sharing charged for chemotherapy 
administration services, renal dialysis services and skilled nursing 
care provided in-network 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 Sec.  417.101, 
which otherwise does not govern cost plans. The commenters suggested 
that we instead add a new paragraph to Sec.  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 Sec.  417.101, but will instead add new paragraph (e) 
to Sec.  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 Sec.  
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 Sec.  417.454 to extend these protections to section 
1876 cost contracts. However, we will not finalize our proposal to add 
new paragraph (4) to Sec.  417.454(e) or new paragraph (4) to Sec.  
422.100(j) to prohibit plans from charging cost sharing for home health 
services.
2. Simplification of Beneficiary Election Periods (Sec.  422.62, Sec.  
422.68, Sec.  423.38, and Sec.  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 0Sec.  422.62(a)(2) and Sec.  
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:
    <bullet> Sec.  422.62(a) was amended to provide for this new 
disenrollment opportunity and clarify that the OEP ended after 2010;
    <bullet> Sec.  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;
    <bullet> Sec.  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
    <bullet> Sec.  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 health-based 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 lock-in.
    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 (Sec.  422.2, Sec.  422.4, Sec.  
422.101, Sec.  422.107, and Sec.  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 (Sec.  
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 Sec.  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:
    <bullet> 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 Sec.  422.2.
    <bullet> Provide dual eligible beneficiaries access to Medicare and 
Medicaid benefits under a single managed care organization (MCO).
    <bullet> 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.
    <bullet> Coordinate 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.

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    <bullet> 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 Sec.  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 Sec.  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

[[Page 21445]]

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 Sec.  
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 (Sec.  
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 Sec.  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

[[Page 21446]]

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 Sec.  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 (Sec.  422.4, Sec.  422.101, and Sec.  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 Sec.  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 Sec.  422.101(f), which 
specifies MOC requirements, by adding a new paragraph (vi). Finally, we 
proposed to codify the new requirement by revising Sec.  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 Sec.  422.4(a)(iv), Sec.  422.101(f), and Sec.  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[reg] 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 Sec.  
422.4(a)(iv), Sec.  422.101(f), and Sec.  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

[[Page 21447]]

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 fine-tune 
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 non-clinical 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

[[Page 21448]]

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 (Sec.  
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 Sec.  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 (Sec.  
422.2 and Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  
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 Sec.  422.53(c) that an MA senior 
housing facility plan must verify the eligibility of each individual 
enrolling in its plan using a CMS-approved 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/MedicareMangCareEligEnrol/Downloads/FINALMAEnrollmentandDisenrollmentGuidanceUpdateforCY2011.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 (Sec.  422.254, Sec.  422.256, Sec.  423.265, 
and Sec.  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

[[Page 21449]]

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 non-
acceptance 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 Sec.  422.254, 
revising Sec.  422.256(a), adding paragraph (b)(3) to Sec.  423.265 and 
by adding paragraph (b)(4) to Sec.  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 Sec.  423.272(b)(3)(i) and Sec.  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 plan-specific 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 plan-
specific 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 low-enrollment 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

[[Page 21450]]

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

[[Page 21451]]

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 (Sec.  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 Sec.  
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 (Sec.  
423.34 and Sec.  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 auto-

[[Page 21452]]

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 Sec.  423.34 and 
Sec.  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 (Sec.  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 LIS-eligible 
individuals annually when a PDP's monthly beneficiary premium amount 
will exceed the low income benchmark, as calculated in Sec.  
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 Sec.  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 
Sec.  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 Sec.  
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 Sec.  
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 Sec.  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 Sec.  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 (Sec.  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 auto-enroll these individuals includes those plans with 
monthly beneficiary premiums for LIS-eligible individuals that do not 
exceed the low income benchmark as calculated in Sec.  423.780(b)(2). 
We proposed to amend Sec.  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 auto-enrollees and reassignees, if the Secretary 
determines that such inclusion is warranted.
    Comment: The majority of commenters supported our proposal to amend 
Sec.  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 auto-
enrollment 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 auto-enrollment 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 Sec.  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 auto-enrollees and reassignees. At this time, we 
do not intend to exercise such authority to auto-enroll or reassign 
LIS-eligible 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

[[Page 21453]]

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 non-payment 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 (Sec.  423.780)
    We also proposed to amend Sec.  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 
Sec.  423.780(b)(2)(ii)(A) or (B) for full subsidy individuals as 
defined in Sec.  423.780(a) or Sec.  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 Sec.  
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) (Sec.  423.44, Sec.  423.286, and Sec.  
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:

[[Page 21454]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.004

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 x [(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 beneficiary-specific 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 Sec.  
423.286 (rules regarding premiums), Sec.  423.293 (collection of 
monthly beneficiary premium), and Sec.  423.44 (involuntary 
disenrollment by PDP).
a. Rules Regarding Premiums (Sec.  423.286)
    Currently, Sec.  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 low-income assistance. We proposed to 
revise the following:
    <bullet> 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;
    <bullet> Section 423.286(d)(4) to define the increase for the 
income related monthly adjustment amount for Part D;
    <bullet> 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;
    <bullet> Section 423.286(d)(4)(ii) to provide the formula used to 
calculate the monthly adjustment amount; and
    <bullet> 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

[[Page 21455]]

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 plain-
language, 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 
premium-related 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 Sec.  
423.286(d)(4)(iii) and (iv), but should have referred to Sec.  
423.286(d)(4)(i) which is where these provisions were

[[Page 21456]]

proposed and where they are being finalized in this rule.
b. Collection of Monthly Beneficiary Premium (Sec.  423.293)
    We proposed establishing a new Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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, 
Sec.  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 (Sec.  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:
    <bullet> Section 423.44(e)(1) provides that CMS will disenroll 
individuals who do not pay their Part D--IRMAA.
    <bullet> Section 423.44(e)(2) provides individuals a 3-month grace 
period to pay outstanding Part D--IRMAA amounts before they are 
involuntarily disenrolled.
    <bullet> 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.
    <bullet> 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.
    <bullet> Section 423.44(e)(5) establishes that the effective date 
of disenrollment is the first day following the initial grace period.
    <bullet> Finally, we proposed modifying the title of Sec.  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

[[Page 21457]]

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 Sec.  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, Sec.  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 CMS-generated 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

[[Page 21458]]

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:
    <bullet> Establish a special enrollment period (SEP) for 
disenrolled individuals to re-enroll into another MA-only (or a cost 
plan).
    <bullet> 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.
    <bullet> 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 
Sec.  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 Sec.  
423.286(d)(4) andSec.  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 Cost-Sharing for Individuals 
Receiving Home and Community-Based Services (Sec.  423.772 and Sec.  
423.782)
    The MMA, as reflected in Sec.  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

[[Page 21459]]

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 Sec.  
423.772 to establish the definition of ``individual receiving home and 
community-based services'' and Sec.  423.782(a)(2)(ii) to reflect that 
these individuals will have no cost-sharing. The Best Available 
Evidence (BAE) policy set forth in Sec.  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 Sec.  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 Sec.  423.772 
to establish the definition of an ``individual receiving home and 
community-based services'' and Sec.  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 Sec.  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 Sec.  423.772 to establish the definition of an 
``individual receiving home and community-based services'' and Sec.  
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 low-income subsidy level 3 (institutionalized--$0 
cost share), as opposed to developing a new low-income 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

[[Page 21460]]

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 Sec.  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 cost-
sharing 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 (Sec.  423.154)
    In our proposed rule, we proposed to implement section 3310 of the 
ACA by adding a new regulation at Sec.  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 Sec.  423.154 (a)(1)(i) of the proposed rule, we 
require all sponsors to contract with network pharmacies servicing LTC 
facilities, as defined in Sec.  423.100, to dispense brand medications, 
as defined in Sec.  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 Sec.  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-or-less requirement.
    Under Sec.  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 Sec.  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 
Sec.  423.154(b) and solicited comments on the types of dosage forms 
and drugs that should be excluded from the requirements under Sec.  
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

[[Page 21461]]

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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  423.154(a) during this 
extension. Under the proposed rule, these pharmacies would be required 
to come into full compliance with Sec.  423.154(a) by January 1, 2013. 
We solicited comments on this matter.
    Based on the preceding, we proposed revising Sec.  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 Sec.  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 Sec.  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 Sec.  423.154. We 
proposed identifying exceptions to this requirement at Sec.  
423.154(b)(1) and (2) relative to specific drugs and waivers of this 
requirement for specific pharmacies under Sec.  423.154(c). Pursuant to 
section 3310 of the ACA, we proposed an effective date of January 1, 
2012 for these requirements at Sec.  423.154(d), with a limited 
extension through December 31, 2012 for pharmacies meeting the 
requirements under Sec.  423.154(e). We also proposed that Part D 
sponsors require any unused Part D drugs originally dispensed to

[[Page 21462]]

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 Sec.  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-or-
less 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-or-less 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-day-or-less increments. Nothing about this change, however, 
precludes facilities and pharmacies from selecting 7-day-or-less 
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-or-less dispensing. Section 3310 of ACA, which is implemented by 
Sec.  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-day-
dispensing.
    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

[[Page 21463]]

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 less-than-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 cost-effective 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-or-less 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 Sec.  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

[[Page 21464]]

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 waste-related 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

[[Page 21465]]

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-day-or-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 Sec.  
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 Sec.  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-or-less 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

[[Page 21466]]

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 
non-institutionalized 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 Sec.  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 patient-safety-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 beneficiary-specific, 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 low-waste practices or ``return for 
credit and reuse''.
    Response: As stated in the proposed rule, we considered ``return 
for credit

[[Page 21467]]

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 Sec.  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

[[Page 21468]]

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 ``post-consumption 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 low-income 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-
day-or-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 Sec.  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

[[Page 21469]]

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 Sec.  
423.154(a) will not apply to I/T/U pharmacies defined in Sec.  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 
Sec.  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 Sec.  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

[[Page 21470]]

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 Sec.  
423.154(a)(1)(i) to dispense solid oral brand name drugs, as defined in 
Sec.  423.4, to enrollees in LTC facilities in no greater than 14-day 
increments at a time. We modify Sec.  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 Sec.  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 Sec.  423.4, in no 
greater than 7-day increments. We modify Sec.  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 Sec.  423.154(c) to include a 
waiver for I/T/U pharmacies. We modify Sec.  423.154(d) to change the 
effective date from January 1, 2012 to January 1, 2013. We modify Sec.  
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 Sec.  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 
(Sec.  422.504 and Sec.  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 Sec.  422.405(a)(15)(i) and Sec.  
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

[[Page 21471]]

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 (Sec.  423.128 and Sec.  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 Sec.  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 
Sec.  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 Sec.  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 Sec.  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 Sec.  
423.128(d), we proposed to revise Sec.  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 Sec.  423.562 by adding a new paragraph (a)(1)(ii) which 
cross-references the requirements in Sec.  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 Sec.  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

[[Page 21472]]

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 Sec.  
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 Sec.  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 Sec.  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 (Sec.  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 Sec.  
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 (Sec.  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 
Sec.  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 Sec.  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 drug-specific 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 CMS-approved 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 often-different 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.

[[Page 21473]]

    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 Sec.  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 e-mail 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 Sec.  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 Sec.  423.568(a) and Sec.  423.570(b) respectively, to accept 
oral requests for both standard coverage determinations (excluding 
reimbursement requests) and expedited coverage determinations, and 
under Sec.  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

[[Page 21474]]

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 Sec.  423.128(b)(7) and 
Sec.  423.562, with the modifications to Sec.  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 (Sec.  423.100 and Sec.  423.464)
    Section 1860D-2(b)(4)(C) of the Act provides protection against 
high out-of-pocket 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 Sec.  
423.100. Similarly, the Health Resources and Services Administration 
(HRSA) Ryan White HIV/AIDS Program-funded 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 Sec.  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 Sec.  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 Sec.  
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 Sec.  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 Sec.  423.100 and Sec.  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 Sec.  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 Sec.  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 Sec.  423.464(f)(2)(i)(B). Because costs 
borne or paid by these organizations already are included in the 
definition of ``incurred costs'' as

[[Page 21475]]

referenced in Sec.  423.464(f)(2)(i)(A), they need not be expressly 
referenced in Sec.  423.464(f)(2)(i)(B). We also revised Sec.  
423.100(2)(ii) to remove the cross reference to Sec.  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 
TrOOP-eligible 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 (Sec.  
417.454 and Sec.  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 Medicare-covered 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 Sec.  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 Sec.  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 Medicare-covered 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 Medicare-covered preventive benefits at zero cost sharing, 
consistent with the new regulations for Original Medicare-covered 
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 in-
network. 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 Medicare-

[[Page 21476]]

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 in-network preventive 
services to section 1876 cost plans by adding new paragraph (f) to 
Sec.  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 Sec.  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 
Sec.  417.101 and will instead add new paragraph (d) to Sec.  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 Sec.  422.100 by adding 
new paragraph (k) to require that there be no cost sharing for in-
network Medicare-covered preventive services, as specified by CMS 
annually. In addition, we are adding new paragraph (d) to Sec.  417.454 
as previously specified.
16. Elimination of the Stabilization Fund (Sec.  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 Sec.  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 Sec.  422.258(f) as proposed in this final rule.
17. Improvements to Medication Therapy Management Programs (Sec.  
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 Sec.  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 Sec.  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 Sec.  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

[[Page 21477]]

needs of each resident. In our November 2010 proposed rule, we noted 
this requirement is codified in regulations at Sec.  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 Sec.  
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 
face-to-face encounters, section 1860D-4(c)(2)(C) of the Act requires 
the annual comprehensive medication reviews include either an 
interactive person-to-person 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 Sec.  
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-to-person 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 Sec.  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 Sec.  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

[[Page 21478]]

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--
    <bullet> 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
    <bullet> 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 Sec.  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 (Sec.  423.104 and Sec.  
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

[[Page 21479]]

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 Sec.  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 Sec.  
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 
Sec.  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 Sec.  
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 
Sec.  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 Sec.  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 Sec.  423.104(d)(5)(iv), minus 0.25 
percentage point. Further, we proposed to amend Sec.  
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 Sec.  
423.104(d)(5)(v) for the year involved plus 2 percentage points; or (2) 
the ``annual percentage increase'' specified in Sec.  
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 Sec.  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 Sec.  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 Sec.  423.104(d)(4)(i) and paid by the beneficiary, 
another individual on the beneficiary's behalf, or by a TrOOP-eligible 
payer under Sec.  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

[[Page 21480]]

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 Sec.  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 Sec.  423.104(d)(4) apply only to ``applicable 
beneficiaries'' by revising the title of this paragraph to ``Cost-
sharing 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 cost-sharing is phased down to 25 percent in 2020.
    Response: We agree with the commenter that Sec.  
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 (Sec.  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 (Sec.  
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 Sec.  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

[[Page 21481]]

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 dual-eligible special 
needs plans, as defined in Sec.  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 survey-based 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 Sec.  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 Sec.  
422.308(a) as proposed into this final rule.
b. Application of Coding Adjustment (Sec.  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

[[Page 21482]]

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 Sec.  
422.308 (b) as proposed into this final rule.
c. Improvements to Risk Adjustment for Special Needs Individuals With 
Chronic Health Conditions (Sec.  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

[[Page 21483]]

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 risk-based 
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 co-occurring 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 Sec.  
422.308(c) as proposed into this final rule.
20. Medicare Advantage Benchmark, Quality Bonus Payments, and Rebate 
(Sec.  422.252, Sec.  422.258, and Sec.  422.266)
a. Terminology (Sec.  422.252)
    We proposed revising Sec.  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 Sec.  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[supreg]) 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 area-
specific non-drug monthly benchmark amount. Effective for 2012, the MA 
area-specific non-drug monthly benchmark amount is the blended 
benchmark amount determined according to the rules set forth under 
Sec.  422.258(d). In addition, this revision clarifies that rate-
setting rules for county capitation rates are specific to a time 
period, as set forth at Sec.  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 Sec.  422.252 in this final rule.
b. Calculation of Benchmarks (Sec.  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 rate-setting rules, we proposed to amend Sec.  
422.258(a) and Sec.  422.258(c)(3), and add a new paragraph Sec.  
422.258(d), which sets forth the provisions for MA blended benchmarks, 
including increases to the benchmarks for quality bonuses at Sec.  
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

[[Page 21484]]

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 Sec.  422.258(d)(1); and the 
``specified amount'' introduced at section 1853(n)(2) of the Act and 
described at Sec.  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 
Sec.  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 Sec.  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 Sec.  422.306(c); and the applicable percentage 
defined at section 1853(n)(2)(B) of the Act and implemented at Sec.  
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 Sec.  
422.306(b)(2). For subsequent years, the base payment amount for an 
area is the average FFS expenditure amount specified in Sec.  
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 Sec.  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 Sec.  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 re-
rank 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 Sec.  422.258(d)(7).
    First, section 1853(n)(2)(C) of the Act, implemented at Sec.  
422.258(d)(5)(i), provides that the quartile ranking of all county FFS 
rates (net of the IME carve-out) for a contract year must be re-ranked 
whenever the FFS rates for the year prior to the contract year are 
rebased FFS rates, per the rebasing rule set forth at Sec.  
422.306(b)(2). Second, section 1853(n)(2)(D) of the Act, implemented at 
Sec.  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 Sec.  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 one-half 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 
Sec.  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 phase-in 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 Sec.  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 phase-in period, 
the blended benchmark is calculated as follows: For 2012 the blended 
benchmark is the sum of three-quarters 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

[[Page 21485]]

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 five-sixths 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.
[GRAPHIC] [TIFF OMITTED] TR15AP11.005

    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 Sec.  422.258 as proposed in this final rule.
c. Increases to the Applicable Percentage for Quality (Sec.  
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.

[[Page 21486]]

    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 Sec.  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[supreg] 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. 
Patient-centered 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 all-cause 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 re-admissions, 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

[[Page 21487]]

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:
    <bullet> 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.
    <bullet> 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.
    <bullet> 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.
    <bullet> 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:
    <bullet> 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.
    <bullet> 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.
    <bullet> 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[supreg], 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 Sec.  
422.258 to add a new paragraph (d)(7) to reflect our authority to make 
bonus payments based on quality. Under Sec.  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.

[[Page 21488]]

    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 SNP-specific 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 SNP-
specific 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 case-mix adjustments of any outcome measures 
added over time. We do not believe a transitional system is needed as 
we are moving towards adding SNP-specific 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.

[[Page 21489]]

    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-the-art 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, 
high-quality 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[supreg] 
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[supreg] 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[supreg] 
specifications can be found in the HEDIS[supreg] 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 Sec.  422.258(d) as proposed.
d. Beneficiary Rebates (Sec.  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 
Sec.  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 Sec.  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

[[Page 21490]]

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 one-third 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 Sec.  422.252 that meets the criteria specified 
by us for purposes of Sec.  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 Sec.  422.266 as proposed in this final rule.
21. Quality Bonus Payment and Rebate Retention Appeals (Sec.  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[reg] 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

[[Page 21491]]

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 three-level 
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 Sec.  
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 <a href="/cdn-cgi/l/email-protection#0e5e6f7c7a4d7c6f7a6760697d4e6d637d2066667d20696178"><span class="__cf_email__" data-cfemail="316150434572435045585f564271525c421f5959421f565e47">[email protected]</span></a>.
    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 <a href="/cdn-cgi/l/email-protection#0656677472457467726f68617546656b75286e6e7528616970"><span class="__cf_email__" data-cfemail="bdeddccfc9fecfdcc9d4d3dacefdded0ce93d5d5ce93dad2cb">[email protected]</span></a>. 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 Sec.  
422.260(c) and Sec.  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

[[Page 21492]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.006

BILLING CODE 4120-01-C
1. Clarify Payment Rules for Non-Contract Providers (Sec.  422.214)
    In our November 2010 proposed rule (75 FR 71223), we proposed 
adding a new paragraph (c) to Sec.  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 Sec.  422.214 to 
clarify that an MA organization offering a regional PPO MA plan must 
always pay non-contracted providers at least the Original Medicare 
payment rate in those

[[Page 21493]]

portions of its service area where it is meeting access requirements by 
non-network means under Sec.  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 (Sec.  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 Sec.  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 (Sec.  422.506, Sec.  
422.508, Sec.  422.512, Sec.  423.507, Sec.  423.508, and Sec.  
423.510)
    In the April 2010 final rule (75 FR 19678), we modified Sec.  
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 Sec.  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 Sec.  422.508 and Sec.  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 Sec.  
422.506, Sec.  422.512, 423.508, and Sec.  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 non-renewing, 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--
    <bullet> 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

[[Page 21494]]

    <bullet> 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 Sec.  422.508 and Sec.  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 Sec.  422.506, Sec.  
422.512, Sec.  423.508, and Sec.  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 non-
renewing 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 Sec.  422.506(a)(5)(i)(A), Sec.  
422.508(d)(1)(i), and Sec.  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 non-renewing 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 Sec.  422.506(a)(5)(iii), 
Sec.  422.508(d)(3), Sec.  422.512(e)(2)(iii), Sec.  
423.507(a)(4)(iii), Sec.  423.508(f)(3), and Sec.  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 Sec.  
422.506(a)(5)(i)(B), Sec.  422.508(d)(1)(ii), Sec.  
422.512(e)(2)(i)(B), Sec.  423.507(a)(4)(i)(B), Sec.  
423.508(f)(1)(ii), and Sec.  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 Sec.  422.506(a)(5)(i)(A), 
Sec.  422.508(d)(1)(i), and Sec.  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.

[[Page 21495]]

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 (Sec.  423.509)
    Federal regulations at Sec.  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 Sec.  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 (Sec.  
423.507(a) (4)); for contracts terminated by mutual consent (Sec.  
423.508(d)); and for contracts terminated by the plan sponsor for cause 
(Sec.  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 Sec.  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 Sec.  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 Sec.  422.752(c) and Sec.  
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 Sec.  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 Sec.  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 Sec.  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 
Sec.  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 (Sec.  
422.562, Sec.  422.566, Sec.  423.562, and Sec.  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 Sec.  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

[[Page 21496]]

proposed similar changes to the Part D coverage determination process 
in new Sec.  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 Sec.  422.566 and Sec.  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 Sec.  422.566 and Sec.  423.566 
by revising them to include a new paragraph (d). Under new Sec.  
422.566(d) and Sec.  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 Sec.  422.562(a) by adding 
paragraph (4) and to revise Sec.  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,

[[Page 21497]]

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 
Sec.  422.590(g)(2) and Sec.  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 Sec.  422.562(a) and by adding paragraph (5) to 
Sec.  423.562(a).
6. Compliance Officer Training (Sec.  422.503 and Sec.  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 Sec.  
422.503(b)(4)(vi)(B)(1)(i) and (ii) to subpart K of Part 422 and Sec.  
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

[[Page 21498]]

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 non-CMS 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 (Sec.  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 
Sec.  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 Sec.  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

[[Page 21499]]

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 Sec.  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/Union-Only Group Waiver Plans (Sec.  
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 Sec.  422.106(d)(4) through (6). We also proposed to 
change the reference to an MA plan at Sec.  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 Sec.  423.454 and Sec.  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 Sec.  423.454 
and Sec.  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 employment-based 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 Sec.  422.106(d)(5) and Sec.  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

[[Page 21500]]

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 Sec.  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 non-English 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.
    [GRAPHIC] [TIFF OMITTED] TR15AP11.007
    
1. Agent and Broker Training Requirements (Sec.  422.2274 and Sec.  
423.2274)
a. CMS Approved or Endorsed Agent and Broker Training and Testing 
(Sec.  422.2274 and Sec.  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 Sec.  422.2274(b) and (c) and 
Sec.  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.

[[Page 21501]]

    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 
(Sec.  422.2274 and Sec.  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 Sec.  422.2274(b) and (c) and Sec.  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 Sec.  422.2274 and Sec.  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 Sec.  422.2274(b) and (c) and Sec.  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 Sec.  422.2274(b) and (c) and Sec.  423.2264(b) 
and (c).
2. Call Center and Internet Web site Requirements (Sec.  422.111 and 
Sec.  423.128)
a. Extension of Customer Call Center and Internet Web site Requirements 
to MA Organizations (Sec.  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

[[Page 21502]]

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 Sec.  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 
Sec.  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 Sec.  
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 (Sec.  422.111 and Sec.  
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 Sec.  
422.111(g)(1)(iii) (redesignated as paragraph (h)) and Sec.  
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

[[Page 21503]]

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 Sec.  422.2264 and Sec.  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 Non-
English 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 (Sec.  422.2272 and Sec.  423.2272)
    Current regulations (Sec.  422.2272 and Sec.  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 Sec.  
422.2272(c) and Sec.  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 
Sec.  422.2272(c) and Sec.  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 Sec.  422.2272(c) and Sec.  
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

[[Page 21504]]

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 (Sec.  422.111 and Sec.  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 Sec.  422.111(b) and Sec.  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 out-of-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

[[Page 21505]]

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 Sec.  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 out-of-
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 Sec.  
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 Sec.  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.

[[Page 21506]]

    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-of-pocket 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-of-network 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 beneficiary-friendly 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.

[[Page 21507]]

    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 
Sec.  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-of-pocket 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 Sec.  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 Sec.  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 Sec.  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 
out-of-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 Sec.  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 out-of-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 (Sec.  422.100 and Sec.  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 Sec.  
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 
Sec.  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

[[Page 21508]]

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 Sec.  422.100(f) to include 
regional MA plans. In addition, we proposed revisions to paragraphs 
(d)(2) and (d)(3) of Sec.  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-to-
plan 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 
out-of-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 Sec.  
422.100(f) and Sec.  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-of-pocket 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 cost-sharing amounts for services the plan has 
established in its plan benefit package.
6. Prohibition on Use of Tiered Cost Sharing by MA Organizations (Sec.  
422.262)
    As provided in section 1854(c) of the Act and implemented at Sec.  
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 Sec.  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 Sec.  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 patient-centered 
``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

[[Page 21509]]

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 Sec.  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 Sec.  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

[[Page 21510]]

charge different cost sharing for out-of-network 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 cost-effective 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 Sec.  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 (Sec.  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 Sec.  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 Sec.  423.568(f) for unfavorable Part D 
standard coverage determinations. We proposed to revise Sec.  
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 Sec.  
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 Sec.  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 Sec.  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

[[Page 21511]]

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 (Sec.  
422.74 and Sec.  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 
Sec.  422.74 and Sec.  423.44, respectively.
    Currently, Sec.  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 Sec.  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 Sec.  422.74(d)(1) and Sec.  
423.44(d)(1) regarding disenrollment for non-payment 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

[[Page 21512]]

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 (Sec.  422.2264 and Sec.  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 Sec.  422.2264(e) of Subpart V and Sec.  
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 Medicare-eligible 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 Sec.  422.2264 and Sec.  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 
population-based 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 non-English 
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,

[[Page 21513]]

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 sponsor-
generated 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

[[Page 21514]]

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 non-English 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.
[GRAPHIC] [TIFF OMITTED] TR15AP11.008


[[Page 21515]]


1. Expand Network Adequacy Requirements to All MA Plan Types (Sec.  
422.112)
    In our November 2010 proposed rule (75 FR 71236), we proposed 
applying the network adequacy standards at Sec.  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-
for-service (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 Sec.  422.112(a)(10).
    Response: We do not have the statutory authority to require that 
the network adequacy standards at Sec.  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 (Sec.  422.2, Sec.  422.504, 
Sec.  423.4, and Sec.  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 Sec.  422.2 and Sec.  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 Sec.  
422.504(a) and Sec.  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/MedicareMangCareEligEnrol/Downloads/FINALMAEnrollmentandDisenrollmentGuidanceUpdateforCY2011.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/MedicarePresDrugEligEnrol/Downloads/FINALPDPEnrollmentandDisenrollmentGuidanceUpdateforCY2011.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

[[Page 21516]]

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 (Sec.  422.504, Sec.  
423.505, and Sec.  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:
    <bullet> 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.
    <bullet> 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

[[Page 21517]]

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 Sec.  422.504(j) and Sec.  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 Sec.  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 Sec.  422.504(n) our intent to release 
Part C summary payment data as proposed, at Sec.  423.505(o) our intent 
to release Part D summary payment data as proposed, and at Sec.  
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

[[Page 21518]]

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 cost-sharing, 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 co-extensive 
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.

[[Page 21519]]

    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 risk-adjusted 
statutory non-drug monthly bid amount and the plan risk-adjusted area-
specific non-drug monthly benchmark amount--when the bid is below the 
benchmark. (See Sec.  422.264(ff).) Revealing this Part C rebate 
information is little different than revealing the Part C plan basic 
beneficiary premium amount (see Sec.  422.262), release of which is 
already required by regulation. (See Sec.  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

[[Page 21520]]

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 Sec.  
422.504(n), Sec.  422.505(o) and Sec.  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 notice-and-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

[[Page 21521]]

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 Sec.  
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 notice-and-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 Sec.  422.504(n), Sec.  
423.505(o) and Sec.  423.884(c)(3)(ii).
4. Required Use of Electronic Transaction Standards for Multi-
Ingredient Drug Compounds; Payment for Multi-Ingredient Drug Compounds 
(Sec.  423.120)
    As provided under section 1860D-4(b)(2)(A) of the Act and codified 
in Sec.  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 Sec.  423.120(c)(2), Part D sponsors will be 
required to adhere to the new standard, we proposed adding a new 
paragraph (d) to Sec.  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 brand-name 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

[[Page 21522]]

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 Sec.  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 Sec.  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 Sec.  423.120(d)(1)(i) does not guarantee coverage of 
that compound under Part B. That stated, we will revise Sec.  
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 on-
formulary, 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 off-formulary. 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 cost-sharing on the most expensive 
Part D ingredient and instead allow Part D sponsors to determine which 
cost-sharing 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 low-income subsidy (LIS) cost-sharing on the most expensive 
ingredient, while

[[Page 21523]]

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 Sec.  
423.782) must be based on whether the most expensive Part D ingredient 
is a generic or brand-name drug regardless of which cost-sharing 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 
non-compounded Part D drugs. Therefore, based on the comments, we are 
revising Sec.  423.120(d)(ii) to remove the requirement to base non-LIS 
cost-sharing 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 cost-
sharing 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 cost-sharing 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 cost-sharing 
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 Sec.  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

[[Page 21524]]

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 (Sec.  
422.502 and Sec.  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 Sec.  422.502(b) and Sec.  
423.503(b) by adding additional language at Sec.  422.502(b)(2) and 
Sec.  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 Sec.  
422.502(b)(2) and Sec.  423.503(b)(2). Rather, these contracting 
entities will be subject to the past performance review under Sec.  
422.502(b) and Sec.  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 non-compliance 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 Sec.  422.502(b) and Sec.  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 Sec.  422.502(b) and Sec.  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

[[Page 21525]]

noted in Table 8, cost contract plans, MA plans, or Part D plans.
[GRAPHIC] [TIFF OMITTED] TR15AP11.009

1. Clarification of the Expiration of the Authority To Waive the State 
Licensure Requirement for Provider-Sponsored Organizations (Sec.  
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 Sec.  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 Sec.  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 Sec.  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 (Sec.  417.430)
    As part of the enrollment process, Sec.  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 Sec.  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 Sec.  
417.430(b)(3) and Sec.  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 
Sec.  422.50(a)(5) and Sec.  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) (Sec.  422.626)
    To correct a typographical error in Sec.  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 Sec.  422.626(f)(3) as containing the typographical error rather 
than Sec.  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 Sec.  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 Sec.  422.626(g) rather than 
Sec.  422.626(f).
    We did not receive any comments on these proposed revisions and are 
finalizing these technical corrections with the modifications 
previously noted.

[[Page 21526]]

4. Part D Transition Requirements (Sec.  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 Sec.  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 Sec.  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 Sec.  423.154 (unless the prescription is written for 
less), with refills provided, if needed.
    We also proposed amending Sec.  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 Sec.  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 Sec.  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 
Sec.  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 Sec.  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 Sec.  
423.578(b).
    As a result of comments received, in this final rule, we are 
modifying the proposed rule at Sec.  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. This provision will be effective January 1, 2012.

[[Page 21527]]

5. Revision to Limitation on Charges to Enrollees for Emergency 
Department Services (Sec.  422.113)
    As provided under section 1852(d)(1) of the Act and codified at 
Sec.  422.113(b)(2)(v). MA organizations are financially responsible 
for emergency and urgently needed services. Under Sec.  
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 Sec.  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 
Sec.  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 out-
of-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 Sec.  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 Sec.  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 (Sec.  
422.502 and Sec.  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 Sec.  422.502(c)(2) or Sec.  423.503(c)(2), nor is 
the organization entitled to a hearing under Sec.  422.660 or Sec.  
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 Sec.  
422.502(c)(2) and Sec.  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 Sec.  
422.502(c)(2)(i) and Sec.  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 Sec.  422.502(c)(2)(i) and Sec.  
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 Sec.  
422.502(c)(2)(ii) and Sec.  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 Sec.  422.502(c)(2)(i) and Sec.  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

[[Page 21528]]

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 (Sec.  423.100)
    In the November 2010 proposed rule, we proposed a simplified and 
clarified definition of ``dispensing fees'' under Sec.  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 Sec.  
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.

[[Page 21529]]

    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 Sec.  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 Sec.  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 Sec.  423.154. Some of the commenters 
requested that we add costs associated with the return and report 
requirement described in Sec.  423.154(f)(1) and Sec.  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 Sec.  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:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> 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 (Sec.  417.454 and Sec.  422.100)

    Under Sec.  417.454(d) and Sec.  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 (Sec.  422.101, Sec.  422.107, and 
Sec.  422. 152)

1. Dual-Eligible SNP Contracts With State Medicaid Agencies (Sec.  
422.107)
    Section 422.107(d)(ii) extends the deadline for new and existing 
dual-eligible 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 (Sec.  422.101 and Sec.  
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

[[Page 21530]]

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 (Sec.  423.34 and Sec.  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 Sec.  423.34 do not by themselves impose 
any new information collection requirements on any external entity.
    However, related proposals to modify Sec.  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 Sec.  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) (Sec.  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 Sec.  
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 (Sec.  423.772 
and Sec.  423.782)

    We are amending Sec.  423.772 and Sec.  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 full-benefit 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

[[Page 21531]]

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 (Sec.  423.154) and 
Dispensing Fees (Sec.  423.100)

    Under Sec.  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 re-negotiation of contracts.
    We are introducing a new requirement under Sec.  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 Sec.  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 sponsors-contractors (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 (Sec.  423.100), with the 
relative investment in the dispensing technologies and corresponding 
dispensing efficiencies associated with the dispensing technologies 
used in Sec.  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 (Sec.  422.504 and Sec.  423.505)

    Under Sec.  422.504(a) and Sec.  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:[sol][sol]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:[sol][sol]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.

[[Page 21532]]

H. ICRs Regarding Uniform Exceptions and Appeals Process for 
Prescription Drug Plans and MA-PD Plans (Sec.  423.128 and Sec.  
423.562)

    In accordance with the new section 1860D-4(b)(3)(H) of the Act, we 
proposed revising Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 x 
$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 one-time cost associated with the processor 
tasks is $16,000 (400 hours x $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 (Sec.  
423.128(b)(7)(i)) will result in an annual burden of 89,605 hours (731 
entities x 734 contracts per entity x .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 (Sec.  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 x 944 
determination requests per entity x 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 x $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 (Sec.  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 x 731 contracts x 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

[[Page 21533]]

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 Sec.  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 (Sec.  423.100 and Sec.  423.464)

    Revising the definition of ``incurred cost'' at Sec.  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 data-sharing 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 (Sec.  423.153)

    This final rule amends Sec.  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 Sec.  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 (Sec.  
423.104 and Sec.  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 x 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 x 40 processors) at an 
estimated total annual cost of $1,050,000.

L. ICRs Regarding Medicare Advantage Benchmark, Quality Bonus Payments, 
and Rebate (Sec.  422.252, Sec.  422.258 and Sec.  422.266)

    Under Sec.  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:
[GRAPHIC] [TIFF OMITTED] TR15AP11.010

    We have included new calculations for the benchmarks and rebates in 
Sec.  422.252, Sec.  422.258, and Sec.  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 (Sec.  422.260)

    We add a new Sec.  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

[[Page 21534]]

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 x 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 x $250).

N. ICRs Regarding Timely Transfer of Data and Files When CMS Terminates 
a Contract With a Part D Sponsor (Sec.  423.509)

    In this final rule, we are amending Sec.  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 (Sec.  
422.2274 and Sec.  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 x 1200 hours) per fiscal year.
    Also at Sec.  422.2274 and Sec.  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 (Sec.  
422.111 and Sec.  423.128)

    At Sec.  422.111(g)(1)(2)(3) (redesignated as Sec.  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 Sec.  422.111(g)(1)(iii) and Sec.  
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 non-English 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 (Sec.  422.2272 and 
Sec.  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 (Sec.  422.111 and Sec.  
423.128)

    As discussed in our November 2010 proposed rule (75 FR 71249 
through 71250), proposed Sec.  422.111(b)(11) and Sec.  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-of-pocket 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

[[Page 21535]]

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 Sec.  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 Sec.  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 Sec.  
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 (Sec.  422.100(f) and Sec.  
422.101(d))

    In this final rule, we are extending the mandatory MOOP and 
catastrophic limit requirement to RPPO plans at Sec.  422.100(f) and 
Sec.  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 Sec.  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 (Sec.  422.100 and Sec.  422.262)

    Section Sec.  422.262 clarifies that MA organizations may not 
impose cost sharing that varies across enrollees for any reason, 
including provider group,

[[Page 21536]]

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 (Sec.  422.2264 and 
Sec.  423.2264)

    This clarification at Sec.  422.2264(e) and Sec.  423.2264(e) does 
not impose any additional burden upon MA organizations because they 
have been required to provide translated marketing materials pursuant 
to Sec.  422.2264(e) and Sec.  423.2264(e) (previously numbered Sec.  
422.80(c)(5) and Sec.  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 (Sec.  422.112)

    Our amendment to Sec.  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 Sec.  422.112(a)(10). We do not include MA MSAs in Sec.  
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 (Sec.  422.2, 
Sec.  422.504, Sec.  423.4, and Sec.  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 (Sec.  422.113)

    At Sec.  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.
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[[Page 21539]]

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=2465b064ba6965cc1fbd2eae60854b11&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 Sec.  423.772 and Sec.  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:

[[Page 21540]]

[GRAPHIC] [TIFF OMITTED] TR15AP11.013

    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:
[GRAPHIC] [TIFF OMITTED] TR15AP11.014

    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 
(Sec.  417.454 and Sec.  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 (Sec.  422.4, Sec.  422.101, and Sec.  
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

[[Page 21541]]

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 (Sec.  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 Sec.  423.780(b)(2)(ii)(C) to codify 
this provision. This provision will decrease the number of 
reassignments of low-income 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 low-income 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. Low-income subsidy 
beneficiaries will be able to remain in these PDPs and will not be 
reassigned to other lower-premium 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 (Sec.  
423.34 and Sec.  423.780)
    The new voluntary de minimis provisions in Sec.  423.34(d) and 
Sec.  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) (Sec.  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.

[[Page 21542]]

    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 Sec.  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 x 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 x 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 Sec.  423.286(d)(4) and Sec.  
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 Cost-Sharing for Individuals 
Receiving Home and Community-Based Services (Sec.  423.772 and Sec.  
423.782)
    We are amending Sec.  423.772 and Sec.  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 (Sec.  423.154) and Dispensing 
Fees (Sec.  423.100)
    We are adding a new regulation at Sec.  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 long-term 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 Sec.  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 Sec.  
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 short-term 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

[[Page 21543]]

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) x 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) x 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 x (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 Sec.  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 Sec.  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 sponsors-contractors (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-or-less 
dispensing requirement.
    Response: As discussed earlier in this final rule, we modified the 
proposed rule at Sec.  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-or-less 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 Sec.  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 
(Sec.  422.504 and Sec.  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

[[Page 21544]]

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) x 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) x 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 x the average cost of a Web site developer ($34) x 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 (Sec.  423.128 and Sec.  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 
(Sec.  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 (Sec.  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 Sec.  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 x $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 one-time cost associated with the processor tasks is 
$16,000 (400 hours x $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 
(Sec.  423.562(2)(3)) would result in an annual burden of 53,071 hours 
(2 minutes or 0.033 hours at point-of-sale x 731 contractors x 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 
Sec.  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 (Sec.  423.100 and Sec.  423.464)
    As provided under Sec.  423.100 and Sec.  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.

[[Page 21545]]

k. Cost Sharing for Medicare Covered Preventive Services (Sec.  417.454 
and Sec.  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 (Sec.  417.454 and Sec.  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 Medicare-covered 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 Sec.  417.454 and 
Sec.  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 (Sec.  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 Sec.  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 (Sec.  
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 x 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 x 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 (Sec.  423.104 and Sec.  
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 x 40 processors x $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 x 40 processors x

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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 (Sec.  422.252, Sec.  422.258, Sec.  
422.266, and Sec.  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 Sec.  422.252, Sec.  422.258, and Sec.  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 (Sec.  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 x 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 x $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 (Sec.  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 Sec.  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) x the hourly rate of staff to transfer the required 
data ($75/hour) x 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 (Sec.  
422.562, Sec.  422.566, Sec.  423.562, and Sec.  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 Sec.  422.562, Sec.  
422.566, Sec.  423.562, and Sec.  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 (Sec.  422.2274 and Sec.  
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 x 1200 hours).
t. Call Center Interpreter Requirements (Sec.  422.111 and Sec.  
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 (Sec.  422.111 and Sec.  423.128)
    In proposed rule (75 FR 71261 through 71262), proposed Sec.  
422.111(b)(11) and Sec.  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-of-pocket 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

[[Page 21548]]

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 cost-sharing 
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 Sec.  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 (Sec.  422.100 and Sec.  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 in-network and $5,100 
catastrophic (in- and 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 out-of-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.

[[Page 21549]]

w. Translated Marketing Materials (Sec.  422.2264 and Sec.  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

[[Page 21556]]

2. Expected Effects on Beneficiaries
a. Cost Sharing for Specified Services at Original Medicare Levels 
(Sec.  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 (Sec.  422.4, Sec.  422.101, and Sec.  
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 (Sec.  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 (Sec.  
423.34 and Sec.  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) (Sec.  423.44, Sec.  423.286, Sec.  
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 Sec.  423.286(d)(4) and Sec.  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:
[GRAPHIC] [TIFF OMITTED] TR15AP11.021


[[Page 21557]]


    Approximately 3.6 percent of Medicare beneficiaries will be 
impacted. We estimate that the number of beneficiaries impacted per 
tier will be as follows:
[GRAPHIC] [TIFF OMITTED] TR15AP11.022

f. Elimination of Medicare Part D Cost-Sharing for Individuals 
Receiving Home and Community-Based Services (Sec.  423.772 and Sec.  
423.782)
    The expected benefit of the elimination of the Medicare Part D 
cost-sharing 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 (Sec.  423.154) and Dispensing 
Fees (Sec.  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 
(Sec.  422.504(a) and Sec.  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 (Sec.  423.128, and Sec.  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 (Sec.  423.100 and Sec.  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 (Sec.  417.454 
and Sec.  422.100)
    We believe that our requirement for MA organizations and section 
1876 cost plans to provide in-network Medicare-covered 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 (Sec.  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 (Sec.  
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 (Sec.  423.104 and Sec.  
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

[[Page 21558]]

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 (Sec.  422.252, Sec.  422.258 and 
Sec.  422.266, and Sec.  422.308)
    We have not determined an impact on beneficiaries as a result of 
this provision.
p. Quality Bonus Appeals (Sec.  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 (Sec.  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 (Sec.  
422.562, Sec.  422.566, Sec.  423.562, and Sec.  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 (Sec.  422.2274 and Sec.  
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 (Sec.  422.111 and Sec.  
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 (Sec.  422.111 and Sec.  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 (Sec.  422.100 and Sec.  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 (Sec.  422.2264 and Sec.  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 
(Sec.  417.454 and Sec.  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 (Sec.  417.454 
and Sec.  422.100)
    We are proposing to implement regulations to require MA 
organizations and 1876 cost plans to provide in-network 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 
Medicare-covered preventive services, as specified by CMS, without 
enrollee cost sharing charges.
    We considered allowing plans to charge cost sharing for Medicare-

[[Page 21559]]

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 (Sec.  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 (Sec.  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 out-of-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 (Sec.  
422.562, Sec.  422.566, Sec.  423.562, and Sec.  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 (Sec.  422.2274 and Sec.  
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 (Sec.  422.111 and Sec.  
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 (Sec.  422.111 and Sec.  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-of-pocket 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 Sec.  423.128(e).
9. Extending the Mandatory Maximum Out-of-Pocket (MOOP) Amount 
Requirements to Regional PPOs (Sec.  422.100 and Sec.  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 in-network 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 (Sec.  422.2264 and Sec.  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

[[Page 21560]]

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 (Sec.  
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.
[GRAPHIC] [TIFF OMITTED] TR15AP11.023

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

0
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

0
2. Section 417.402 is amended by revising paragraph (c) introductory 
text to read as follows:


Sec.  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 Sec.  417.492(b) and Sec.  
417.494(a) for any period beginning on or after January 1, 2013, 
where--
* * * * *

Subpart K--Enrollment, Entitlement, and Disenrollment Under 
Medicare Contract

0
3. Section 417.430 is amended as follows:
0
A. Revising the paragraph heading for paragraph (a).
0
B. Revising paragraphs (a)(1), (b)(3), and (b)(4).


Sec.  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) * * *

[[Page 21561]]

    (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.


Sec.  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 
Medicare-covered preventive services (as defined in Sec.  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

0
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

0
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:


Sec.  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 Sec.  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 Sec.  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 Sec.  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.
* * * * *

0
7. Section 422.4 is amended as follows:
0
A. Revising paragraphs (a)(1)(iii) and (iv).
0
B. Adding paragraph (a)(1)(vi).
    The revisions and additions read as follows:


Sec.  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 Sec.  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 Sec.  422.370, CMS does not waive the State 
licensure requirement for organizations seeking to offer a PSO.
* * * * *

Subpart B--Eligibility, Election, and Enrollment

0
8. Add Sec.  422.53 to read as follows:


Sec.  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 Sec.  
422.2.
    (2) Be eligible to elect an MA plan under Sec.  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 Sec.  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.

0
9. Section 422.62 is amended as follows:
0
A. Revising paragraphs (a)(2)(i), (a)(2)(iii), and (a)(5).
0
B. Adding paragraphs (a)(2)(iv) and (a)(7).
    The revisions and additions read as follows:


Sec.  422.62  Election of coverage under an MA plan.

    (a) * * *
    (2) * * **
    (i) For 2002 through 2010, except for 2006, the annual coordinated 
election

[[Page 21562]]

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 Sec.  
423.38(d).
* * * * *

0
10. Section 422.68 is amended by adding paragraph (f) to read as 
follows:


Sec.  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 Sec.  422.62(a)(7), is effective the first day of the 
first month following the month in which the election is made.

0
11. Section 422.74 is amended by adding paragraphs (d)(1)(v) and (vi) 
to read as follows:


Sec.  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

0
12. Section 422.100 is amended by adding paragraphs (j) and (k) to read 
as follows.


Sec.  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' 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. 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 in-network Medicare-covered preventive services (as defined in 
Sec.  410.152(l)).

0
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.


Sec.  422.101  Requirements relating to basic benefits.

* * * * *
    (d) * * *
    (2) Catastrophic limit. MA regional plans are required to establish 
a catastrophic limit on beneficiary out-of-pocket 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 in-network and out-of-network benefits under the 
Original Medicare fee-for-service 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.

0
14. Section 422.106 is amended as follows:
0
A. Revising paragraph (d)(1).
0
B. Adding paragraphs (d)(4) through (d)(6).

[[Page 21563]]

    The revision and additions read as follows.


Sec.  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 
employer-sponsored 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).

0
15. Section 422.107 is amended by revising paragraph (d)(1)(ii) to read 
as follows:


Sec.  422.107  Special needs plans and dual-eligibles: 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.
* * * * *

0
16. Amend Sec.  422.111 as follows:
0
A. Adding paragraph (b)(12).
0
B. Removing paragraph (f)(12).
0
C. Adding paragraph (h).
    The additions read as follows.


Sec.  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 non-English 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 Sec.  422.111(a) to provide 
hard copies to enrollees.
    (3) The provision of information in writing, upon request.

0
17. Section 422.112 is amended by revising paragraph (a)(10) 
introductory text to read as follows:


Sec.  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:
* * * * *

0
18. Amend Sec.  422.113 by revising paragraph (b)(2)(v) to read as 
follows:


Sec.  422.113  Special rules for ambulance services, emergency and 
urgently needed services, and maintenance and post-stabilization 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

[[Page 21564]]

services through the MA organization, whichever is less.
* * * * *

Subpart D--Quality Improvement

0
19. Amend Sec.  422.152 by revising paragraph (g) introductory text to 
read as follows:


Sec.  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--
* * * * *

0
20. Amend Sec.  422.156 by revising paragraph (b)(1) to read as 
follows:


Sec.  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

0
21. Amend Sec.  422.214 by adding paragraphs (c) and (d) to read as 
follows:


Sec.  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 non-network 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 non-network means under Sec.  422.111(b)(3)(ii) of this 
part.

Subpart F--Submission of Bids, Premiums, and Related Information 
and Plan Approval

0
22. Section 422.252 is amended as follows:
0
A. Adding the definitions ``low enrollment contract'' and ``new MA 
plan.''
0
B. Revising the definition of ``unadjusted MA area-specific non-drug 
monthly benchmark amount.''
    The additions and revision read as follows:


Sec.  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 non-drug 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 Sec.  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 
Sec.  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 Sec.  422.258(d) of 
this part.
* * * * *

0
23. Section 422.254 is amended by adding paragraph (a)(5) to read as 
follows:


Sec.  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.
* * * * *

0
24. Section 422.256 is amended by revising paragraph (a) introductory 
text to read as follows:


Sec.  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 Sec.  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.
* * * * *

0
25. Section 422.258 is amended as follows:
0
A. Revising paragraphs (a)(1) and (2).
0
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.
0
C. Adding paragraph (d).
    The revisions and additions read as follows:


Sec.  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 Sec.  422.306) for the area, adjusted as appropriate 
for the purpose of risk adjustment.
    (ii) For years 2007 through 2010, one-twelfth 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

[[Page 21565]]

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 Sec.  422.306(b)(2), an amount 
equal to the greater of the average FFS expenditure amount at Sec.  
422.306(b)(2) for an area for a year and the minimum percentage 
increase rate at Sec.  422.306(a) for an area for a year.
    (ii) In a year when the amounts at Sec.  422.306(b)(2) are not 
rebased, the minimum percentage increase rate at Sec.  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 Sec.  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 Sec.  
422.306(b)(2), determined for 2012.
    (ii) For subsequent years, the average FFS expenditure amount 
specified in Sec.  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 Sec.  422.306(b)(2) 
and adjusted as required at Sec.  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 Sec.  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 
Sec.  422.306(b)(2) amount adjusted under Sec.  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 Sec.  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 Sec.  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

[[Page 21566]]

(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 Sec.  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 one-half 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 Sec.  
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.


0
26. Section 422.260 is added to read as follows:


Sec.  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.

[[Page 21567]]

    (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.


0
27. Amend Sec.  422.266 by revising paragraph (a) to read as follows:


Sec.  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 Sec.  
422.264(b) for MA local plans and Sec.  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 Sec.  422.264(b) for MA local 
plans and Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  422.252 that meets the criteria specified 
by the Secretary for purposes of Sec.  422.258(d)(7)(v) must be treated 
as a qualifying plan under Sec.  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

0
28. Amend Sec.  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 Sec.  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.

[[Page 21568]]

    (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


Sec.  422.458  [Amended]

0
29. In Sec.  422.458, paragraph (f) is removed.

Subpart K--Application Procedures and Contracts for Medicare 
Advantage Organizations

0
30. Amend Sec.  422.502 as follows:
0
A. Redesignating paragraph (b) as paragraph (b)(1).
0
B. Adding paragraph (b)(2).
0
C. Revising paragraph (c)(2)(i).
    The revisions read as follows:


Sec.  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.
* * * * *

0
32. Amend Sec.  422.504 as follows:
0
A. Redesignating paragraph (a)(14) as paragraph (a)(16).
0
B. Adding new paragraphs (a)(14) and (a)(15).
0
C. Revising newly redesignated paragraph (a)(16).
0
D. Adding paragraph (n).
    The additions and revision read as follows.


Sec.  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 
Sec.  423.505(o) of this subchapter.

0
33. Amend Sec.  422.506 by adding paragraph (a)(5) to read as follows:


Sec.  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.
* * * * *

[[Page 21569]]


0
34. Amend Sec.  422.508 by adding paragraph (d) to read as follows:


Sec.  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.

0
35. Amend Sec.  422.512 as follows:
    A. Redesignating paragraph (e) as (e)(1).
    B. Adding a new paragraph (e)(2).


Sec.  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

0
36. Amend Sec.  422.562 by adding paragraph (a)(4) to read as follows:


Sec.  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.
* * * * *

0
37. Amend Sec.  422.566 by adding paragraph (d) to read as follows:


Sec.  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.

0
38. Amend Sec.  422.622 by revising paragraph (g)(1) to read as 
follows:


Sec.  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 Sec.  422.626(g).
* * * * *

0
39. Amend Sec.  422.626 by revising paragraph (g)(3) to read as 
follows:


Sec.  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

0
40. Amend Sec.  422.2264 by revising paragraph (e) to read as follows:


Sec.  422.2264  Guidelines for CMS review.

* * * * *
    (e) For markets with a significant non-English 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.

0
41. Amend Sec.  422.2272 by adding paragraph (e) to read as follows:


Sec.  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 Sec.  422.62(b)(3)(ii)).

0
42. Amend Sec.  422.2274 by revising the introductory text and 
paragraphs (b) and (c) to read as follows:


Sec.  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

[[Page 21570]]

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

0
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

0
44. Amend Sec.  423.4 by adding the definitions of ``fiscally sound 
operation'' and ``pharmacist'' to read as follows:


Sec.  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

0
45. Amend Sec.  423.34 as follows:
0
A. Revising paragraphs (c) and (d)(1).
0
B. Adding paragraph (d)(4).
    The revisions and addition read as follows:


Sec.  423.34  Enrollment of low-income subsidy eligible individuals.

* * * * *
    (c) Reassigning low income subsidy eligible individuals--(1) 
General rule. Notwithstanding Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  423.780, if CMS determines that such 
inclusion is warranted.
* * * * *

0
46. Amend Sec.  423.38 as by revising paragraph (b) and adding 
paragraph (d) to read as follows:


Sec.  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 Sec.  422.62(a)(7), may also elect a PDP during 
this time.

0
47. Amend Sec.  423.40 by adding paragraph (d) to read as follows:


Sec.  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 Sec.  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.

0
48. Amend Sec.  423.44 by revising the section heading and adding 
paragraphs (d)(1)(vi), (d)(1)(vii), and (e) as follows:


Sec.  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.
* * * * *

[[Page 21571]]

    (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 Sec.  423.286(d)(4) and 
Sec.  423.293(d) of this part.
    (2) Initial grace period. For all Part D--IRMAA amounts directly 
billed to an enrollee in accordance with Sec.  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 Sec.  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

0
49. Amend Sec.  423.100 as follows:
0
A. Adding the definitions of ``Applicable beneficiary,'' ``Applicable 
drug under the Medicare coverage gap discount program,'' and ``Coverage 
gap.''
0
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:


Sec.  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 Sec.  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 long-term 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 
Sec.  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
* * * * *

0
50. Amend Sec.  423.104 as follows:
0
A. Revising paragraphs (d)(2)(i) introductory text, (d)(2)(ii), (d)(3) 
introductory text, and (d)(4).
0
B. Redesignating paragraph (d)(5)(iii)(B) as (d)(5)(iii)(F).
0
C. Adding new paragraphs (d) (5)(iii)(B) through (E).
0
D. Revising newly redesignated paragraph (d)(5)(iii)(F).
0
E. Adding paragraph (d)(5)(v).
    The revisions and additions read as follows:


Sec.  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

[[Page 21572]]

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 Sec.  
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 Sec.  423.100) for 
costs for covered Part D drugs that are not applicable drugs (as 
defined in Sec.  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 Sec.  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 Sec.  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.
* * * * *

0
51. Section 423.120 is amended as follows:
0
A. Revising paragraphs (b)(3)(iii)(B) and (b)(3)(iv).
0
B. Adding paragraph (d).
    The revisions and addition read as follows.


Sec.  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-days-or-less, consistent with the requirements 
under Sec.  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 multi-
ingredient 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 on-formulary (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 Sec.  
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 Sec.  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

[[Page 21573]]

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 Sec.  423.782).
    (ii) For any non-Part D ingredient of the Part D compound 
(including drugs described under Sec.  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.

0
52. Amend Sec.  423.128 as follows:
0
A. Revising paragraph (b)(7).
0
B. Adding paragraphs (d)(1)(iii) and (d)(1)(iv).
    The revision and additions read as follows:


Sec.  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 Sec.  423.562 et. seq., including--
    (i) Access to a uniform model form used to request a coverage 
determination under Sec.  423.568 or Sec.  423.570, and a uniform model 
form used to request a redetermination under Sec.  423.582 or Sec.  
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-of-sale 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 non-English 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

0
53. Amend Sec.  423.150 as follows:
0
A. Redesignating paragraphs (b) through (g) as paragraphs (c) through 
(h).
0
B. Adding a new paragraph (b) to read as follows:


Sec.  423.150  Scope.

* * * * *
    (b) Appropriate dispensing of prescription drugs in long-term care 
facilities under PDPs and MA-PD plans.
* * * * *

0
54. Amending Sec.  423.153 as follows:
0
A. Revising paragraph (d)(1)(vii)(B).
0
B. Adding paragraph (d)(1)(vii)(D).
    The revision and addition read as follows:


Sec.  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.
* * * * *

0
55. Section 423.154 is added to read as follows:


Sec.  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 Sec.  423.100 to--
    (i) Dispense solid oral doses of brand-name drugs, as defined in 
Sec.  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 long-term 
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 Sec.  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 Sec.  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 Sec.  435.1010 and for I/T/U 
pharmacies (as defined in Sec.  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 Sec.  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

0
56. Amend Sec.  423.265 by adding paragraph (b)(3) to read as follows:

[[Page 21574]]

Sec.  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.
* * * * *
0
57. Amend Sec.  423.272 by adding paragraph (b)(4) to read as follows:


Sec.  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.
* * * * *

0
58. Amend Sec.  423.286 as follows:
0
A. Revising paragraph (a).
0
B. Adding paragraph (d)(4).
    The revision and addition read as follows:


Sec.  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 Sec.  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.
* * * * *

0
59. Amend Sec.  423.293 as follows:
0
A. Redesignating paragraphs (d) and (e) as (e) and (f), respectively.
0
B. Add new paragraph (d).


Sec.  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 Sec.  423.44(e).
* * * * *

Subpart J--Coordination Under Part D Plan With Other Prescription 
Drug Coverage

0
60. Amend Sec.  423.464 by revising paragraph (f)(2) to read as 
follows:


Sec.  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 Sec.  423.104(d)(5)(iii), a Part D plan 
must--
    (A) Include the enrollee's incurred costs (as defined in Sec.  
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 Sec.  423.32(b)(ii).
* * * * *

Subpart K--Application Procedures and Contracts With PDP Sponsors

0
61. Amend Sec.  423.503 as follows:
0
A. Redesignating paragraph (b) as paragraph (b)(1).
0
B. Adding paragraph (b)(2).
0
C. Revising paragraph (c)(2)(i).
    The revisions and addition read as follows:


Sec.  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.
* * * * *

0
62. Amend Sec.  423.505 as follows:
0
A. Adding paragraphs (b)(22) and (b)(23).
0
B. Adding paragraph (o).

[[Page 21575]]

    The additions read as follows:


Sec.  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.

0
63. Amend Sec.  423.507 as follows:
0
A. Redesignating paragraph (a)(4) as paragraph (a)(5).
0
B. Adding a new paragraph (a)(4) to read as follows:


Sec.  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.
* * * * *

0
64. Amend Sec.  423.508 by adding paragraph (f) to read as follows:


Sec.  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.
0
65. Amend Sec.  423.509 by adding paragraph (e) to read as follows:


Sec.  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.

0
66. Amend Sec.  423.510 as follows:
0
A. Redesignating paragraph (e) as (e)(1).
0
B. Adding a new paragraph (e)(2).
    The addition reads as follows:


Sec.  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

0
67. Amend Sec.  423.562 as follows:
0
A. Redesignating paragraphs (a)(1)(ii) and (iii) as paragraphs 
(a)(1)(iii) and (iv), respectively.
0
B. Adding new paragraph (a)(1)(ii).
0
C. Revising paragraph (a)(3).
0
D. Adding paragraph (a)(5).
    The revision and additions read as follows:


Sec.  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 Sec.  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 Sec.  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,

[[Page 21576]]

Commonwealth of the United States (that is, Puerto Rico), or the 
District of Columbia.
* * * * *

0
68. Amend Sec.  423.566 by adding paragraph (d) to read as follows:


Sec.  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.

0
69. Amend Sec.  423.568 by revising paragraph (f) to read as follows:


Sec.  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

0
70. Section 423.772 is amended by adding the definition of ``Individual 
receiving home and community-based services'' to read as follows:


Sec.  423.772  Definitions.

* * * * *
    Individual receiving home and community-based services means a 
full-benefit 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.
* * * * *

0
71. Amend Sec.  423.780 as follows:
0
A. Revising paragraph (b)(2)(ii)(C).
0
B. Adding paragraph (f).
    The revision and addition read as follows:


Sec.  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 Sec.  423.780(b)(2)(ii)(A) or (B) for full subsidy 
individuals as defined in Sec.  423.780(a) or Sec.  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 Sec.  423.780(b)(2).

0
72. In Sec.  423.782, revise paragraph (a)(2)(ii) to read as follows:


Sec.  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 cost-sharing for Part D drugs covered under their PDP 
or MA-PD plans.
* * * * *

Subpart R--Payments to Sponsors of Retiree Prescription Drug Plans

0
73. Amend Sec.  423.884 as follows:
0
A. Redesignating paragraph (c)(3)(ii) and (c)(3)(iii) as paragraphs 
(c)(3)(iii) and (c)(3)(iv), respectively.
0
B. Adding a new subparagraph (c)(3)(ii).
0
C. Revising paragraphs (d) introductory text, (d)(1)(i) and (ii), and 
(d)(5)(iii)(C).
    The addition and revisions read as follows:


Sec.  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 Sec.  422.504(n) and Sec.  
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 Sec.  423.100), not 
taking into account the value of any discount or coverage provided 
during the coverage gap (as defined at Sec.  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-of-pocket 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.

[[Page 21577]]

Subpart V--Part D Marketing Requirements

0
74. In Sec.  423.2264, revise paragraph (e) to read as follows:


Sec.  423.2264  Guidelines for CMS review.

* * * * *
    (e) For markets with a significant non-English 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.

0
75. Amend Sec.  423.2272 by adding paragraph (e) to read as follows:


Sec.  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 Sec.  423.38(c)(8)(i)(C)).

0
76. Amend Sec.  423.2274 by revising the introductory text and 
paragraphs (b) and (c) to read as follows:


Sec.  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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