71190 Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 417, 422, and 423 

[CMS–4144–P] 

RIN 0938–AQ00 

Medicare Program; Proposed Changes 

to the Medicare Advantage and the 

Medicare Prescription Drug Benefit 

Programs for Contract Year 2012 and 

Other Proposed Changes 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Proposed rule. 

SUMMARY: We are proposing 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 continued 

experience in the administration of the 

Part C and D programs. These latter 

proposed revisions would clarify 

various program participation 

requirements; make changes to 

strengthen beneficiary protections; 

strengthen our ability to identify strong 

applicants for Parts C and D program 

participation and remove consistently 

poor performers; and make other 

clarifications and technical changes. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. Eastern Standard Time 

(EST) on January 21, 2011. 

ADDRESSES: In commenting, please refer 

to file code CMS–4144–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. You may submit 

comments in one of four ways (no 

duplicates, please): 

1. Electronically. You may submit 

electronic comments on specific issues 

in this regulation to http:// 

www.cms.hhs.gov/eRulemaking. Click 

on the link ‘‘Submit electronic 

comments on CMS regulations with an 

open comment period.’’ (Attachments 

should be in Microsoft Word, 

WordPerfect, or Excel; however, we 

prefer Microsoft Word.) 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address only: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–4144– 

P, P.O. Box 8013, Baltimore, MD 21244– 

8013. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address only: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–4144–P, Mail Stop C4–26–05, 

7500 Security Boulevard, Baltimore, MD 

21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to one of the following 

addresses. If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

7195 in advance to schedule your 

arrival with one of our staff members. 

Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201; or 7500 

Security Boulevard, Baltimore, MD 

21244–1850. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal Government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

Submission of comments on 

paperwork requirements. You may 

submit comments on this document’s 

paperwork requirements by mailing 

your comments to the addresses 

provided at the end of the ‘‘Collection of 

Information Requirements’’ section in 

this document. 

For information on viewing public 

comments, see the beginning of the 

SUPPLEMENTARY INFORMATION section. 

FOR FURTHER INFORMATION CONTACT: 

Vanessa Duran, (410) 786–8697 and 

Sabrina Ahmed, (410) 786–7499, 

General information. 

Christopher McClintick, (410) 786– 

4682, Part C issues. 

Deborah Larwood, (410) 786–9500, Part 

D issues. 

Kristy Nishimoto, (410) 786–8517, Part 

C and D enrollment and appeals 

issues. 

Deondra Moseley, (410) 786–4577, Part 

C payment issues. 

SUPPLEMENTARY INFORMATION: 

Submitting Comments: We welcome 

comments from the public on all issues 

set forth in this rule to assist us in fully 

considering issues and developing 

policies. You can assist us by 

referencing the file code CMS–4144–P. 

Inspection of Public Comments: All 

comments received before the close of 

the comment period are available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received at http:// 

www.cms.hhs.gov/eRulemaking. Click 

on the link ‘‘Electronic Comments on 

CMS Regulations’’ on that Web site to 

view public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 

8:30 a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. 

Table of Contents 

I. Background 

A. Overview of the Medicare Prescription 

Drug, Improvement, and Modernization 

Act of 2003 

B. History and Overview 

II. Provisions of the Proposed Regulation 

A. Overview of the Proposed Changes 

B. Changes To Implement the Provisions of 

the Affordable Care Act of 2010 

1. Cost Sharing for Specified Services at 

Original Medicare Levels (§ 417.101 and 

§ 422.100) 

2. Simplification of Beneficiary Election 

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

§ 423.40) 

3. Special Needs Plan (SNP) Provisions 

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

and § 422.152) 

a. Adding a Definition of Fully Integrated 

Dual Eligible SNP (§ 422.2) 

b. Extending SNP Authority 

c. Dual-Eligible SNP Contracts With State 

Medicaid Agencies (§ 422.107) 

d. Approval of Special Needs Plans by the 

National Committee for Quality 

Assurance (§ 422.4, § 422.101, and 

§ 422.152) 

4. Section 1876 Cost Contractor 

Competition Requirements (§ 417.402) 

5. Making Senior Housing Facility 

Demonstration Plans Permanent (§ 422.2 

and § 422.53) 

6. Authority To Deny Bids (§ 422.254, 

§ 422.256, § 423.265, and § 423.272) 


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7. Determination of Part D Low-Income 

Benchmark Premium (§ 423.780) 

8. Voluntary De Minimis Policy for 

Subsidy Eligible Individuals (§ 423.34 

and § 423.780) 

a. Reassigning LIS Individuals (§ 423.34) 

b. Enrollment of LIS-Eligible Individuals 

(§ 423.34) 

c. Premium Subsidy (§ 423.780) 

9. Increase in Part D Premiums Due to the 

Income Related Monthly Adjustment 

Amount (D—IRMAA) (§ 423.44, 

§ 423.286, and § 423.293) 

a. Rules Regarding Premiums (§ 423.286) 

b. Collection of Monthly Beneficiary 

Premium (§ 423.293) 

c. Involuntary Disenrollment by CMS 

(§ 423.44) 

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

and Community-Based Services 

(§ 423.772 and § 423.782) 

11. Appropriate Dispensing of Prescription 

Drugs in Long-Term Care Facilities 

Under PDPs and MA–PD Plans 

(§ 423.154) 

12. Complaint System for Medicare 

Advantage Organizations and PDPs 

(§ 422.504 and § 423.505) 

13. Uniform Exceptions and Appeals 

Process for Prescription Drug Plans and 

MA–PD Plans (§ 423.128 and § 423.562) 

14. Including Costs Incurred by AIDS Drug 

Assistance Programs and the Indian 

Health Service Toward the Annual Part 

D Out-of-Pocket Threshold (§ 423.100 

and § 423.464) 

15. Cost Sharing for Medicare-Covered 

Preventive Services (§ 417.101 and 

§ 422.100) 

16. Elimination of the Stabilization Fund 

(§ 422.458) 

17. Improvements to Medication Therapy 

Management Programs (§ 423.153) 

18. Changes To Close the Part D Coverage 

Gap (§ 423.104 and § 423.884) 

19. Payments to Medicare Advantage 

Organizations (§ 422.308) 

a. Authority To Apply Frailty Adjustment 

Under PACE Payment Rules for Certain 

Specialized MA Plans for Special Needs 

Individuals (§ 422.308) 

b. Application of Coding Adjustment 

(§ 422.308) 

c. Improvements to Risk Adjustment for 

Special Needs Individuals With Chronic 

Health Conditions (§ 422.308) 

20. Medicare Advantage Benchmark, 

Quality Bonus Payments, and Rebate 

(§ 422.252, § 422.258, and § 422.266) 

a. Terminology (§ 422.252) 

b. Calculation of Benchmarks (§ 422.258) 

c. Increases to the Applicable Percentage 

for Quality (§ 422.258(d)) 

d. Beneficiary Rebates (§ 422.266) 

21. Quality Bonus Payment and Rebate 

Retention Appeals (§ 422.260) 

C. Clarify Various Program Participation 

Requirements 

1. Clarify Payment Rules for Non-Contract 

Providers (§ 422.214) 

2. Pharmacist Definition (§ 423.4) 

3. Prohibition on Part C and D Program 

Participation by Organizations Whose 

Owners, Directors, or Management 

Employees Served in a Similar Capacity 

With Another Organization That 

Terminated Its Medicare Contract Within 

the Previous 2 Years (§ 422.506, 

§ 422.508, § 422.512, § 423.508, 

§ 423.507, and § 423.510) 

4. Timely Transfer of Data and Files When 

CMS Terminates a Contract With a Part 

D Sponsor (§ 423.509) 

5. Review of Medical Necessity Decisions 

by a Physician or Other Health Care 

Professional and the Employment of a 

Medical Director (§ 422.562, § 422.566, 

§ 423.562, and § 423.566) 

6. Compliance Officer Training (§ 422.503 

and § 423.504) 

7. Removing Quality Improvement Projects 

and Chronic Care Improvement Programs 

From CMS Deeming Process (§ 422.156) 

8. Definitions of Employment-Based 

Retiree Health Coverage and Group 

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

D. Strengthening Beneficiary Protections 

1. Agent and Broker Training Requirements 

(§ 422.2274 and § 423.2274) 

a. CMS-Approved or Endorsed Agent and 

Broker Training and Testing (§ 422.2274 

and § 423.2274) 

b. Extending Annual Training 

Requirements to All Agents and Brokers 

(§ 422.2274 and § 423.2274) 

2. Call Center and Internet Web Site 

Requirements (§ 422.111 and § 423.128) 

a. Extension of Customer Call Center and 

Internet Web site Requirements to MA 

Organizations (§ 422.111) 

b. Call Center Interpreter Requirements 

(§ 422.111 and § 423.128) 

3. Require Plan Sponsors To Contact 

Beneficiaries To Explain Enrollment by 

an Unqualified Agent/Broker (§ 422.2272 

and § 423.2272) 

4. Customized Enrollee Data (§ 422.111 and 

§ 423.128) 

5. Extending the Mandatory Maximum 

Out-of-Pocket (MOOP) Amount 

Requirements to Regional PPOs 

(§ 422.100 and § 422.101) 

6. Prohibition on Use of Tiered Cost 

Sharing by MA Organizations (§ 422.262) 

7. Delivery of Adverse Coverage 

Determinations (§ 423.568) 

8. Extension of Grace Period for Good 

Cause and Reinstatement (§ 422.74 and 

§ 423.44) 

9. Translated Marketing Materials 

(§ 422.2264 and § 423.2264) 

E. Strengthening Our Ability To 

Distinguish for Approval Stronger 

Applicants for Part C and Part D Program 

Participation and To Remove 

Consistently Poor Performers 

1. Expand Network Adequacy 

Requirements to Additional MA Plan 

Types (§ 422.112) 

2. Maintaining a Fiscally Sound Operation 

(§ 422.2, § 422.504, § 423.4, and 

§ 423.505) 

3. Release of Part C and Part D Payment 

Data 

4. Required Use of Electronic Transaction 

Standards for Multi-Ingredient Drug 

Compounds; Payment for MultiIngredient Drug Compounds (§ 423.120) 

5. Denial of Applications Submitted by 

Part C and D Sponsors With Less Than 

14 Months Experience Operating Their 

Medicare Contracts (§ 422.502 and 

§ 423.503) 

F. Other Clarifications and Technical 

Changes 

1. Clarification of the Expiration of the 

Authority To Waive the State Licensure 

Requirement for Provider-Sponsored 

Organizations (§ 422.4) 

2. Cost Plan Enrollment Mechanisms 

(§ 417.430) 

3. Fast-Track Appeals of Service 

Terminations to Independent Review 

Entities (IREs) (§ 422.626) 

4. Part D Transition Requirements 

(§ 423.120) 

5. Revision to Limitation on Charges to 

Enrollees for Emergency Department 

Services (§ 422.113) 

6. Clarify Language Related to Submission 

of a Valid Application (§ 422.502 and 

§ 423.503) 

7. Modifying the Definition of Dispensing 

Fees (§ 423.100) 

III. Collection of Information Requirements 

A. ICRs Regarding Cost Sharing for 

Specified Services at Original Medicare 

Levels (§ 417.101 and § 422.100) 

B. ICRs Regarding SNP Provisions 

(§ 422.101, § 422.107, and § 422.152) 

1. Dual-Eligible SNP Contracts With State 

Medicaid Agencies (§ 422.107) 

2. ICRs Regarding NCQA Approval of SNPs 

(§ 422.101 and § 422.152) 

C. ICRs Regarding Voluntary De Minimis 

Policy for Subsidy Eligible Individuals 

(§ 423.34 and § 423.780) 

D. ICRs Regarding Increase in Part D 

Premiums Due to the Income Related 

Monthly Adjustment Amount (D— 

IRMAA) (§ 423.44) 

E. ICRs Regarding Elimination of Medicare 

Part D Cost Sharing for Individuals 

Receiving Home and Community-Based 

Services (§ 423.772 and § 423.782) 

F. ICRs Regarding Appropriate Dispensing 

of Prescription Drugs in Long-Term Care 

Facilities Under PDPs and MA–PD plans 

(§ 423.154) and Dispensing Fees 

(§ 423.100) 

G. ICRs Regarding Complaint System for 

Medicare Advantage Organizations and 

PDPs (§ 422.504 and § 423.505) 

H. ICRs Regarding Uniform Exceptions and 

Appeals Process for Prescription Drug 

Plans and MA–PD Plans 

(§ 423.128(b)(7)(i), § 423.128(d), and 

§ 423.562(a)(3)) 

I. ICRs Regarding Including Costs Incurred 

by AIDS Drug Assistance Programs and 

the Indian Health Service Toward the 

Annual Part D Out-of-Pocket Threshold 

(§ 423.100 and § 423.464) 

J. ICRs Regarding Improvements to 

Medication Therapy Management 

Programs (§ 423.153(vii)) 

K. ICRs Regarding Changes To Close the 

Part D Coverage Gap (§ 423.104 and 

§ 423.884) 

L. ICRs Regarding Medicare Advantage 

Benchmark, Quality Bonus Payments, 

and Rebate (§ 422.252, § 422.258 and 

§ 422.266) 

M. ICRs Regarding Quality Bonus Appeals 

(§ 422.260) 

N. ICRs Regarding Timely Transfer of Data 

and Files When CMS Terminates a 


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71192 Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Proposed Rules 

Contract With a Part D Sponsor 

(§ 423.509) 

O. ICRs Regarding Compliance Officer 

Training (§ 422.503 and § 423.504) 

P. ICRs Regarding Agent and Broker 

Training Requirements (§ 422.2274 and 

§ 423.2274) 

Q. ICRs Regarding Call Center and Internet 

Web Site Requirements (§ 422.111 and 

§ 423.128) 

R. ICRs Regarding Requiring Plan Sponsors 

To Contact Beneficiaries To Explain 

Enrollment by an Unqualified Agent/ 

Broker (§ 422.2272 and § 423.2272) 

S. ICRs Regarding Customized Enrollee 

Data (§ 422.111 and § 423.128) 

T. ICRs Regarding Extending the 

Mandatory Maximum Out-of-Pocket 

(MOOP) Amount Requirements to 

Regional PPOs (§ 422.100(f) and 

§ 422.101(d)) 

U. ICRs Regarding Prohibition on Use of 

Tiered Cost Sharing by MA 

Organizations (§ 422.100 and § 422.262) 

V. ICRs Regarding Translated Marketing 

Materials (§ 422.2264 and § 423.2264) 

W. ICRs Regarding Expanding Network 

Adequacy Requirements to Additional 

MA Plan Types (§ 422.112) 

X. ICRs Regarding Maintaining a Fiscally 

Sound Operation (§ 422.2, § 422.504, 

§ 423.4, and § 423.505) 

Y. ICRs Regarding Release of Part C and 

Part D Payment Data 

Z. ICRs Regarding Revision to Limitation 

on Charges to Enrollees for Emergency 

Department Services (§ 422.113) 

IV. Response to Comments 

V. Regulatory Impact Analysis 

A. Overall Impact 

B. Costs, Savings, and Anticipated Effects 

Associated With This Proposed Rule 

1. Cost Sharing for Specified Services at 

Original Medicare Levels (§ 417.101 and 

§ 422.100) 

2. Approval of Special Needs Plans (SNPs) 

by National Committee for Quality 

Assurance (NCQA) (§ 422.4, § 422.101, 

and § 422.152) 

3. Determination of Part D Low-Income 

Benchmark Premium (§ 423.780) 

4. Voluntary De Minimis Policy for 

Subsidy Eligible Individuals (§ 423.34 

and § 423.780) 

5. Increase in Part D Premiums Due to the 

Income-Related Monthly Adjustment 

Amount (D—IRMAA) (§ 423.44) 

6. Elimination of Medicare Part D Cost 

Sharing for Individuals Receiving Home 

and Community-Based Services 

(§ 423.772 and § 423.782) 

7. Appropriate Dispensing of Prescription 

Drugs in Long-Term Care Facilities 

Under PDPs and MA–PD Plans 

(§ 423.154) and Dispensing Fees 

(§ 423.100) 

8. Complaint System for Medicare 

Advantage Organizations and PDPs 

(§ 422.504 and § 423.505) 

9. Uniform Exceptions and Appeals 

Process for Prescription Drug Plans and 

MA–PD Plans (§ 423.128 and § 423.562) 

10. Including Costs Incurred by the AIDS 

Drug Assistance Program (ADAP) and 

the Indian Health Service (IHS) Toward 

the Annual Part D Out-of-Pocket 

Threshold (§ 423.100 and § 423.464) 

11. Cost Sharing for Medicare Covered 

Preventive Services (§ 417.101 and 

§ 422.100) 

12. Elimination of the Stabilization Fund 

(§ 422.458) 

13. Improvements to Medication Therapy 

Management Programs (§ 423.153) 

14. Changes To Close the Part D Coverage 

Gap (§ 423.104 and § 423.884) 

15. Medicare Advantage Benchmark, 

Quality Bonus Payments, and Rebate and 

Application of Coding Adjustment 

(§ 422.252, § 422.258, § 422.266, and 

§ 422.308) 

16. Quality Bonus Appeals (§ 422.260) 

17. Timely Transfer of Data and Files 

When CMS Terminates a Contract With 

a Part D Sponsor (§ 423.509) 

18. Review of Medical Necessity Decisions 

by a Physician or Other Health Care 

Professional and the Employment of a 

Medical Director (§ 422.562, § 422.566, 

§ 423.562, and § 423.566) 

19. Compliance Officer Training (§ 422.503 

and § 423.504) 

20. Agent and Broker Training 

Requirements (§ 422.2274 and 

§ 423.2274) 

21. Call Center Interpreter Requirements 

(§ 422.111 and § 423.128) 

22. Customized Enrollee Data (§ 422.111 

and § 423.128) 

23. Extending the Mandatory Maximum 

Out-of-Pocket (MOOP) Amount 

Requirements to Regional PPOs 

(§ 422.100 and § 422.101) 

24. Translated Marketing Materials 

(§ 422.2264 and § 423.2264) 

C. Expected Benefits 

1. Cost Sharing for Specified Services at 

Original Medicare Levels (§ 417.101 and 

422.100) 

2. Determination of Part D Low-Income 

Benchmark Premium (§ 423.780) 

3. Voluntary De Minimis Policy for 

Subsidy Eligible Individuals (§ 423.34 

and § 423.780) 

4. Increase in Part D Premiums Due to the 

Income Related Monthly Adjustment 

Amount (D—IRMAA) (§ 423.44) 

5. Elimination of Medicare Part D Cost 

Sharing for Individuals Receiving Home 

and Community-Based Services 

(§ 423.772 and § 423.782) 

6. Appropriate Dispensing of Prescription 

Drugs in Long-Term Care Facilities 

Under PDPs and MA–PD Plans 

(§ 423.154) and Dispensing Fees 

(§ 423.100) 

7. Complaint System for Medicare 

Advantage Organizations and PDPs 

(§ 422.504 and § 423.505) 

8. Uniform Exceptions and Appeals 

Process for Prescription Drug Plans and 

MA–PD Plans (§ 423.128 and § 423.562) 

9. Including Costs Incurred by the AIDS 

Drug Assistance Program (ADAP) and 

the Indian Health Services (IHS) Toward 

the Annual Part D Out-of-Pocket 

Threshold (§ 423.100 and § 423.464) 

10. Cost Sharing for Medicare Covered 

Preventive Service (§ 417.101 and 

§ 422.100) 

11. Elimination of the Stabilization Fund 

(§ 422.458) 

12. Improvements to Medication Therapy 

Management Programs (§ 423.153) 

13. Changes to Close the Part D Coverage 

Gap (§ 423.104 and § 423.884) 

14. Medicare Advantage Benchmark, 

Quality Bonus Payments, and Rebate and 

Application of Coding Adjustment 

(§ 422.252, § 422.258 and § 422.266, and 

§ 422.308) 

15. Quality Bonus Appeals (§ 422.260) 

16. Timely Transfer of Data and Files 

When CMS Terminates a Contract With 

a Part D Sponsor (§ 423.509) 

17. Review of Medical Necessity Decisions 

by a Physician or Other Health Care 

Professional and the Employment of a 

Medical Director (§ 422.562, § 422.566, 

§ 423.562, and § 423.566) 

18. Compliance Officer Training (§ 422.503 

and § 423.503) 

19. Agent and Broker Training 

Requirements (§ 422.2274 and 

§ 423.2274) 

20. Call Center Interpreter Requirements 

(§ 422.111 and § 423.128) 

21. Customized Enrollee Data (§ 422.111 

and § 423.128) 

22. Extending the Mandatory Maximum 

Out-of-Pocket (MOOP) Amount 

Requirements to Regional PPOs 

(§ 422.100 and § 422.101) 

23. Translated Marketing Materials 

(§ 422.2264 and § 423.2264) 

D. Alternatives Considered 

1. Cost Sharing for Specified Services at 

Original Medicare Levels (§ 417.101 and 

§ 422.100) 

2. Cost Sharing for Medicare Covered 

Preventive Services (§ 417.101 and 

§ 422.100) 

3. Quality Bonus Appeals (§ 422.260) 

4. Timely Transfer of Data and Files When 

CMS Terminates a Contract With a Part 

D Sponsor (§ 423.509) 

5. Review of Medical Necessity Decisions 

by a Physician or Other Health Care 

Professional and the Employment of a 

Medical Director (§ 422.562, § 422.566, 

§ 423.562, and § 423.566) 

6. Compliance Officer Training (§ 422.503 

and § 423.504) 

7. Agent and Broker Training Requirements 

(§ 422.2274 and § 423.2274) 

8. Call Center Interpreter Requirements 

(§ 422.111 and § 423.128) 

9. Customized Enrollee Data (§ 422.111 and 

§ 423.128) 

10. Extending the Mandatory Maximum 

Out-of-Pocket (MOOP) Amount 

Requirements to Regional PPOs 

(§ 422.100 and § 422.101) 

11. Translated Marketing Materials 

(§ 422.2264 and § 423.2264) 

12. Increases to the Applicable Percentage 

for Quality (§ 422.258(d)) 

E. Accounting Statement 

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 


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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 

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 

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 

Programs 

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 

TrOOP True Out-Of-Pocket 

U&C Usual and Customary 

USP U.S. Pharmacopoeia 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Overview of the Medicare 

Prescription Drug, Improvement, and 

Modernization Act of 2003 

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 D 

regulations to continue to improve or 

clarify existing policies and/or codify 

current guidance for both programs. For 

example, 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 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). In April 2010, 

we finalized new policies for both the 

MA and Part D prescription drug 

programs as part of our continuing 

efforts to protect beneficiaries from 

excessive out-of-pocket costs, ensure 

transparency in plan costs and benefits, 

and strengthen plan compliance with 

our requirements (75 FR 19678 through 

19826). 

B. History and Overview 

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. As 

discussed above, the MMA, enacted on 

December 8, 2003, added a new ‘‘Part D’’ 

to the Medicare statute (sections 1860D– 

1 through 42 of the Act) creating the 

Medicare Prescription Drug Benefit 

Program, and made significant changes 

to the M+C program. 


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Also as noted previously, MIPPA, 

enacted on July 15, 2008, further 

amended provisions in Part C and D, 

including adding extensive new 

provisions governing marketing under 

both programs, which were 

implemented in a final rule that 

paralleled provisions in MIPPA that was 

published in the Federal Register on 

September 18, 2008 (73 FR 54208), and 

in the same issue of the Federal Register 

(73 FR 54226) we published a separate 

interim final rule that addressed the 

other provisions of MIPPA affecting the 

MA and Part D programs. We also 

clarified the MIPPA marketing 

provisions in a November 2008 interim 

final rule (73 FR 67407) and issued a 

separate interim final rule in January 

2009 to address MIPPA provisions 

related to Part D plan formularies (74 FR 

2881). 

The proposed and final rules 

addressing additional policy 

clarifications under the Part C and 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 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 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 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. 

In this new proposed rule, we are 

continuing 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 

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 D 

programs largely focus on beneficiary 

protections, MA payments, and 

simplification of MA and Part D 

program processes. These provisions 

affect the way we implement our 

policies concerning beneficiary costsharing, assessing bids for meaningful 

differences, and ensuring that costsharing structures in a plan are 

transparent to beneficiaries and not 

excessive. Some of the other provisions 

for which we are proposing 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, our proposals are intended to 

strengthen the way we administer the 

Part C and D programs, and help 

beneficiaries make the best plan choices 

for their health care needs. 

II. Provisions of the Proposed 

Regulations 

A. Overview of Proposed Changes 

In the sections that follow, we discuss 

the proposed changes to the 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 are proposing, we have 

structured the preamble narrative by 

topic area rather than in subpart order. 

Accordingly, our proposals address the 

following five specific goals: 

• Implementing the provisions of the 

ACA. 

• Clarifying various program 

participation requirements. 

• Strengthening beneficiary 

protections. 

• Strengthening our ability to 

distinguish for approval stronger 

applicants for Parts C and D program 

participation and to remove consistently 

poor performers. 

• Implementing other clarifications 

and technical changes. 

A number of the proposed revisions 

and clarifications affect both the MA 

and prescription drug programs, while 

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 would be revised. 

We note that these regulations would 

be effective 60 days after the publication 

of the final rule that will finalize the 

proposed changes discussed in this 

proposed rule, except where otherwise 

noted in the preamble. Table 1 lists the 

proposed changes that have an effective 

date other than 60 days after the 

publication of the final rule. The 

proposed effective dates are discussed 

in the preamble for each of these items. 

We are proposing several changes to 

the regulations to reflect provisions in 

the ACA which either are already in 

effect, or have an effective date that will 

likely be earlier than 60 days after the 

publication of the final rule. Table 2 

lists these proposed changes. While 

these ACA provisions are effective on 

the statutory effective date, we propose 

that the regulations implementing these 

provisions be effective 60 days after the 

publication of the final rule. 

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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 

Act concern the Part C and D programs 

and largely focus on beneficiary 

protections, MA payments, and 

simplification of MA and Part D 

program processes. The changes based 

on provisions in the ACA are detailed 

in Table 3. 

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BILLING CODE 4120–01–C 

1. Cost Sharing for Specified Services at 

Original Medicare Levels (§ 417.101 and 

§ 422.100) 

Section 3202 of the ACA amended 

section 1852 of the Act to establish new 

standards for MA plans’ cost sharing. 

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

Act was amended by the addition of a 

new clause (iii) that limits cost sharing 

under MA plans so that it cannot exceed 

the cost sharing imposed under Original 

Medicare for specific services identified 

in a new clause (iv). New section 

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

three services 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 at 

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 final rule that appeared in the April 

15, 2010 Federal Register (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 are proposing to 

amend § 422.100 by adding a new 

paragraph (g). 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 are proposing in a 

proposed new paragraph (g) in § 417.100 

that the requirements in section 3202 of 

the ACA be extended by regulation 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. 

We believe that the measures to 

protect beneficiaries from high out-ofpocket costs in section 3202 of the ACA 

complement the steps we already have 

taken in our April 2010 final rule to 

protect beneficiaries from health plans 

with high out-of-pocket costs, 

discriminatory cost sharing and benefit 

designs that interfere with beneficiaries’ 

access to affordable high quality health 

care, and create confusion that is 

attributable to having too many MA 

plan choices in an area that are not 

‘‘meaningfully different.’’ In fact, for CY 

2011, MA organizations already were 

expected to comply with new standards 

for cost sharing and to submit 

meaningfully different plans in order to 

reduce beneficiary confusion, and were 

strongly encouraged to provide 

Medicare-covered preventive services 

without cost sharing. Organizations also 

were expected to limit the number of 

plans offered in a service area by 

identifying for non-renewal plans with 

sustained low enrollment. 

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 

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 


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do not apply to such services during 

this period. 

In our proposed addition to § 422.100 

and § 417.101, we would incorporate 

these definitions for the two service 

categories. We welcome comments on 

these proposed cost sharing standards. 

We also are proposing to limit cost 

sharing for home health services under 

MA plans to that charged under Original 

Medicare. We note 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 would rely instead 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 believe that even with the 

additional restriction on cost sharing for 

home health services, 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. 

We are soliciting public comment on 

our proposal to limit cost sharing for 

home health services to that charged for 

those services under Original Medicare. 

2. Simplification of Beneficiary Election 

Periods (§ 422.62, § 422.68, § 423.38, 

and § 423.40) 

Section 3204 of the ACA modified 

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

that, beginning with plan year 2012, the 

annual coordinated election period 

(AEP) under Parts C and D will be held 

from October 15 to December 7. We 

propose to amend § 422.62(a)(2) and 

§ 423.38(b) to codify this change, which 

will be effective October 15, 2011 for 

elections effective January 1, 2012. 

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 replaces 

the MA open enrollment period that 

previously occurred annually from 

January 1 to March 31, and eliminates 

the requirements in section 

1851(e)(2)(c)(iii) of the previous open 

enrollment provision that required that 

Part D status be maintained when an 

election is made (under the previous 

rule, an individual disenrolling from an 

MA–PD plan to Original Medicare was 

required to enroll in a Part D plan, 

where it is optional under the new 

provision). We propose to amend 

§ 422.62(a) to provide for this new 

disenrollment opportunity, and modify 

§ 423.38(d) to allow for enrollment into 

a standalone PDP. 

We also would amend § 422.62(a) to 

clarify that the open enrollment 

opportunities for those beneficiaries 

who are newly eligible for MA would 

continue only through the end of 2010. 

Additionally, we would modify 

§ 422.68(f) to specify the effective date 

for disenrollment requests submitted 

during the new 45-day disenrollment 

period. Finally, in § 423.40(d), we 

would 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. These changes would 

be effective January 1, 2011. 

As indicated in section II.A. of this 

proposed rule, we propose that the 

regulations implementing these 

provisions be effective 60 days after the 

publication of the final rule. 

3. Special Needs Plan (SNP) Provisions 

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

and § 422.152) 

This section proposes a definition of 

a fully integrated dual-eligible special 

needs plan (SNP) for purposes of section 

3205(b)(iv)(II) of the ACA, and 

regulations implementing changes made 

by the ACA which extend the SNP 

program, extend provisions permitting 

existing DE–SNPs that were not seeking 

to expand their service areas to continue 

operating through 2012, and establish a 

required NCQA approval process for 

SNPs. 

a. Adding a Definition of Fully 

Integrated Dual Eligible SNP (§ 422.2) 

Section 3205 of the ACA revised 

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

authority to apply a frailty payment 

under PACE payment rules for certain 

individuals under fully integrated dualeligible special needs plans described in 

section 3205(b)(iv)(II) of the ACA. We 

are adding a definition of fully 

integrated dual-eligible SNPs to § 422.2 

that would apply for these purposes. 

Under this definition, a plan— 

• Is a SNP enrolling special needs 

individuals entitled to medical 

assistance under a State plan under 

Medicaid, as defined under section 

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

§ 422.2; 

• Provides dually-eligible 

beneficiaries access to Medicare and 

Medicaid benefits under a single 

managed care organization (MCO); 

• Has a capitated contract with a state 

Medicaid agency that includes coverage 

of specified primary, acute and, longterm care benefits and services, 

consistent with State policy; 

• Coordinates the delivery of covered 

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

management and specialty care network 

methods for high-risk beneficiaries; and 

• Employs policies and procedures 

approved by CMS and the State to 

coordinate or integrate member 

materials, including enrollment, 

communications, grievance and appeals, 

and quality assurance. 

b. Extending SNP Authority 

Section 3205 of the ACA revised 

section 1859(f)(1) of the Act 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, with the exception of dual 

eligible SNPs that do not have a contract 

with the State in which they operate as 

described in section II.B.1.c. of this 

proposed rule. This provision is 

effective upon enactment of the ACA. 

However, as indicated in section II.A. of 

this proposed rule, we propose that the 

regulations implementing this provision 

be effective 60 days after the publication 

of the final rule. 

c. Dual-Eligible SNP Contracts With 

State Medicaid Agencies (§ 422.107) 

Section 164 of MIPPA provided that 

all new dual-eligible SNPs (DE SNPs) 

must have contracts with the State 

Medicaid Agencies in the States in 

which the SNP plans operate. The 

provision also allowed existing DE 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 all other 

MIPPA established requirements were 

met. This authority was codified at 

§ 422.107. Section 3205 of the ACA 

extended this provision for existing DE 

SNPs through December 31, 2012 such 


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that all new DE SNPs must have 

contracts with State Medicaid agencies, 

while all renewing DE SNPs that do not 

have contracts with State Medicaid 

agencies and are not seeking to expand 

their service areas may continue to offer 

DE SNPs through the 2012 contract. For 

contract year 2013, all DE SNPs—new 

and renewing—must have contracts 

with State Medicaid agencies. 

Accordingly, we propose revising 

§ 422.107(d)(ii) to codify this provision. 

This provision is effective upon 

enactment of the ACA. However, as 

indicated in section II.A. of this 

proposed rule, we propose that the 

regulations implementing this provision 

be effective 60 days after the publication 

of the final rule. 

d. Approval of Special Needs Plans by 

the National Committee for Quality 

Assurance (§ 422.4, § 422.101, and 

§ 422.152) 

The ACA amended section 1859(f) of 

the Act to require that SNPs be 

approved by the National Committee for 

Quality Assurance (NCQA) effective 

January 1, 2012 and subsequent years. 

Under this section, the NCQA approval 

process shall be based on the standards 

established by the Secretary. 

The NCQA SNP approval process 

should provide a foundation for 

selecting Medicare Advantage 

organizations that comprehend the 

unique requirements of the SNP 

program and are capable of 

implementing these requirements. Both 

the overall quality improvement (QI) 

program 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. 

New SNPs or SNPs that are expanding 

their service areas are already required 

to submit a QI Program Plan and a MOC 

as part of the application process. For 

2012, we will also require existing SNPs 

to submit their QI Program and MOC 

during the same application timeframe. 

NCQA will review the QI program and 

the MOC elements during the 

application process using the standards 

that are currently being developed by 

CMS. NCQA would assume 

responsibility for the review and scoring 

of the overall QI program plan and the 

MOC based on the standards developed 

by CMS. While we will coordinate with 

NCQA in developing these standards, 

CMS will not participate in the scoring 

and review of the MOC and QI program 

plans. 

Shortly, we will release specific 

instructions and guidance to 

organizations about how to submit their 

QI program and MOCs. This guidance 

will include the specific criteria that 

NCQA will use to evaluate the QI 

program and the MOC. Also included in 

the guidance will be information about 

technical assistance that will be 

available to the SNPs as they prepare 

their QI Program and MOC submissions 

as well as details on the frequency of the 

SNP approval process. We are 

concerned that an annual approval 

process could be burdensome for plans. 

Therefore, we are considering an 

approval cycle that would occur 

between 1 to 5 years. This approval 

cycle would be designed so that the 

plans that have a higher score on the 

initial approval of their QI program and 

MOC would be granted a longer period 

before being required to be re-approved. 

While plans that scored at the lower end 

of the acceptable spectrum would be 

granted a shorter period before the next 

approval was required. We are also 

considering using other quality 

improvement measures to help 

determine the length of time a plan may 

have before reapproval. For example, 

plans that score well during their 

annual quality improvement audits may 

be eligible for extensions to the time 

period for the approval process. We 

would like to use the public comment 

period to help to determine the 

appropriate frequency for the SNP 

approval process. 

We are conducting a review of the 

MOCs from a sample of the SNPs. Data 

are not yet available from these audits. 

However, it is anticipated that the 

audits will be completed by the end of 

the calendar year. Information received 

from the audits will be used to assist 

CMS in revising and improving the 

MOC. In addition, we intend to use this 

information to modify and refine the 

required evaluation criteria over time to 

improve the QI program and the MOC. 

Accordingly, we propose adding a 

new paragraph (iv) to § 422.4(a) to 

require MA plans wishing to offer a 

SNP, whether new or current, to be 

approved by NCQA, effective January 1, 

2012, by submitting their overall quality 

QI program and MOC to CMS for NCQA 

evaluation and approval, per CMS 

guidance. We also propose codifying the 

new requirement at § 422.101(f), which 

specifies MOC requirements, by adding 

a new paragraph (vi). Finally we 

propose codifying the new requirement 

by revising § 422.152(g), which specifies 

QI program requirements. 

4. Section 1876 Cost Contractor 

Competition Requirements (§ 417.402) 

Section 3206 of the ACA revised 

section 1876(h)(5)(C) of the Act 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) be nonrenewed beginning in 2010. In addition, 

MIPPA specified that MA plan 

enrollment be assessed over a full 

contract year. 

As a result of the ACA revision, we 

will evaluate enrollment of competing 

MA coordinated care plans beginning 

2012, and affected section 1876 cost 

contractors will receive non-renewal 

notices beginning 2013. Beginning in 

2014, section 1876 cost contractors will 

no longer be able to offer health care 

services in affected service areas. We 

propose to revise § 417.402(c) to specify 

the statutory change in the 

implementation date of the section 1876 

cost plan competition requirements 

from 2010 to 2013. 

This provision is effective upon 

enactment of the ACA. However, as 

indicated in section II.A. of this 

proposed rule, we propose that the 

regulations implementing this provision 

be effective 60 days after the publication 

of the final rule. 

5. Making Senior Housing Facility 

Demonstration Plans Permanent (§ 422.2 

and § 422.53) 

Section 3208 of the ACA establishes 

(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. MA senior 

housing facility plans must: 

• Limit enrollment to residents of 

continuing care retirement communities 

as defined in section 1852(l)(4)(B) and 

codified at § 422.133(b)(2)—that is, an 

arrangement under which housing and 

health-related services are provided (or 

arranged) through an organization for 

the enrollee under an agreement that is 

effective for the life of the enrollee or for 

a specified period; 

• Provide primary care services onsite 

and have a ratio of accessible physicians 

to beneficiaries that the Secretary 

determines is adequate; and 

• Provide transportation services for 

beneficiaries to specialty providers 

outside of the facility. 

We propose to amend the definitions 

section at § 422.2 to include ‘‘senior 


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housing facility plan’’ as a new 

coordinated care plan type. Our 

proposed definition of the term senior 

housing facility plan would be 

consistent with the statutory 

requirements for such plans at section 

1859(g) of the Act—that is, that such 

plan restrict enrollment to individuals 

who reside in a continuing care 

retirement community as defined in 

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

services onsite and have a ratio of 

accessible physicians to beneficiaries 

that we determine is adequate 

consistent with prevailing patterns of 

community health care as provided 

under § 422.112(a)(10); provide 

transportation services for beneficiaries 

to specialty providers outside of the 

facility; and was participating as of 

December 31, 2009 in a demonstration 

established by us for not less than 1 

year. We note that a senior housing 

facility plan must otherwise meet all 

requirements applicable to MA 

organizations under this part. 

In addition, we propose to add a new 

§ 422.53 to subpart B of Part 422 to 

address the eligibility and enrollment 

policies applicable to senior housing 

facility plans. We propose specifying at 

§ 422.53 that MA senior housing facility 

plans must restrict enrollment in these 

plans to residents of continuing care 

retirement communities, and that 

individuals enrolled in such plans must 

meet all other MA eligibility 

requirements in order to be eligible to 

enroll. In addition, we propose 

specifying at § 422.53(c) that an MA 

senior housing facility plan must verify 

the eligibility of each individual 

enrolling in its plan using a CMS 

approved process. As indicated in 

section II.A. of this proposed rule, we 

propose that the regulations 

implementing this provision be effective 

60 days after the publication of the final 

rule. 

6. Authority To Deny Bids (§ 422.254, 

§ 422.256, § 423.265, and § 423.272) 

Section 3209 of the ACA amends 

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

subsections (C)(i) and (ii) to provide that 

nothing in section 1854 of the Act shall 

be construed as requiring the Secretary 

to accept any or every bid submitted by 

an MA organization, and expressly 

provides 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 also extends these provisions 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 proposed rule, we propose that the 

regulations implementing this provision 

be effective 60 days after the publication 

of the final rule. 

We believe that these amendments 

clarify the Secretary’s authority to deny 

bids submitted by MA organizations and 

PDP sponsors and provide support for 

our current policies intended to 

encourage plans that are high quality, 

meaningfully different from each other, 

and nondiscriminatory with respect to 

cost sharing. In our final rule entitled 

‘‘Policy and Technical Changes to the 

Medicare Advantage and the Medicare 

Prescription Drug Benefit Programs’’ (75 

FR 19678), we established authority to 

impose limits on cost sharing and to 

deny bids submitted by plans with 

sustained low enrollment, and for plans 

not meaningfully different from other 

plans offered by the same MA 

organization or PDP sponsor in a service 

area. We provided further guidance 

related to these policies 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 ‘‘2011 Part D Plan Benefit 

Package (PBP) Submission and Review 

Instructions’’). 

Using our authority under sections 

1857(c)(2)(B) and 1860D–12(b)(3)(D) of 

the Act, we codified requirements in 

§ 422.506(b)(1)(iv) and 

§ 423.507(b)(1)(iii) for Part C and Part D, 

respectively, to non-renew a health plan 

or prescription drug plan (at the benefitpackage level) if the plan does not have 

sufficient number of enrollees to 

establish that it is a viable independent 

plan option. Consistent with that 

authority, we scrutinized lowenrollment plans during the bid review 

period this year and encouraged 

sponsors to withdraw or consolidate 

low-enrollment plans prior to 

submitting bids for CY 2011. We revised 

§ 422.256(b)(4)(i) and § 423.272(b)(3)(i) 

to stipulate that we would only approve 

a bid submitted by a MA organization or 

Part D sponsor if its benefit package or 

plan cost structure is substantially 

different from those of other plan 

offerings by the organization or sponsor 

in the service area with respect to key 

characteristics such as premiums, costsharing, formulary structure, or benefits 

offered. Related changes to 

§ 422.254(a)(4) and § 423.265(b)(2) 

provide that MA organizations and Part 

D sponsors may submit multiple bids in 

the same area only if the offerings are 

substantially different from each other. 

In the above-mentioned April 16, 2010 

guidance for PDP sponsors, for the CY 

2011 plan year, we defined meaningful 

differences between health plans as a 

$20 per member per month difference 

(PMPM) in cost sharing and for PDPs as 

a $22 PMPM difference in cost sharing 

(not including premiums) as reflected in 

the out-of-pocket cost (OOPC) data. 

We further indicated that we do not 

believe sponsors can demonstrate 

meaningful differences based on 

expected out-of-pocket costs between 

two stand-alone basic Part D benefit 

designs and maintain both statutory 

actuarial equivalence requirements and 

fulfill the requirement (in § 423.153(b)) 

to maintain cost-effective drug 

utilization review programs. Therefore, 

we indicated that PDP sponsors should 

submit only one basic offering (where 

basic offering includes defined 

standard, actuarial equivalent or basic 

alternative drug benefit types) for a 

stand-alone prescription drug plan in a 

service area. We also are increasing our 

scrutiny of the expected cost sharing 

amounts incurred by beneficiaries under 

coinsurance tiers, in order to more 

consistently compare copay and 

coinsurance cost sharing impacts. If a 

sponsor submitted coinsurance values 

(instead of copayment values) for its 

formulary tiers, we requested 

documentation from the sponsor on the 

average expected price for medications 

on the coinsurance tier(s) in order to 

better translate the coinsurance value 

into an average cost sharing amount for 

the purpose of our anti-discrimination 

review. These additional benefit and 

formulary evaluations are in addition to 

our formulary review and analysis of 

tier placement of drugs to ensure that 

the coverage is balanced and that the 

associated cost sharing does not 

discriminate against beneficiaries with a 

certain disease or diagnosis category. 

Therefore, we have already established, 

in effect, a bid review policy that 

evaluates the limits plans place on 

member benefits and cost sharing. 

Under authority clarified in section 

3209 of the ACA to decline to accept 

bids, we believe that we can choose to 

limit the number and/or type of plans 

offered in service areas to enhance our 

ability to achieve our goals, which are 

to protect beneficiaries from confusion, 

discriminatory cost sharing, and any but 

the highest performing plans. For 

instance, for CY 2011, we are requiring 

that MA organizations and PDP 

sponsors meet new cost sharing 

standards, ensure that meaningful 

differences exist between plan offerings, 


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and consolidate or terminate plans with 

sustained low enrollment. Although we 

are not now proposing to establish 

additional restrictive criteria for CY 

2012, we considered proposing 

additional regulatory restrictions and 

assessed the expected effects of such 

additional restrictions on MA 

organizations, PDP sponsors, and 

beneficiaries. For example, we believe 

the Secretary has authority under 

section 3209 by regulation to set specific 

thresholds limiting premium increases 

that can be imposed without a bid being 

denied, limit which MA organizations 

and PDP sponsors may offer plans based 

on quality ratings, and specify caps on 

the number or the types of plans that 

may be offered in a service area. 

We concluded that we would not 

propose such additional restrictions 

limiting MA organizations’ or PDP 

sponsors’ plan bids until we were able 

to evaluate the effectiveness of the 

limits in place for CY 2011. We also are 

aware of the many changes we required 

plans to make for CY 2011 and believe 

that allowing plans time to adjust to the 

most recent policies prior to 

implementing further restrictions may 

be the most advantageous and 

reasonable approach for CMS, Medicare 

beneficiaries, and the organizations and 

sponsors. Thus, although we believe the 

new authority strengthens our ability to 

take corrective action in the event that 

MA organizations and PDP sponsors do 

not meet the criteria in our current 

regulation and subsequent guidance, we 

realize that setting further limits before 

we have enough information to evaluate 

the effectiveness of our recent policy 

changes or their effects on the market 

may be premature. 

Furthermore, with respect to Part C, 

we believe that the implementation of 

specific non-acceptance and denial 

policies based on comparisons of 

premium and cost sharing increases and 

benefit decreases from year to year 

would be especially challenging 

considering the number of plan types 

and services offered by MA 

organizations. There would be serious 

difficulties with an effective 

quantitative premium and cost sharing 

evaluation process. Such a process 

would need to measure and adjust for 

annual changes in maximum out-ofpocket limits, Original Medicare costsharing and premiums, medical cost 

inflation, MA payment policy, benefit 

designs, and plan service expansions 

and reductions. Such a process might 

well turn out to be too rigid to adapt to 

rapidly changing circumstances and 

market conditions. 

To avoid such rigidity, and to 

promote the statutory goals (including 

protection of beneficiaries from 

confusion and discriminatory cost 

sharing), we do not propose to specify 

additional criteria such as thresholds 

(either absolute or relative to the 

distribution of bids received) limiting 

acceptable premium increases. But we 

do seek comment on our proposed 

approach and on possible alternatives, 

designed to balance the need to avoid 

rigidity while promoting clarity and 

predictability. We are specifically 

soliciting public comments from the 

industry and advocacy communities 

regarding 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. We also 

invite comment as to 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 provision of high quality, 

affordable health plans. We also solicit 

comments on whether we should adopt 

other substantive criteria for exercising 

our authority under section 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. For 

example, for contract year 2011, we 

identified plan outliers based on 

changes in premiums and cost-sharing 

and required some changes to plan bids 

in order for them to be approved. We 

solicit comment on this and other, 

similar approaches of using outlier 

analyses based on previous and/or 

current contract year bids to exercise 

our authority under section 3209 of the 

ACA. We ask the industry and advocacy 

communities what we should consider 

when limiting the acceptance of plan 

bids or denying plan bids (for example, 

comparability and access to services in 

certain service areas, plan performance, 

outlier plans with the highest bids), 

were we to choose to move in that 

direction. Finally, we solicit comment 

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. Our decision not to 

propose additional specific criteria for 

CY 2012 should not be interpreted as an 

indication that we will not adopt 

specific policies in future rulemaking or 

that we will not perform robust and 

thorough reviews of bid submissions. 

We will continue to use our statutory 

and regulatory authority to ensure that 

only high value, non-discriminatory, 

and actuarially sound bid submissions 

are approved as we evaluate the effects 

of our current cost sharing, meaningful 

differences and low-enrollment policies 

and consider the timely suggestions and 

comments we receive from the public 

on this proposed rule to guide our 

future policy. Additionally, we note that 

our discretion to make determinations 

that MA plan bids propose significant 

increases in cost sharing or decreases in 

benefits offered on a case-by-case basis, 

in accordance with statutory goals, is 

limited to consideration of the criteria 

for acceptance or denial of plan bids 

that have been established via 

rulemaking and guidance. 

We propose to codify the amendments 

made to sections 1854(a)(5) and 1860D– 

11(d) of the Act by adding paragraph 

(a)(5) to § 422.254, revising § 422.256(a), 

adding paragraph (b)(3) to § 423.265 and 

by adding paragraph (b)(4) to § 423.272. 

7. Determination of Part D Low-Income 

Benchmark Premium (§ 423.780) 

The ACA amends the statute 

governing the calculation of the LIS 

benchmark premium amount. Section 

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

amended by the ACA, 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. This 

proposed rule updates the regulations at 

§ 423.780(b)(2)(ii)(C) to incorporate this 

change. As indicated in section II.A. of 

this proposed rule, we propose that the 

regulations implementing this provision 

be effective 60 days after the publication 

of the final rule. 

We note that the ACA also requires us 

to calculate the low-income premium 

benchmarks before the application of 

the quality bonuses under section 

1853(o) of the Act. The ACA section 

1102(d) ties the level of rebate to a 

plan’s star rating for quality of 

performance. Since the quality bonus is 

part of the rebate, we do not refer to this 

requirement in the regulation text. The 

quality bonus is described in more 

detail in the Medicare Advantage 

Benchmark, Quality Bonus Payments, 

and Rebate section (see section II.B.20. 

of this proposed rule). 

8. Voluntary De Minimis Policy for 

Subsidy Eligible Individuals (§ 423.34 

and § 423.780) 

Section 3303(a) of the ACA modifies 

section 1860D–14(a) of the Act by 

creating a new subsection (5) that 

permits PDPs and MA–PD plans to 

waive a de minimis monthly beneficiary 

premium for low income subsidy (LIS) 

eligible individuals who are enrolled in 

the plan. The provision also prohibits 

the Secretary from reassigning LIS 

individuals the plan’s premium was 

greater than the LIS benchmark 

premium amount, so long as amount of 


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the premium is de minimis and the plan 

waives it. 

Section 3303(b) of the ACA modifies 

section 1860D–1(b)(1) of the Act that 

permits the Secretary to include PDPs 

and MA–PD plans that waive the de 

minimis amount in the auto-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 there is more than 

one plan, the statute requires that 

enrollees be randomly assigned among 

all such plans in the PDP region. We 

propose to amend regulations in 

§ 423.34 and § 423.780(f) to codify the 

new statutory requirements. The 

statutory provision is effective January 

1, 2011. However, as indicated in 

section II.A. of this proposed rule, we 

propose that the regulations 

implementing these provisions be 

effective 60 days after the publication of 

the final rule. 

a. Reassigning LIS Individuals (§ 423.34) 

Currently, § 423.34(c) specifies that 

CMS may reassign certain low income 

subsidy 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 is going to 

exceed the low income benchmark as 

calculated in § 423.780(b)(2). As noted 

above, 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 is de minimis and the plan 

volunteers to waive the amount by 

which their monthly premium exceeds 

the LIS benchmark. Thus, plans that 

would otherwise have lost enrollees 

because of a de minimis monthly 

beneficiary premium can retain their 

membership. We are proposing to 

amend § 423.34(c) regarding 

reassignment of LIS beneficiaries to 

reflect section 1860D–1(a)(5) of the Act. 

b. Enrollment of LIS-Eligible Individuals 

(§ 423.34) 

Currently, § 423.34(d) specifies that 

CMS enroll LIS eligible individuals who 

fail to enroll in a PDP. The PDP into 

which we auto-enroll these individuals 

are those plans with monthly 

beneficiary premiums for LIS eligible 

individuals that do not exceed the low 

income benchmark as calculated in 

§ 423.780(b)(2). 

We are proposing to amend 

§ 423.34(d) regarding auto-enrollment of 

LIS eligible individuals to be consistent 

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

as modified by the ACA. We will 

provide details on when we will use 

this discretion in forthcoming guidance, 

specifically operational guidance 

memorandums as well as in Chapter 3 

on Eligibility, Enrollment, and 

Disenrollment of the Medicare 

Prescription Drug Benefit Manual. We 

expect that we will not auto-enroll or 

reassign beneficiaries into plans that 

volunteer to waive the de minimis 

amount. The only exception would be 

in cases where the reassignments would 

allow beneficiaries to remain within the 

same parent organization. Plans within 

the same organization usually have the 

same formulary, so keeping a person 

within the same organizations 

minimizes disruption. This mimics the 

policy in place during the de minimis 

demonstration from 2007 and 2008. The 

goal of that policy was to minimize 

reassignments, while maintaining 

downward pressure on Part D bids by 

not rewarding de minimis plans with 

new enrollees. Beneficiaries with 100 

percent premium subsidy who are 

already enrolled in, or voluntarily elect, 

a PDP or MA–PD plan that waives the 

de minimis amount will not be liable for 

premiums. Although we do not intend 

to exercise this discretion by including 

Part D plans that waive the de minimis 

amount in the pool of Part D plans 

qualified to receive auto-enrollees or 

reassignees, we do believe that the D 

regulations should be modified so that 

the flexibility to do so can be 

maintained. 

c. Premium Subsidy (§ 423.780) 

We are also proposing to amend 

§ 423.780(f) to reflect section 1860D– 

14(a)(5) of the Act. 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 propose to limit the waiver 

of the de minimis amount to the 

premium applicable to the basic benefit. 

We will determine the de minimis 

amount taking into consideration the 

goal of minimizing reassignments 

without undue cost to the program. We 

will announce the de minimis amount 

each August, in conjunction with our 

announcement of the LIS benchmarks. 

Plans will volunteer as part of the bid 

finalization process. Additional details 

will be provided in forthcoming 

guidance. 

9. Increase In Part D Premiums Due to 

the Income Related Monthly 

Adjustment Amount (D—IRMAA) 

(§ 423.44, § 423.286, and § 423.293) 

Section 3308 of the ACA amended 

section 1860D–13(a) of the Act by 

establishing an income related monthly 

adjustment amount (hereafter referred to 

as Part D—IRMAA) that is added to the 

monthly Part D premium for individuals 

whose modified adjusted gross income 

exceeds the same income threshold 

amounts established under section 

1839(i) of the Act with respect to the 

Medicare Part B income-related monthly 

adjustment amount (Part B—IRMAA). 

In calendar year (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: 

Individual tax filers with income: Joint tax filers with income: Premium 

percentage 

Equal to or less than $85,000 ................................................... Equal to or less than $170,000 ................................................ 0—No IRMAA. 

Greater than $85,000 and less than or equal to 107,000 ......... Greater than $170,000 and less than or equal to $214,000 ... 35. 

Greater than $107,000 and less than or equal to $160,000 ..... Greater than $214,000 and less than or equal to $320,000 ... 50. 

Greater than $160,000 and less than or equal to $214,000 ..... Greater than $320,000 and less than or equal to $428,000 ... 65. 

Greater than $214,000 .............................................................. Greater than $428,000 ............................................................. 80. 


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We note that section 3402 of the ACA 

freezes the income thresholds at the 

above 2010 levels through 2019. 

In accordance with section 3308 of 

the ACA, effective January 1, 2011, any 

individual enrolled in the Medicare 

prescription drug program whose 

modified adjusted gross income exceeds 

the same income threshold amount tiers 

established under Part B will have an 

income related increase to his/her Part 

D monthly premium. Section 3308 of 

the ACA provides that the income 

related monthly amount for Part D 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 percent 

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 us 

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. We must also 

provide SSA, no later than October 15 

of each year, beginning 2010, 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 will provide SSA with an initial list 

of all individuals enrolled in the Part D 

program. In accordance with section 

3308 of the ACA, SSA will use 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 will occur in 2010 so that 

individuals identified will be 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 to SSA in the same manner 

that has been established for the Part 

B—IRMAA 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 are proposing to revise 

§ 423.286 (rules regarding premiums), 

§ 423.293 (collection of monthly 

beneficiary premium), and § 423.44 

(involuntary disenrollment by PDP). 

a. Rules Regarding Premiums 

(§ 423.286) 

Currently, § 423.286(a) provides that 

the monthly beneficiary premium for a 

Part D plan in a PDP region is the same 

for all Part D-eligible individuals 

enrolled in the plan with the exception 

of employer group waivers, the 

assessment of the Part D late enrollment 

penalty, or an enrollee receiving lowincome assistance. We propose to revise 

§ 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. 

We also propose to add a new 

§ 423.286(d)(4) to define the increase for 

the income related monthly adjustment 

amount for Part D. This provision would 

specify that, beginning, January 1, 2011, 

the monthly beneficiary premium 

amount would be increased for any 

individual whose modified adjusted 

gross income amount exceeds the 

minimum income threshold amounts 

established at 20 CFR 418.1115 for the 

Part B—IRMAA. Additionally, proposed 

§ 423.286(d)(4)(i) would specify that 

SSA would determine the individuals 

that are subject to the Part D—IRMAA 

and the amount of the adjustment. 

Proposed § 423.286(d)(4)(ii) would 

provide the formula used to calculate 

the monthly adjustment amount. 

Finally, proposed § 423.286(d)(4)(iii)– 

(iv) would provide appeals rights to 

individual who disagree with SSA’s 

determination that they are subject to 

Part D—IRMAA or the threshold 

amount. 

b. Collection of Monthly Beneficiary 

Premium (§ 423.293) 

We are proposing to establish a new 

§ 423.293(d)(1) that describes how the 

Part D—IRMAA would be collected. 

First, we would address the process for 

collecting the Part D—IRMAA from 

SSA, RRB or OPM benefit payments. In 

cases where SSA had determined that a 

Part D enrollee must pay an income 

related monthly adjustment amount, 

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 would 

establish at § 423.293(d)(2) that in cases 

where premium withholding is not 

possible because the monthly benefit 

check is insufficient to allow the 

withholding, or the enrollee is not 

receiving any monthly benefit payment, 

the individual must be directly billed 

for the Part D—IRMAA through an 

electronic funds transfer mechanism 

(such as automatic charges of an 

account at a financial institution or a 

credit or debit card account) or 

according to other means that we may 

specify. 

Section 3308 of the ACA provides that 

the Part D—IRMAA is an increase to the 

monthly beneficiary premium for 

certain individuals. Section 

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

by section 1860D–1(b)(5) of the Act, 

establishes that a beneficiary may be 

terminated for failing to pay his/her Part 

D premiums. Although the Part D— 

IRMAA is paid to CMS (via benefit 

payment withholdings or direct billing 

as described above), and not to the PDP, 

we believe the same consequences 

should apply for failure to pay the Part 

D—IRMAA as for failure to pay plan 

premiums. Therefore, we are proposing, 

at § 423.293(d)(3), that CMS would 

terminate Part D coverage for any 

individual who fails to pay the income 

related monthly adjustment amount in 

accordance with proposed § 423.44. 

c. Involuntary Disenrollment by CMS 

(§ 423.44) 

Section 3308 of the ACA provides that 

the Part D—IRMAA increases the 


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71204 Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Proposed Rules 

monthly beneficiary premium for 

individuals who are subject to the 

assessment. Therefore, we propose to 

apply provisions similar to the existing 

Part D premium rules to terminate Part 

D coverage for any individual who fails 

to pay the Part D—IRMAA. However, 

prior to terminating coverage, we 

propose to provide the beneficiary with 

a grace period to pay the Part D— 

IRMAA. We propose to add § 423.44(e), 

to specify the involuntary disenrollment 

process by CMS when an individual 

fails to pay the Part D—IRMAA. 

Section 1860D–13(c) of the Act 

provides that enrollees’ Part D coverage 

can be terminated if they fail to pay 

their Part D premiums to the PDP after 

a grace period and adequate notice has 

been provided. In cases where enrollees’ 

Part D coverage is terminated due to 

their failure to pay premiums, Medicare 

rules do not now provide reinstatement 

if the enrollee later pays the premium 

arrearages after the termination date. We 

note that section C.8 of this preamble 

addresses our proposal to amend 

§ 423.44(d)(1) to reinstate a beneficiary’s 

enrollment into Part D if the beneficiary 

demonstrates good cause for failing to 

pay the Part D premium. Additionally, 

terminated enrollees cannot re-enroll in 

a stand-alone Part D or MA–PD plan 

unless they have a valid enrollment 

period. Consequently, waiting for a 

valid enrollment period may create a 

period in which an individual is 

without coverage and, depending on the 

duration, the enrollee may incur a Part 

D late enrollment penalty. Therefore, we 

propose to create a grace period and an 

extension of the grace period for good 

cause and reinstatement at § 423.44(e)(2) 

and (3) for individuals subject to the 

Part D—IRMAA. Although CMS 

recently extended the grace period that 

PDPs must provide enrollees before 

disenrolling them for failure to pay their 

premium (75 FR 19816) from a 

minimum of 1 month to 2 months, we 

propose to apply a longer grace period 

with respect to the Part D—IRMAA. The 

extended grace period under this 

proposed provision would be similar to 

the grace period (and extension of the 

initial grace period) afforded 

individuals under section 1838(b) of the 

Act with respect to the Part B premium 

(including the Part B—IRMAA). 

We believe that it is appropriate to 

provide additional beneficiary 

flexibility in terms of a longer grace 

period for the Part D—IRMAA because 

section 3308 of the ACA does not 

impact the direct subsidy amount that 

CMS is required to pay Part D plan 

sponsors. Specifically, the Part D— 

IRMAA is not a reduction in the direct 

subsidy that CMS pays to PDPs; instead, 

it is an income-based amount paid to 

CMS in addition to the premium that is 

paid by the enrollee to his/her Part D 

plan. Thus, an extended grace period 

would not impact PDPs negatively. 

Furthermore, the extended grace period 

would allow the beneficiary more time 

to pay the Part D—IRMAA arrearages 

and avoid an immediate disenrollment 

that would leave the beneficiary without 

Part D coverage sooner. Therefore, we 

are proposing to allow all enrollees a 

minimum grace period of 3 months 

following the billing month to pay any 

Part D—IRMAA arrearages before they 

are disenrolled from their Part D plan. 

In addition, we propose that an 

enrollee’s Part D coverage may be 

reinstated without interruption if the 

enrollee, within 3 calendar months after 

the termination date, demonstrates 

‘‘good cause’’ (as defined under 

§ 423.44(d)(1)(iv)of this proposed rule) 

for failure to pay Part D—IRMAA during 

the initial grace period, pays all Part D— 

IRMAA arrearages, and does not owe 

any plan premiums to the PDP. CMS (or 

an entity acting on behalf of CMS) will 

determine whether the beneficiary has 

demonstrated ‘‘good cause.’’ 

We are also proposing at 

§ 423.44(e)(4) to require 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. We are also 

proposing to add a provision at 

§ 423.44(e)(5) that would stipulate that 

in cases where an enrollee has been 

directly billed for the Part D—IRMAA 

and provided with the appropriate grace 

period as described above, the enrollee’s 

termination will be effective the first 

day following the last day of the initial 

grace period. That is, the enrollee’s last 

day of Part D coverage would be the last 

day of the grace period. 

Finally, we propose to modify the title 

of § 423.44 from ‘‘Involuntary 

disenrollment by the PDP’’ to 

‘‘Involuntary Disenrollment from Part D 

Coverage.’’ The new title would 

encompass disenrollments at the behest 

of both PDPs and CMS. In addition to 

disenrollments for failure to pay the Part 

D—IRMAA, examples of disenrollments 

that may be initiated by CMS include 

disenrollment due to death or loss of 

entitlement to Medicare Parts A or B. 

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

and Community-Based Services 

(§ 423.772 and § 423.782) 

The MMA, as reflected in § 423.782, 

established that full-benefit dual eligible 

institutionalized individuals have no 

cost-sharing for covered Part D drugs 

under their PDP or MA–PD plan. 

Section 3309 of the ACA also 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 

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 propose to 

amend § 423.772 to establish the 

definition of ‘‘individual receiving home 

and community-based services’’ and 

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

individuals will have no cost-sharing. 

The Best Available Evidence policy in 

42 CFR 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 without any 

further regulatory changes. We will 

update our guidance to plans to provide 

additional detail on how the Best 

Available Evidence regulation applies to 

this population. 

Section 3309 of the ACA provides the 

Secretary the discretion regarding the 

effective date of this provision, with the 

stipulation that it shall be effective no 

earlier than January 1, 2012. We rely on 

data from State Medicaid agencies, 

submitted to us no less frequently than 

monthly, to identify the individuals in 

the State who are full-benefit dual 

eligibles and are institutionalized. These 

data allow us to set these individuals’ 

Part D cost-sharing to zero. To expand 

the population entitled to zero costsharing to include individuals receiving 

home and community-based services, 

states would be required to identify 

these additional individuals in their 

data to CMS. 

We are proposing that this provision 

take effect on January 1, 2012. We 

believe it is important to provide this 

benefit at the earliest possible date, 

since it will provide assistance to an 

estimated 600,000 beneficiaries a year. 

In proposing an effective date, we 

considered the administrative impact on 

States, and we believe that even the 

earliest possible effective date will 

provide States with adequate time for 

implementation. 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Proposed Rules 71205 

11. Appropriate Dispensing of 

Prescription Drugs in Long-Term Care 

Facilities Under PDPs and MA–PD 

Plans (§ 423.154) 

Section 3310 of the ACA provides that 

the Secretary shall require Part D 

sponsors to utilize specific, uniform 

dispensing techniques, as determined 

by the Secretary in consultation with 

relevant stakeholders, such as weekly, 

daily, or automated dose dispensing 

when dispensing covered Part D drugs 

to enrollees who reside in long-term 

care (LTC) facilities in order to reduce 

waste associated with 30-day fills. We 

propose to implement this requirement 

by adding a new regulation at § 423.154 

to govern how plan sponsors handle 

dispensing of covered Part D drugs in 

LTC facilities. The provisions of this 

regulation will apply to all 

organizations and sponsors offering Part 

D including stand alone Part D plans, 

MA organizations, EGWP contracts, and 

PACE plans. 

Consistent with section 3310 of the 

ACA, we consulted with a number of 

stakeholders about dispensing in the 

LTC arena and their recommendations 

for implementing section 3310 of the 

ACA. On March 19, 2010, we 

participated in the ‘‘Short Cycle 

Dispensing Focus Group for Long Term 

Care’’ program hosted by the National 

Council for Prescription Drug Programs 

(NCPDP). The well attended focus group 

brought together pharmacies servicing 

LTC facilities, LTC facilities, vendors, 

prescription drug plans, and pharmacy 

benefit managers (PBMs). The objective 

of the conference was to discuss the 

implementation of 7-day-or-less 

dispensing from various points of view. 

We announced our open-door policy in 

several industry forums and have also 

actively reached out to all industry 

groups we could identify. We have 

consulted with a wide spectrum of 

industry stakeholders including 

professional organizations and trade 

groups; providers of LTC pharmacy 

services; vendors for automated 

dispensing technologies, pre-pack filling 

equipment and software; Part D 

sponsors; group purchasing 

organizations; LTC pharmacy networks; 

and pharmacy benefit managers. On 

June 29, 2010, we hosted a meeting on 

long-term care waste and the 

implementation of section 3310 of the 

ACA. The meeting brought together 

leaders in the LTC industry including 

nursing and pharmacy professional 

organizations, LTC facilities, and LTC 

pharmacies. The industry has been 

helpful in providing recommendations 

for implementing Section 3310 of the 

ACA to reduce waste associated with 

30-day dispensing. 

We consider ‘‘waste’’ to occur when a 

Part D drug is dispensed to a Part D 

enrollee residing in a LTC facility and 

billed to a Part D sponsor, but is not 

consumed by the Part D enrollee. Waste 

may occur, for example, when treatment 

with the Part D drug has been 

discontinued, the Part D enrollee has 

been discharged to the community, the 

Part D enrollee has been hospitalized, or 

the Part D enrollee has died, leaving 

unused dispensed drugs. 

Under § 423.154 (a)(1)(i), we propose 

to require all pharmacies servicing longterm care facilities, as defined in 

§ 423.100, to dispense brand-name 

medications, as defined in § 423.4, to 

enrollees in such facilities in no greater 

than 7-day increments at a time. During 

our discussions with the industry, 

multiple parties reported that 75 percent 

to 80 percent of the cost of drug wastage 

arises from only 20 percent of the drugs. 

That 20 percent is made up exclusively 

of brand-name medications. 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 supplies, we propose 

initially limiting the requirement for 

7-day-or-less dispensing to brand-name 

drugs as defined in § 423.4. However, 

nothing precludes LTC pharmacies and 

facilities from expanding 7-day-or-less 

dispensing to more than brand-name 

drugs, and we encourage Part D 

sponsors to facilitate that practice. 

While we considered imposing the 

7-day dispensing requirement for all 

drugs at once, in consultation with 

industry representatives, we have 

concluded that a transitional approach 

would ease the initial burden on 

nursing facility nursing staff time and 

LTC pharmacy pharmacist staff time, in 

particular 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. 

Many industry participants in our 

consultative phone interviews and faceto-face meetings indicated that they 

believed it would be feasible to change 

quickly to 7-days-or-less dispensing for 

the 20 percent of total scripts (that is, 

those for brand-name drugs). Although 

other industry representatives opined 

that a transitional approach was not 

necessary and that the additional labor 

associated with four times as many 

dispensing events per month on all 

applicable medications was being 

overestimated. Nonetheless, we are not 

aware of any objective data which 

demonstrate the cost effectiveness of 

full versus partial implementation, and 

thus we believe the more prudent 

course is to proceed with a transitional 

approach. If such data does exist, we 

welcome comments from the public 

presenting such data. Therefore, our 

proposal would apply the 7-day-or-less 

supply requirement initially only to 

brand-name drugs and would postpone 

applying the requirement to generic 

drugs until a later date which we will 

determine through future rulemaking. In 

the meantime, we solicit comments on 

how soon the industry can transition to 

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

We also propose excluding from the 

requirements of § 423.154(a) those drugs 

that are difficult to dispense in a 7-day 

or less supply and drugs that are 

dispensed for acute illnesses. We 

believe 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. We propose to codify these 

exclusions at § 423.154(b). In proposing 

these exclusions, we recognize that 

there are some medications that, for the 

reasons described above, do not lend 

themselves well to a 7-day or less 

supply. These include eye drops, ear 

drops, inhalers and inhalation drugs, 

nasal sprays, reconstituted antibiotics 

and other drugs with parenteral route of 

administration, drugs that must remain 

in their original container, and topical 

medications. However, in keeping with 

the statute’s intent—that is, the 

reduction of drug waste in the LTC 

setting—our proposal aims to be limited 

to instances where a 7-day-or-less 

dispensing requirement is truly not 

feasible. For example, some in the 

industry have suggested that we exclude 

liquids from the requirements; however, 

we believe most liquids can be 

transferred to smaller amber 

prescription bottles or oral syringes to 

accommodate 7-day-or-less dispensing, 

so we decline to propose the exclusion 

of all liquids. In contrast, we believe 

antibiotics reconstituted from powder 

need to remain in their original 

container and, thus, our proposal would 

exclude them from the 7-day-or-less 

dispensing requirement. For other 

medications that we proposed excluding 

from the requirement, we encourage use 

of smaller size containers, when 

available, to reduce the potential for 

waste. We solicit comments on the types 

of dosage forms and drugs that should 

be excluded from the requirements 

under § 423.154(a). 

Another solution we considered to 

reduce waste in LTC facilities is in the 

area of return for credit and reuse. 

Under this scenario, Part D sponsors 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
71206 Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Proposed Rules 

1 James W. Moncrief, Advanced Pharmacy, data 

from a seven month study of 36 LTC facilities 

presented at the NCPDP Short Cycle Dispensing 

Meeting. Sheraton Hotel BWI, March 19, 2010. 

Lepinski PW, Am J Hosp Pharm 1986 Nov; 43 

(11):2771–9 Cost comparison of unit dose and 

traditional drug distribution in a long-term-care 

facility. 

Brown CH, Am J Hosp Pharm. 1984 Apr; 

41(4):698–702 Cost of discarded medication in 

Indiana LTC facilities. 

Parrott KA Am J Hosp Pharm 1980 Nov; 

37(11);1531–4 Drug waste in LTC facilities: impact 

of drug distribution system. 

Farmer RG Am J Hosp Pharm 1985 Nov; 

42(11):2488–91 Cost of drugs wasted in the 

multiple-dose drug distribution system in longterm-care facilities. 

2Environmental Protection Agency, Unused 

Pharmaceuticals the health care industry: Interim 

report, August 2008 (available at http://epa.gov/ 

waterscience/ppcp/hcioutreach.pdf) 

would have policies in place, consistent 

with state law, to require unused Part D 

drugs to be returned to the pharmacy for 

reuse to fill another patient’s 

prescription. Although return for credit 

and reuse is not prohibited by CMS, we 

recognize limitations to this approach 

since return for credit and reuse is not 

permitted in all states, often excludes 

lower cost generic drugs, and is 

frequently limited to a subset of drugs 

in unused or specially approved 

packaging. Moreover, return and reuse 

of controlled substances is limited by 

the Drug Enforcement Agency (DEA). In 

order to reduce pharmaceutical and 

financial waste, pharmacies must 

reclaim the unused medications from 

the LTC facility, reverse, and re-bill the 

claim to reflect the unused portion of 

drug, and restock the drug. We 

understand from discussions with the 

industry that this places a significant 

burden on the pharmacies. In addition, 

there are safety and quality control 

issues regarding storage of the unused 

medications in the LTC facility and 

chain of custody of the drugs to be 

returned. Finally, return for credit and 

reuse does not address issues regarding 

drug diversion because unused drugs 

that may be returned to the pharmacy 

for reuse are still available for diversion 

prior to restocking. Upon consideration 

of these facts, we decided that return for 

credit and reuse would not be the 

optimal solution to address drug waste 

generated by LTC facilities under Part D. 

However, we believe that Part D sponsor 

contracts should not be silent on the 

disposition of unused drugs. 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 propose 

to add a provision at § 423.154(f) to 

require that Part D sponsors include 

terms in their LTC pharmacy contracts 

that require any unused drugs originally 

dispensed to the Part D sponsor’s 

enrollees to be returned to the pharmacy 

(not necessarily for reuse) and reported 

to the sponsor. Such contracts will also 

address contractual obligations for 

disposal in accordance with Federal and 

State regulations, as well as whether 

return for credit and reuse is authorized 

where permitted under State law. 

Beyond these proposed requirements, 

we urge the industry to improve 

practices with respect to the tracking 

and inventory control of returned 

unused drugs, as well as electronic 

transactions for adjustments to 

previously submitted claims and other 

reporting on the disposition of unused 

drugs. We solicit comments on whether 

there are DEA or state technical issues 

that may be barriers to the 

implementation of this provision. 

Although we are not proposing to 

recognize return for credit and reuse as 

an alternative to 7-day-or-less 

dispensing, we understand that return 

for credit and reuse may be a 

supplement to reduce the minimal 

pharmaceutical waste associated with 

7-day-or-less dispensing. Through 

conversations with the industry, we 

learned that there are circumstances 

where a Part D drug can be safely 

returned to stock for reuse. For example, 

a LTC facility may have an onsite 

pharmacy that services only that facility 

using unit dose packaging. Under those 

conditions, assuming state law allows 

return for credit and reuse, it would be 

a reasonable way to reduce the minimal 

waste that may be generated with 7-dayor-less dispensing. We will allow return 

for credit and reuse in LTC pharmacies, 

when return for credit and reuse is 

permitted under the state law and is 

allowed under the contract between the 

Part D sponsor and the pharmacy. We 

expect that if Part D drugs are returned 

for credit, the Part D drugs will be 

reused only if the environments to 

which the drugs have been exposed and 

chain of custody of the drugs do not 

compromise the safety or efficacy of the 

medication. In addition, when 

permitted or required contractually, we 

believe pharmacy dispensing fees paid 

to pharmacies may take into account 

restocking fees consistent with the 

proposed modification to dispensing 

fees under § 423.100, ‘‘Dispensing Fees’’ 

discussed in section II.F. of this 

proposed rule (Other Clarifications and 

Technical Changes). 

While we believe return for credit and 

reuse, where permitted, can help to 

reduce some drug waste after it occurs, 

we believe it is better to prevent the 

waste from occurring in the first place 

through the use of 7-day-or-less 

dispensing. It stands to reason that if 

fewer drugs are available to be wasted, 

fewer drugs will be wasted. That 

proposition is supported in smaller 

studies and analyses projecting waste 

based on retrospective reviews of drugs 

dispensed using less than 30-day 

dispensing methodologies.1 Those 

studies not only show a reduction in 

pharmaceutical waste, but also show 

savings associated with reduction of the 

waste. 

Seven-day-or-less dispensing has 

advantages besides reducing financial 

waste. For example, 7-day-or-less 

dispensing is consistent with the DEA’s 

requirement to guard against diversion 

of controlled substances by limiting the 

quantity of drugs dispensed. (See for 

example 21 CFR 1301.71). We are also 

convinced that 7-day-or-less dispensing 

would be more beneficial for the 

environment. We note that the 

Environmental Protection Agency (EPA) 

recommends that LTC facilities reduce 

the amount of pharmaceutical waste 

generated by limiting the amount of 

pharmaceuticals dispensed at one time.2

Based on our research and 

discussions with stakeholders, we 

therefore propose to require that for the 

purposes of dispensing Part D drugs to 

Part D enrollees in LTC facilities, Part D 

sponsors require that their contracted 

pharmacies dispense no more than a 

7-day supply of brand-name drugs as 

defined in § 423.4, except when a brandname drug is excluded from the 

requirement. We understand from the 

industry that 7-day-or-less dispensing 

has been used for decades by some 

pharmacies servicing small facilities 

with as few as ten beds, as well as by 

some pharmacies that service large 

facilities with hundreds of beds. Many 

pharmacies are currently using 14-day 

or 7-day-or-less dispensing 

methodologies for their Medicare Part A 

population since the nursing facilities 

are responsible for Part A stay-related 

costs and recognize the cost-saving 

value of lesser amounts dispensed at a 

time. As a result, many pharmacies 

providing drugs to LTC facilities have 

experience with 7-day-or-less 

dispensing. 

The requirement would generally 

apply to ‘‘all pharmacies,’’ including not 

only closed-door exclusively LTC 

pharmacies, but also retail pharmacies 

and mail order pharmacies that 

dispense to LTC facilities. Under section 

§ 423.100, a LTC facility means a skilled 

nursing facility as defined in section 

1819(a) of the Act, or a medical 

institution or nursing facility for which 

payment is made for an institutionalized 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Proposed Rules 71207 

individual under section 1902(q)(1)(B) 

of the Act. We note that this provision 

does not encompass settings such as 

group homes or assisted living facilities 

that may also be serviced by these same 

pharmacies. 

We also note that 7-day-or-less 

dispensing does not correspond to a 

change in the quantity of a prescription 

a prescriber writes, or the number of 

prescriptions. Unlike the typical 30 or 

90-day prescriptions written for 

individuals in the community, 

prescribing in the LTC setting is 

generally done by physicians inserting 

standing orders for medications into the 

residents’ medical record. Pharmacies 

may dispense a partial days supply in 

a manner consistent with the proposed 

requirements of § 423.154(a)(1). Partial 

filling of prescriptions is not 

inconsistent with DEA regulations and 

is permissible under 21 CFR 1306.23 for 

Schedule III, IV, and V drugs and under 

21 CFR 1306.13(b) for Schedule II drugs. 

Under § 423.154(a)(1)(ii), we propose 

to permit the use of uniform dispensing 

techniques defined by each of the LTC 

facilities being serviced. By uniform 

techniques, we 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. The industry currently employs 

a variety of single and multi-dose 

packaging systems such as punch cards 

(also known as blister packs or bingo 

cards), strip packaging, cassettes, 

pouches, and envelopes. Consistent 

with section 3310 of the ACA, we 

consulted with the LTC industry and 

based on industry input, we have 

determined that it is not possible or 

practical for CMS or Part D sponsors to 

identify the uniform dispensing 

techniques that must be used by all 

pharmacies. Rather, it is the LTC 

facilities that are in the best position to 

identify uniform dispensing techniques 

to be used throughout their LTC facility. 

We understand from the industry that 

there are various constraints and 

considerations that limit the type of 

dispensing systems used in a particular 

LTC facility. For example, we 

understand that there are older LTC 

facilities that cannot easily support 

automated dose dispensing technology 

because of the computer networking and 

ventilation considerations for that type 

of equipment. Therefore, we are 

proposing 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. Based on our conversations 

with industry, we understand that one 

of the greatest potential problems in 

implementing a 7-day-or-less dispensing 

approach would be any inconsistency in 

the dispensing methodology and/or 

packaging technique utilized in the 

same LTC facility. We believe our 

proposal to require that Part D sponsors 

must ensure that their contracted 

pharmacies dispense Part D drugs using 

techniques that are uniform throughout 

the facility would address this concern. 

We believe this proposal is consistent 

with the purpose of section 3310 of the 

ACA because it is intended to minimize 

waste through the use of uniform 

dispensing techniques that are specific 

to the LTCs being served. 

We understand from the industry that 

depending on the 7-day-or-less 

dispensing methodology used, there 

may be an increase in nursing time 

devoted to ordering and receiving 

medication. We encourage LTC facilities 

to work with the pharmacies serving 

them to determine the 7-day-or-less 

dispensing methodology that will work 

best for the LTC facility, taking into 

account not only physical plant and 

labor considerations, but also overall 

cost effectiveness and waste reduction 

potential . We believe our proposed 

requirement will accommodate various 

7-day-or-less on-demand or cycle filling 

methodologies in use by the LTC 

industry today, including (1) 7-daysupply dispensing; (2) dispensing of a 

drug for 2 days, followed by the 

dispensing of the drug for another 2 

days, followed by dispensing of the drug 

for 3 days, referred to as ‘‘2–2–3’’ day 

dispensing; (3) dispensing of a drug for 

4 days followed by the dispensing of the 

drug for 3 days, referred to as ‘‘4–3’’ day 

dispensing; (5) daily dispensing; and (6) 

automated shift or dose dispensing. 

In making this proposal, we recognize 

that automated dose dispensing, which 

generally refers to medication 

dispensing through automated 

technology located at the facility on a 

demand basis, is likely the most 

efficient dispensing methodology and 

the most effective in reducing waste. 

However, we recognize there are 

significant limitations to the rapid 

adoption of automated dose dispensing 

systems, including capital acquisition 

costs, state pharmacy board restrictions, 

the lack of final automated medical 

record and interface standards, and 

inventory considerations. Additionally, 

automated dose dispensing may not be 

considered practical by some LTC 

facilities and the pharmacies servicing 

them due to size or physical plant 

limitations. Thus, we expect Part D 

sponsors to encourage pharmacies and 

LTC facilities to work together to 

determine the most appropriate 

dispensing methodology or 

methodologies to be used for a 

particular facility. 

We recognize that the majority of 

pharmacies not already using 7-day-orless dispensing methodologies are using 

30-day dispensing for their Part D 

population. We understand that the 

most common 30-day dispensing system 

is the 30-day punch card. As a result, 

these pharmacies will have to make 

changes in the number of medications 

packed in a 30-day card or switch to 

7-day card stock in order to continue 

dispensing brand-name drugs to Part D 

enrollees residing in LTC facilities. Our 

conversations with manufacturers of the 

30-day punch card systems have 

indicated that there is minimal 

conversion involved in the transition 

from 30-day dispensing to 7-day 

dispensing. 

We also do not expect a pharmacy’s 

delivery schedule to be greatly affected 

since deliveries are generally made at 

least daily to long-term care facilities to 

accommodate first dose and new 

admission needs. However, we 

recognize that for some pharmacies 

there will be changes in the way 

deliveries are made. Some pharmacies 

may not service the number of beds to 

justify hiring additional delivery drivers 

and purchasing additional delivery 

vehicles. These arrangements need to be 

considered by the pharmacy and LTC 

facilities. As specified under 50.5.2 of 

Chapter 5 of the Medicare Prescription 

Drug Benefit Manual (See http:// 

www.cms.gov/ 

PrescriptionDrugCovContra/Downloads/ 

Chapter5.pdf), which outlines the LongTerm Care Performance and Service 

Criteria, specific delivery arrangements 

are to be determined through an 

agreement between the pharmacy and 

the LTC facility. Accordingly and 

subject to any state law restrictions, 

pharmacies and LTC facilities may agree 

to use a common carrier for some 

deliveries of drugs to LTC facilities. We 

would not consider a contractual 

agreement to deliver a portion of Part D 

drugs to Part D enrollees residing in 

LTC facilities via a common carrier to 

constitute a mail order benefit, or the 

pharmacy making some but not all 

deliveries by common carrier being 

considered a mail order pharmacy. We 

solicit comments on this interpretation. 

We note that options for billing to 

accommodate 7-day-or-less dispensing 

are being discussed in a National 

Council for Prescription Drug Programs 

(NCPDP) workgroup. Unless the 


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industry voluntarily adopts a single 

billing standard, we believe that Part D 

sponsors should generally allow 

pharmacies to use currently accepted 

transactions to minimize burden in 

transitioning to more frequent 

dispensing of smaller amounts. 

However, 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 also 

propose establishing a new requirement 

under § 423.154(a)(2) in which Part D 

sponsors must collect and report to CMS 

the dispensing methodology used for 

each dispensing event described by 

proposed § 423.154(a)(1)(i) and (ii). We 

expect that our data collection efforts 

will help us to estimate the relative 

efficiencies of dispensing methodologies 

and determine the residual waste to 

estimate additional savings. We cannot 

establish the impact of increased 

dispensing fees prior to the dispensing 

fees being renegotiated. We believe that 

it is critical for Part D sponsors and 

CMS to obtain data to identify changes 

in the industry and to evaluate the effect 

of different dispensing methodologies 

on the reduction of waste. We note that 

the NCPDP workgroup is considering 

the adoption and transmission of 

specific codes on billing transactions 

that would facilitate the collection of 

this information by Part D sponsors in 

an automated and cost-effective manner. 

We note that if adopted, this proposal 

would likely lead to a change in 

copayment methodology. We anticipate 

the implementation of particular copayment methodologies will be 

dependent on the billing and dispensing 

methodologies used, and as a result, we 

acknowledge that co-payment 

methodologies within the same plan 

may vary depending on the LTC facility 

where the beneficiary resides. We 

believe implementation of co-payment 

methodologies in this way is consistent 

with the uniform benefit requirement at 

§ 423.104(b)(2) so long as the copayment 

methodology throughout the plan’s 

service area is consistent for 

beneficiaries who receive their Part D 

medications using the same dispensing 

methodology. 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. 

Despite the changes in dispensing 

events, billing, and co-payments, we are 

considering limiting the LTC claims 

prescription drug events (PDEs) to 1 per 

month for each standing order or 

prescription. We solicit comments on 

this proposal. 

We realize our proposed requirements 

are likely to result in renegotiations of 

dispensing fees to reflect the costs 

associated with additional dispensing 

events in a single billing cycle for a 

single prescription and the costs 

undertaken to acquire technology aimed 

at reducing waste. Currently, Part D 

plans have the flexibility to vary the 

actual dispensing fees paid to 

pharmacies. As provided in section 

1860D–11(i) of the Act, we are 

prohibited from intervening in 

negotiations between pharmacies and 

Part D plans; however, we do believe 

that it reasonable to expect that 

dispensing fees be adjusted based on the 

proposed requirements under this 

provision. Accordingly, we propose to 

modify the definition of ‘‘dispensing 

fee’’ under § 423.100 to include costs 

associated with the acquisition and 

maintenance of technology to maintain 

reasonable pharmacy costs. Although it 

is not our intent to include all activities 

that are ‘‘reasonable costs’’ in the 

definition of ‘‘dispensing fees,’’ in light 

of statutory requirements regarding LTC 

pharmacy dispensing, we believe it is 

particularly important to highlight 

potential pharmacy costs aimed at 

reducing waste and efficiency of 

dispensing. We also believe dispensing 

fees are likely to differentiate among the 

costs associated with different 

dispensing methodologies and 

appropriately address costs that are 

incurred to offset waste. Appropriate 

dispensing fees that differentiate among 

the various dispensing methodologies 

could incentivize more rapid adoption 

of the most cost-effective technologies 

and align facility, plan sponsor, and 

public interests in minimizing costs and 

pharmaceutical waste. 

We also solicit comments on whether 

the requirements should be waived for 

particular types of LTC pharmacies. We 

propose to waive the requirements 

under paragraph (a) for pharmacies 

when they dispense brand-name Part D 

drugs to Part D enrollees residing in an 

intermediate care facilities for the 

mentally retarded and developmentally 

disabled (ICFMRDD) and institutes for 

mental disease (IMDs) under 

§ 423.154(c). We believe that due to 

specific problems with medication 

delivery and dispensing to closed (and 

often locked) facilities, it would be 

difficult for these pharmacies to adhere 

to 7-day-or-less dispensing. Waving the 

requirements in this instance would be 

consistent with the statute when done 

on a uniform basis (that is, all similarly 

situated LTCs) and when there is a 

demonstration that applying the 

dispensing requirements to that type of 

LTC would not serve to reduce waste. 

For the ICFMRDD and IMDs, there is a 

good rationale for not requiring 7-day 

dispensing, because requiring 7-day-orless dispensing is not feasible and could 

increase costs rather than decrease 

waste associated with 30-day 

dispensing. We solicit comments on 

whether other types of similarly situated 

facilities (such as LTC facilities utilizing 

Indian Health Service (IHS) facilities to 

provide pharmaceuticals 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 

specific reasons as to why those 

facilities should be waived from the 

requirement. 

We note that we originally considered 

waiving the requirements for 

pharmacies dispensing to small LTC 

facilities. However, we do not believe 

that such a waiver is supported based 

on conversations with the industry 

which, as stated above, demonstrate that 

pharmacies servicing LTC facilities as 

small as 10 beds are using 7-day-or-less 

dispensing methodologies. We also 

considered waiving the requirements for 

pharmacies that dispense to LTC 

facilities in rural areas. Similarly, we do 

not believe such a waiver is supported 

since many of these pharmacies deliver 

to LTC facilities daily to accommodate 

first fill and new admissions. We solicit 

specific comments on the waiver criteria 

for LTC pharmacies. 

Pursuant to section 3310 of the ACA, 

the requirements of this section go into 

effect January 1, 2012. However, as a 

result of discussions with the LTC 

industry, we propose a limited 

extension to a Part D sponsor when an 

independent community pharmacy 

(such as, not a closed door pharmacy 

dedicated to servicing LTC facilities 

only) with which the Part D sponsor has 

contracted is the primary provider to a 

small LTC facility (less than 80 beds) in 

rural communities, as defined by the 

Bureau of the Census, and the pharmacy 

is not already dispensing a 7-day supply 

to any patient population in the LTC 

facility. Since independent community 

pharmacies are frequently the only 

pharmacy provider to rural LTC 

facilities, we understand that there 

could be significant challenges in 

getting Part D drugs to beneficiaries 

residing in LTC facilities in rural areas. 

We have heard from the industry that 

small pharmacies dispensing to small 

LTC facilities in rural areas frequently 

only dispense in 30-day supplies. We 

understand that those facilities may 


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need extra time because of a lack of 

dedicated staff to adequately train and 

make the necessary changes to convert 

to 7-day-or-less dispensing by January 1, 

2012. Under § 423.154(e), we propose 

allowing an independent community 

pharmacy that is the primary provider 

of the Part D drugs to a LTC facility 

located in a rural to dispense no more 

than a 14-day supply through December 

31, 2012. We expect that these 

pharmacies contracted with Part D 

sponsors will find solutions to their 

significant challenges and work towards 

full compliance with § 423.154(a) 

during this extension. We propose that 

Part D sponsors contracted with these 

independent community pharmacies 

must come into full compliance with 

§ 423.154(a) by January 1, 2013. We 

solicit comments on this proposal. 

Based on the preceding, we propose 

to revise § 423.150 by renumbering 

paragraphs (b) through (g) as paragraphs 

(c) through (h) and adding a new 

paragraph (b) that would address 

appropriate dispensing of covered Part 

D drugs in LTC facilities. We also 

propose to add new requirements, as 

discussed previously, at § 423.154 to 

require Part D sponsors to ensure that 

all pharmacies servicing LTC facilities 

dispense no more than a 7-day supply 

of brand-name medications and use 

uniform dispensing methodologies as 

defined by each of the LTC facilities 

being serviced. In addition, we propose 

§ 423.154 (a)(2) which requires Part D 

sponsors to collect and report, as CMS 

requires, the dispensing methodology 

used for each dispensing event 

described by paragraphs (a)(1)(i) and (ii) 

of § 423.154. We propose exceptions to 

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

(2) relative to specific drugs and waivers 

of this requirements for specific 

pharmacies under § 423.154(c). 

Pursuant to section 3310 of the ACA, we 

propose the effective date of January 1, 

2012 for § 423.154 under § 423.154(d) 

with a limited extension through 

December 31, 2012 to pharmacies 

meeting the requirements under 

§ 423.154(e). We also propose to add the 

requirement that Part D sponsors require 

any unused Part D drugs originally 

dispensed to its 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 in § 423.154(f). 

12. Complaint System for Medicare 

Advantage Organizations and PDPs 

(§ 422.504 and § 423.505) 

The Secretary has the authority under 

the Act to include any terms or 

conditions the Secretary deems 

necessary and appropriate in MA 

organization and Part D sponsor 

contracts, including requiring the 

organization to provide the Secretary 

with such information as the Secretary 

may find necessary and appropriate. 

(See section 1857(e)(1) of the Act as 

incorporated into Part D through section 

1860D–12(b)(3)(D) of the Act.) Under 

this authority, we have proposed a 

number of contract provisions that 

require MA organizations and Part D 

sponsors to report specific information 

to CMS for a variety of purposes, with 

the overall goal of improving the Part C 

and D programs. For example, we relied 

on this authority to establish a 

requirement related to the reporting of 

prescription drug event data under Part 

D for purposes other than payment. One 

of the purposes for requiring submission 

of these data for nonpayment-related 

purposes was to enable us to conduct 

evaluations of the data in order to make 

recommendations for improving the 

Medicare program. 

Up until now, we have not 

implemented specific regulatory 

requirements related to the tracking and 

resolution of complaints that we capture 

from the Part C and D enrollees in the 

CMS-established Health Plan 

Management System (HPMS) 

Complaints Tracking Module (CTM). 

This system was established at the start 

of the Part D program in order to record 

and track complaints received by CMS 

from beneficiaries, providers, and other 

constituents about prescription drug 

plans. After the start of the Part D 

program, the system was expanded in 

July 2008 to collect and capture 

complaints related to the Part C 

program. 

With the establishment of the CTM 

system, we have routinely provided 

complaint-related information to Part C 

and D sponsoring organizations to assist 

sponsors in the identification of 

operational and plan performance 

issues. In addition, we have issued 

oversight and compliance direction to 

Part C and D sponsors with respect to 

CTM complaints, including CMS’ 

expectations of MA organization and 

Part D sponsors with regard to 

complaint resolution. These 

expectations are largely contained in 

recommended standard operation 

procedures (SOPs) that CMS issued to 

MA organization and Part D sponsors ( 

see https://www.cms.gov/ 

PrescriptionDrugCovContra/Downloads/ 

CTMSOP_10.06.09.pdf). As part of these 

procedures, CMS directed MA 

organizations and Part D sponsors to 

document when they resolve a 

complaint in their case notes, and to 

enter a resolution date and a resolution 

summary note in the CTM complaint 

tracking system, to which they have 

access. Since we developed the CTM 

system, we have focused on complaint 

resolution monitoring for oversight 

purposes but have not gone so far as 

requiring in regulation that MA 

organizations and Part D sponsors 

respond to complaints received by us 

and document the details of the 

complaint resolution in the CMS CTM 

system. 

With the enactment of the Affordable 

Care Act, we now believe additional 

requirements in the area of complaint 

resolutions are necessary. Under section 

3311 of the Affordable Care Act, we 

(under our delegation of authority by 

the Secretary of HHS) are directed to 

develop a complaint system that will 

allow for the collection and 

maintenance of complaints against PDPs 

and MA–PD plans. We are also directed 

to develop a model electronic complaint 

form that is to be maintained on http:// 

www.medicare.gov and the Office of 

Medicare Ombudsman’s Web site. 

Finally, we are required to report to 

Congress annually on the number and 

types of complaints reported in the 

system, geographic variations in such 

complaints, the timeliness of agency or 

plan responses to such complaints, and 

the resolution of such complaints. 

We believe that the current CTM 

system largely fulfills the requirement 

by Congress that we establish a 

complaint system to capture complaints 

against Part D plans. As explained 

previously, the CTM system was 

established to record and track 

complaints received by us from 

beneficiaries, providers, and other 

constituents about health and drug 

plans. However, to ensure that the data 

collected and warehoused in the system 

provide us with sufficient information 

to report to Congress, we believe that 

enhancements to the current system are 

necessary, particularly with respect to 

the data relating to the closure of 

complaints. While our SOP instructs 

MA organizations and Part D sponsors 

to indicate in the system a clear and 

concise complaint resolution summary 

note when the complaint is resolved, we 

have determined that many sponsors do 

not do so and merely write the words 

‘‘complaint closed’’ in the CTM. Absent 

more detailed information on how a 

complaint is resolved by the plan, we do 

not believe we will be able to meet the 

objectives of Congress to report on the 

timeliness and resolution of complaints. 

Therefore, to ensure that we have the 

appropriate information to report to 

Congress, and to further improve our 

monitoring efforts with respect to 

complaint closure, we are proposing a 


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new requirement on MA organizations 

and Part D sponsors, under the authority 

of section 3311 of the ACA and section 

1857(e)(1) and 1860D–12(b)(3)(D) of the 

Act, to require sponsors to respond to 

complaints received by us. We believe 

it is necessary and appropriate to apply 

these requirements to both MA 

organizations and Part D sponsors to 

maintain a balanced and fair program 

for beneficiaries receiving medications 

under the Part D program or an 

enhanced benefit under the MA 

program. At this time, with respect to 

the proposed requirement to document 

how a complaint was resolved, we are 

contemplating adding a drop down 

checklist to CTM that MA organization 

and Part D sponsors would use to 

document closure of complaints, as 

opposed to requiring free text 

descriptions of complaint closure. We 

invite comments on this approach. 

With respect to the model electronic 

complaint form to be used for reporting 

plan complaints, Congress has directed 

us to prominently display the form on 

the front page of the Medicare.gov 

Internet Web site and on the Internet 

Web site of the Medicare Beneficiary 

Ombudsman. We are in the process of 

developing the model electronic 

complaint form and plan to make this 

form available on the internet websites 

as required. Considering the importance 

that Congress has given to the issue of 

reporting complaints and the 

development of a standardized form for 

taking complaints against plans, we are 

also proposing to require MA 

organizations and Part D plans to link to 

the CMS-developed electronic 

complaint form on the Medicare.gov 

Internet Web site from their main Web 

page. We believe the importance 

Congress has given to the issue of 

complaint reporting makes it necessary 

and appropriate to propose to apply this 

requirement to both MA organizations 

and Part D plans. 

Accordingly, based on the preceding, 

we propose to add a new requirement to 

§ 422.504(a) and § 423.505(b) to require 

MA organization and Part D sponsors to 

address and resolve all complaints in 

the CMS complaint tracking system and 

to require a link to the electronic 

complaint form at the Medicare.gov 

Internet Web site on each Part C and 

Part D sponsor main Web page. If 

adopted, this requirement would be 

effective January 1, 2012. Following the 

issuance of a final rule, we will develop 

guidance to instruct MA organizations 

and Part D sponsors on how to comply 

with this new requirement. 

13. Uniform Exceptions and Appeals 

Process for Prescription Drug Plans and 

MA–PD Plans (§ 423.128 and § 423.562) 

Section 3312 of the ACA amends 

section 1860D–4(b)(3) of the Act by 

adding a new section (H) that will 

require, effective January 1, 2012, each 

PDP sponsor of a prescription drug plan 

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 by enrollees through a tollfree telephone number and an Internet 

Web site. 

Since the inception of the Part D 

program, we have received numerous 

comments, especially from beneficiary 

advocacy groups, suggesting the 

coverage determination and appeals 

processes are too complex and difficult 

for enrollees to navigate. The 

commenters recommended streamlining 

the existing coverage determination and 

appeals processes in order to simplify 

the plan appeals procedures for both 

enrollees and providers. The most 

significant concerns noted by 

commenters involve access to the Part D 

coverage determination and 

redetermination processes. For a variety 

of reasons, enrollees often have 

difficulty making initial requests for 

coverage. Over time, plan sponsors have 

developed plan-specific forms for 

requesting coverage, and often have 

multiple request forms that are drugspecific. As a result, enrollees often 

have difficulty locating or obtaining 

these plan-specific request forms and 

determining which form should be used 

for their particular request. Even when 

enrollees are able to locate and complete 

the appropriate request forms, they may 

have trouble determining where the 

forms should be submitted, because 

plan sponsors often have multiple 

addresses, telephone numbers, and fax 

numbers, and it is not clear which 

address or phone number should be 

used to submit a particular request. 

Commenters indicate these elements 

create a process that is quite 

overwhelming and frustrating for 

enrollees, and for those who try to assist 

them. 

In accordance with the new section 

1860D–4(b)(3)(H) of the Act, we propose 

to revise the regulation at § 423.562(a) to 

require Part D plans to use a single, 

uniform exceptions and appeals process 

that includes procedures for accepting 

oral and written requests for coverage 

determinations and redeterminations. In 

addition, we also propose to revise the 

regulation at § 423.128 paragraphs (b)(7) 

and (d) to provide 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. We believe the 

proposed requirements will address 

many of the long-standing concerns 

about the Part D coverage determination 

and appeals processes being too 

complex and difficult for enrollees to 

navigate. 

At § 423.128(b)(7), we propose 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. We plan to 

evaluate the feasibility of developing 

and requiring the use of standard 

request forms and will determine 

whether a single form can reduce 

confusion and address the needs of 

beneficiaries, providers, and PDP 

sponsors. If it is determined that 

standardized forms are appropriate, the 

forms will be developed by us and will 

be used to request any type of coverage 

determination under Part D (including 

exception requests and requests for 

drugs that may be subject to a utilization 

management requirement) and 

redeterminations. We will evaluate 

existing plan and CMS forms used for 

requesting coverage determinations and 

redeterminations to determine what 

elements should be included in the 

forms. We welcome comments and 

suggestions regarding: (1) The specific 

elements that should be included in 

these forms; (2) whether a single request 

form is feasible; and (3) any other issues 

that should be considered and/or 

resolved before this requirement is 

operationalized. 

Section 3312 of the ACA also requires 

plan sponsors to provide instant access 

to the coverage determination and 

appeals processes through an internet 

Web site. Therefore, we propose to add 

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

would require 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. We believe that 

allowing requests for coverage 

determinations and redeterminations to 

be made through plan websites will 

further increase beneficiary access to the 

coverage determination and 

redetermination processes. We propose 

that the interface would be the 

‘‘electronic equivalent’’ of the paper 


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coverage determination and appeals 

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

establishing this interface, Part D 

sponsors must ensure that any such 

interface complies with the Health 

Insurance Portability and 

Accountability Act (HIPAA) of 1996, the 

Privacy Act, and CMS’s information 

security requirements where 

appropriate. Some Part D sponsors may 

already have an electronic means for 

requesting coverage determinations and 

redeterminations available to their 

enrollees. We request comments and 

ideas regarding how such an electronic 

interface should work and any issues 

that need to be addressed before 

operationalizing this requirement. 

Plan sponsors must also establish a 

toll-free telephone line that provides 

instant access to the coverage 

determination and appeals process 

pursuant to section 3312 of the ACA. 

Therefore, we propose to revise 

§ 423.128(d)(1) to include a requirement 

that sponsors provide a toll-free 

telephone line for requesting coverage 

determinations and appeals. We 

currently require sponsors to offer a tollfree customer call center as part of the 

provision of specific information 

requirements at § 423.128(d), and 

propose requiring plan sponsors to 

provide enrollees with access to the 

coverage determination and 

redetermination processes through the 

toll-free customer call center if sponsors 

are not doing so already. In other words, 

we envision the customer service 

representative (CSR) accessing the online coverage determination and 

redetermination process via the plan’s 

web-based application discussed 

previously, and entering the information 

supplied by the enrollee via telephone. 

We will develop model scripts for the 

CSRs to use for this purpose. 

Consistent with the proposals to 

require the use of standardized forms for 

requesting coverage determinations and 

redeterminations (should this be 

determined feasible and to the extent 

that standard request forms have been 

approved for use by CMS), and the 

establishment of a toll-free telephone 

number and Web site for accepting 

requests for coverage determinations 

and redeterminations, we propose to 

amend § 423.562 by adding a new 

paragraph (a)(1)(ii) which crossreferences the proposed requirements in 

§ 423.128 paragraphs (b)(7) and 

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

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

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

Finally, we are proposing to require 

Part D sponsors to modify their 

electronic response transactions to 

pharmacies so that they can transmit 

codes instructing the pharmacy to 

provide a point-of-sale (POS) notice to 

enrollees when a prescription cannot be 

filled. Currently, when an enrollee 

attempts to fill a prescription at a 

pharmacy, the pharmacist receives 

certain information electronically 

related to the prescription from the Part 

D sponsor, which may include whether 

it is on the plan’s formulary, and 

whether there are any conditions 

associated with filling the prescription. 

In cases where a prescription cannot be 

filled as written, Part D sponsors are 

required under § 423.562(a)(3) to 

arrange with their network pharmacies 

to either post or distribute a pharmacy 

notice advising the enrollee of his or her 

right to contact the plan to request a 

coverage determination. The pharmacy 

notice is generic and does not include 

plan-specific information for requesting 

coverage determinations. While the 

current pharmacy notice provides 

enrollees with some information about 

requesting coverage determinations, 

beneficiary advocacy groups have 

argued the notice is too generic to 

provide enrollees with all of the 

information they need to easily access 

the coverage determination process. 

Advocates have also expressed concern 

about enrollees not receiving, or not 

being directed to the notice. Although 

we have been concerned about these 

complaints, under the existing 

pharmacy billing standard agreed upon 

by the National Council of Prescription 

Drug Programs (NCPDP version 5.1), it 

has not been feasible for plan sponsors 

to systematically transmit situationspecific messaging to pharmacists 

because transaction coding could not 

easily or quickly be changed. 

Furthermore, the pharmacies do not 

have the capability to populate, print, 

and distribute plan-specific notices to 

each enrollee who is not able to obtain 

a prescription as written. 

With the adoption of the new HIPAA 

pharmacy billing standard (NCPDP 

version D.0), we now have the 

opportunity to work with the NCPDP to 

develop and standardize use of codes 

that will prompt a Part D network 

pharmacist to print or provide a POS 

notice to give to enrollees when a 

prescription cannot be filled. 

Accordingly, we are proposing at 

§ 423.128(b)(7)(iii) that Part D sponsors 

modify their systems so that the plan 

sponsors are capable of transmitting 

codes to their contracted 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 believe such notices 

should be printed and provided in the 

same manner as other instructions (for 

example, instructions for taking 

prescriptions). We will 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 are also 

proposing to revise § 423.562(a)(3) by 

deleting the reference to posting the 

pharmacy notice and 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 propose 

that the pharmacy notice be provided in 

writing, consistent with the standards 

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

will include instructions explaining 

how enrollees can request coverage 

determinations by calling their plan 

sponsor’s toll free customer service line 

or accessing their plan sponsor’s Web 

site. 

14. Including Costs Incurred by AIDS 

Drug Assistance Programs and the 

Indian Health Service Toward the 

Annual Part D Out-of-Pocket Threshold 

(§ 423.100 and § 423.464) 

Section 1860D–2(b)(4)(C) of the Act 

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

individuals. Under the standard Part D 

benefit, a beneficiary is entitled to 

reductions in cost sharing under the 

catastrophic phase of the benefit once 

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

expenditures reach the annual Part D 

out-of-pocket threshold. TrOOP 

expenditures represent costs actually 

paid by the beneficiary, another person 

on behalf of the beneficiary, or a 

qualified State Pharmaceutical 

Assistance Program (SPAP). Most third 

party assistance, such as that from 

employers and unions, does not count 

toward the TrOOP threshold. 

Prior to the passage of the ACA, our 

policy as specified in the definition of 

‘‘incurred cost’’ at § 423.100 and as 

clarified in section 30.4 of Chapter 5 of 

the Prescription Drug Benefit Manual 

was that to the extent that a party 

paying for cost-sharing on behalf of a 

Part D enrollee was a group health plan, 

insurance program or otherwise (such as 

a government-funded health program), 

or third party payment arrangement 

with an obligation to pay for covered 

Part D drugs, that party’s payment 

would not count toward TrOOP. Under 

this policy, supplemental drug coverage 

provided by the Indian Health Service 

(IHS), as defined in section 4 of the 

Indian Health Care Improvement Act, 

Indian tribes and organizations, and 


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urban Indian organization facilities were 

not considered to be TrOOP eligible 

because these entities fell under our 

definition of ‘‘government-funded health 

program,’’ under § 423.100. 

Similarly, Aids Drug Assistance 

Programs (ADAPs) co-payments, which 

are funded under the Ryan White CARE 

Act, were not counted toward TrOOP 

for the purpose of meeting the out-ofpocket 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 receive 

Federal funding. Moreover, because the 

law specified that costs for covered Part 

D drugs paid by insurance or otherwise 

on behalf of a Part D enrollee do not 

count as incurred costs, any coverage 

that supplements the benefits available 

under Part D coverage that are provided 

to beneficiaries by Medicaid, Medicaid 

Section 1115 waiver programs, the VA 

health care program, the IHS, ADAP 

programs, and local or State indigent 

drug programs would not count as an 

incurred cost for purposes of TrOOP 

(see 70 FR 4240 and 4241). 

With the passage of the ACA, CMS 

requirements as they relate to IHS 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 would be treated as 

incurred costs for the purpose of 

meeting the annual out-of-pocket 

threshold. Based on these amendments, 

we propose to revise the definition of 

incurred cost at § 423.100(2)(ii) to 

include cost paid for by the IHS (as 

defined in section 4 of the Indian Health 

Care Improvement Act), an Indian tribe 

or tribal organization, or an urban 

Indian organization (referred to as I/T/ 

U pharmacy in § 423.100) or under an 

AIDS Drug Assistance Program (as 

defined in part B of title XXVI of the 

Public Health Service). We also propose 

to amend § 423.464(f)(2) to specifically 

exclude expenditures made by IHS, an 

Indian tribe or tribal organization, or an 

urban Indian organization (referred to as 

I/T/U pharmacy in § 423.100) or under 

an AIDS Drug Assistance Program (as 

defined in part B of title XXVI of the 

Public Health Service) from the 

requirement to exclude such 

expenditures for the purpose of 

determining whether a Part D enrollee 

has satisfied the out-of-pocket 

threshold. 

As indicated in section II.A. of this 

proposed rule, we propose that the 

regulations implementing this provision 

be effective 60 days after the publication 

of the final rule. 

15. Cost Sharing for Medicare-Covered 

Preventive Services (§ 417.101 and 

§ 422.100) 

Effective January 1, 2011, sections 

4103 and 4104 of the ACA revise 

sections 1833 and 1861 of the Act to 

create new coverage of Personalized 

Prevention Plan Services (PPPS) or 

‘‘annual wellness visits’’ and establish a 

requirement that no cost sharing may be 

charged to beneficiaries under Original 

Medicare for the annual wellness visit, 

the initial preventive physical exam 

(IPPE) and Medicare-covered preventive 

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

Preventive Services Task Force 

(USPSTF). 

In light of the new legislative 

requirements for Original Medicare, and 

the importance of preventive services in 

managed and coordinated care, we 

included information related to 

coverage and cost sharing for preventive 

services in guidance issued via the 

Health Plan Management System 

(HPMS) on April 16, 2010 (‘‘Benefits 

Policy and Operations Guidance 

Regarding Bid Submissions; Duplicative 

and Low Enrollment Plans; Cost Sharing 

Standards; General Benefits Policy 

Issues; and Plan Benefits Package (PBP) 

Reminders for Contract Year (CY) 2011’’) 

and May 20, 2010 (‘‘Supplemental 2011 

Benefits Policy and Operations 

Guidance on Application of the 

Mandatory Maximum Out-of-Pocket 

(MOOP) for Dual Eligible SNPs, and 

Cost Sharing for Preventive Services’’). 

In this guidance, we strongly 

encouraged MA organizations to 

provide all in-network Medicarecovered preventive services without 

cost sharing charges under their MA 

plans in contract year 2011, indicated 

our intention to consider rulemaking to 

require that such preventive services be 

provided with no cost sharing, and 

provided instructions on how to reflect 

the zero cost sharing in their plan 

benefit package (PBP) submissions for 

contract year 2011. 

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

the Act (except as provided in section 

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

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

regional plans), each MA plan must 

provide to its members all Parts A and 

B benefits included under the Original 

Medicare fee-for-service program as 

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

Act. Because we agree with Congress 

that the utilization of preventive 

services should be encouraged by 

providing them without cost sharing, 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 

propose to add a new paragraph (h) to 

§ 422.100 to require MA organizations 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 propose 

requiring that all MA organizations 

provide Medicare-covered preventive 

services, as specified by CMS, without 

enrollee cost sharing charges. Under our 

authority in section 1876(i)(3)(D) of the 

Act to impose requirements we find 

‘‘necessary and appropriate,’’ we also 

propose to add a new paragraph (f) to 

§ 417.101 to extend this proposed 

requirement to section 1876 cost plans. 

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 propose 

to direct plans to go to the following 

Medicare Web sites: https:// 

www.cms.HospitalOPPS/ and http:// 

www.cms.gov/PhysicianFeeSched/. 

16. Elimination of the Stabilization 

Fund (§ 422.458) 

Section 221(c) of the MMA added 

section 1858 of the Act to establish rules 

for MA Regional Plans. Section 1858(e) 

established an MA Regional Plan 

Stabilization Fund (the Fund) for the 

purpose of providing financial 

incentives to MA organizations that 

offered new MA Regional Plans 

nationally, or in each MA region 

without one. The Fund was also 

established to retain MA regional plans 

in regions with relatively low MA 

market penetration. Specifically, the 

MMA authorized us to make a 1-year 

‘‘national bonus payment’’ to an 

organization or organizations that 

offered an MA Regional Plan in each 

MA region in a given year (if there was 

no such plan offered in one or more 

regions in the previous year). If no 

national bonus payment was made in a 

given year, we could have used the fund 

to increase payments to MA regional 

plans offered in regions that did not 

have any MA regional plans offered in 

the prior year. Finally, to encourage 

plans to remain in regions with 


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relatively low MA market penetration, 

we could have used the Fund to make 

retention payments to MA regional 

plans that notified us of their intent to 

exit a region prior to the bidding 

deadline. Payments from the Fund, 

which was initially established at $10 

billion, were first available beginning 

January 1, 2007. 

Section 301 of Division B, Title III, of 

the Tax Relief and Health Care Act of 

2006—enacted December 20, 2006— 

delayed Stabilization Fund payments 

until January 1, 2012, and limited initial 

funding to $3.5 billion. Subsequent 

legislation, including the Medicare, 

Medicaid and SCHIP Extension Act of 

2007, and the Medicare Improvements 

for Patients and Providers Act of 2008, 

further delayed the timeframe during 

which initial funding was available 

until 2014 and limited the amount to $1. 

Section 10327(c) of the ACA repealed 

section 1858(e) of the Act, eliminating 

the Stabilization Fund. Therefore, we 

are proposing to delete paragraph (f) 

from § 422.458, since the statutory basis 

for the Fund no longer exists. 

17. Improvements to Medication 

Therapy Management Programs 

(§ 423.153) 

Section 1860D–4(c)(1)(C) of the Act 

requires Part D sponsors to 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. 

These requirements are codified in 

§ 423.153(d) of the Part D regulations. 

The federal regulations at 

§ 423.153(d)(1) require each Part D 

sponsor to establish a MTMP that is 

designed to ensure that covered Part D 

drugs (as defined in § 423.100) 

prescribed to targeted beneficiaries are 

appropriately used to optimize 

therapeutic outcomes through improved 

medication use; designed to reduce the 

risk of adverse events for targeted 

beneficiaries; furnished by a pharmacist 

or other qualified provider; and allowed 

to distinguish between services 

provided in ambulatory and 

institutional settings. Beginning in 2011, 

§ 423.153(d)(2) defines targeted 

beneficiaries as enrollees who have 

multiple chronic diseases, are taking 

multiple Part D drugs, and are likely to 

incur annual costs for covered Part D 

drugs that are greater than or equal to 

$3,000 as adjusted by the annual 

percentage increase under 

§ 423.153(d)(5)(iv) for subsequent years. 

With the recent passage of the 

Affordable Care Act, Congress provided 

for specific MTMP improvements by 

law. 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 that 

include, at a minimum, an annual 

comprehensive medication review 

(CMR) that may be furnished person-toperson 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. 

Prior to the passage of the new 

legislation, we had already made several 

improvements to the MTM program via 

the 2010 Call Letter to Part D sponsors 

on the CMS Web site at http:// 

www.cms.gov/ 

PrescriptionDrugCovContra/, as well as 

via the 2011 final rule containing policy 

and technical changes under the Part C 

and D programs (see 75 FR 19772 

through 19776 and 19818 and 19819). In 

this final rule, in accordance with our 

authority under sections 1860D– 

4(c)(1)(C) and 1860D–4(c)(2) of the Act, 

we revised our regulations at 

§ 423.153(d)(1)(v) to require Part D 

sponsors to enroll beneficiaries in their 

MTMPs using only an opt-out method of 

enrollment; § 423.153(d)(1)(vi) to 

require Part D sponsors to target 

beneficiaries for enrollment in the 

MTMP at least quarterly during each 

plan year; and § 423.153(d)(1)(vii) to 

require Part D sponsors to offer a 

minimum level of MTM services for 

each beneficiary enrolled in the MTMP 

that includes interventions for both 

beneficiaries and prescribers including, 

an annual comprehensive medication 

review with a written summary, and 

quarterly targeted medication reviews 

with follow up when necessary. We also 

revised § 423.153(d)(2) to clarify which 

beneficiaries should be targeted for 

MTMP services. 

In comparing the requirements 

codified in the final rule to those 

required by section 10328 of the ACA, 

we found that a number of the 

provisions are consistent. The final rule 

requires opt-out enrollment of targeted 

beneficiaries, 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. 

Based on this review and to ensure 

that our policies are fully consistent 

with the new requirements added by 

section 10328 of the ACA, we have 

determined that it is necessary 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 

accordance with sections 1860D– 

4(c)(1)(C) and 1860D–4(c)(2) of the Act 

as amended by section 10328 of the 

ACA, we propose to amend 

§ 423.153(d)(1)(vii) to add the 

requirement that Part D sponsors use a 

standardized format for the action plan 

and summary resulting from a review of 

the targeted beneficiary’s individual 

medications, and to provide the 

individual with a written or printed 

copy of the summary. We plan to award 

a contract to an outside entity 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. 

We also propose to amend the MTMP 

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

explicitly permit the use of telehealth 

technologies to conduct the required 

annual CMR as referenced under the 

ACA, to allow the sponsors to attempt 

innovative techniques that provide care 

at a distance in order to better serve the 

beneficiary, especially beneficiaries that 

cannot travel to the provider’s location, 

or who reside in a remote location or in 

different time zone. Recent 

advancements in digitized health care 

and telecommunication now permit 

some direct provider care to be 

delivered to beneficiaries remotely. As 

promoted in the American Recovery and 

Reinvestment Act of 2009 (ARRA), the 

adoption and use of health information 

technology (HIT) and electronic health 

records (EHR) to provide patient care is 

encouraged by the federal government. 

We emphasize that when using 

telehealth technologies, personal health 

information privacy and security must 

be ensured. 

In addition to the regulatory changes 

required to implement the ACA 

provisions, we are proposing a further 

revision to the MTMP requirements 

related specifically to MTM services 

furnished in LTC facilities. Under 

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

Act, LTC facilities must provide, either 

directly or under arrangements with 


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others, for the provision of 

pharmaceutical services to meet the 

needs of each resident. This 

requirement is codified in regulations at 

§ 483.60 which require LTC facilities to 

employ or obtain the services of a 

licensed pharmacist to provide 

consultation on all aspects of the 

provision of pharmacy services in the 

facility, including a drug regimen 

review at least once a month for each 

facility resident. 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. Further, we are concerned 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 propose to 

add a requirement for Part D sponsors 

to coordinate their MTMP with the drug 

regimen reviews performed by the LTC 

consultant pharmacists. 

Specifically, we propose to revise 

§ 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 believe 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. We believe that requiring this 

coordination is the best way to ensure 

that residents receive the advantage of 

MTM services in LTC facilities. We are 

soliciting comments from the public on 

how such coordination between 

sponsors and LTC facilities might work 

best. 

18. Changes To Close the Part D 

Coverage Gap (§ 423.104 and § 423.884) 

Section 1860D–2(b) of the Act, as 

amended by the ACA, revises the Part 

D benefit structure to close the gap in 

coverage that occurs between the initial 

coverage limit for the year and the outof-pocket threshold. The new provisions 

not only 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), but 

also reduce the growth in the annual 

out-of-pocket threshold from 2014 to 

2019. 

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 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 prescription 

drug coverage, coinsurance in the 

coverage gap for drugs that are not 

applicable drugs under the Medicare 

coverage gap discount program (that is, 

generic drugs) will be either: (1) Equal 

to the statutory generic gap coinsurance 

percentage for the year; or (2) actuarially 

equivalent to an average expected 

coinsurance for covered Part D drugs 

that are not applicable drugs under the 

Medicare coverage gap discount 

program at the statutory generic gap 

coinsurance percentage for the year, as 

determined through processes and 

methods established under section 

1860D–11(c) of the Act and 

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

our regulations. For applicable drugs 

under the Medicare gap coverage 

discount program, coinsurance in the 

coverage gap for the actual cost of the 

drug as defined at § 423.100 minus any 

applicable dispensing fees will be 

either: (1) Equal to the difference 

between the applicable gap percentage 

for the year and the discount percentage 

determined under the Medicare 

coverage gap discount program at 

section 1860D–14A(4)(A) of the Act; or 

(2) actuarially equivalent to an average 

expected payment of the coinsurance for 

applicable covered Part D drugs at the 

applicable gap percentage for the year, 

as determined through processes and 

methods established under section 

1860D–11(c) of the Act and 

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

our regulations. 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 propose codifying these new 

requirements in § 423.104(d)(4). 

Additionally, since the terms applicable 

drug, applicable beneficiary, and 

coverage gap have not been previously 

defined in regulation, we are proposing 

new definitions for these terms at 

§ 423.100. 

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 accordance with the new 

requirements, as proposed in 

§ 423.104(d)(5)(iii), the annual out-ofpocket threshold for years 2014 and 

2015 will be the amount specified for 

the previous year, increased by the 

‘‘annual percentage increase’’ in the 

average expenditures for Part D drugs 

per eligible beneficiary currently 

specified in § 423.104(d)(5)(iv), minus 

0.25 percentage point. In accordance 

with the new requirements in sections 

1860D–2(b)(4)(B)(i) and 1860D–2(b)(7) 

of the Act, we propose amending 

§ 423.104(d)(5)(iii) and (v), to reflect that 

for years 2016 through 2019, the annual 

out-of-pocket threshold will be the 

amount specified for the previous year, 

increased by the lesser of: (1) The 

annual percentage increase in the 

consumer price index specified in 

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

plus 2 percentage points; or (2) the 

‘‘annual percentage increase’’ specified 

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

nearest $50. The new provisions in 

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

require us to calculate the annual outof-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 propose to amend 

§ 423.104(d)(5)(iii) to reflect this 

requirement. 

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 propose codifying this 

new requirement in § 423.884(d) of this 

rule. 

As indicated in section II.A. of this 

proposed rule, we propose that the 

regulations implementing these 

provisions be effective 60 days after the 

publication of the final rule. 


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19. Payments to Medicare Advantage 

Organizations (§ 422.308) 

Section 1853(a)(1)(C) of the Act 

requires the Secretary to adjust MA 

payments by risk factors including age, 

disability status, gender, institutional 

status, and other factors as the Secretary 

determines to be appropriate, including 

adjustment for health status. Section 

1853(a)(3) of the Act required the 

Secretary to establish a ‘‘risk 

adjustment’’ methodology which 

‘‘accounts for variations in per capita 

costs based on [the] health status [of the 

enrollee].’’ 

Generally, the law related to MA 

payments is self-implementing, and the 

effective dates for changes to the 

payment methodology are established in 

statute and announced in accordance 

with section 1853(b) of the Act. 

Regulations related to payment 

provisions thus implement 

requirements that are effective on the 

date specified in statute and as provided 

for in the Annual Announcement of MA 

Capitation Rates and MA and Part D 

Payment Policies. 

a. Authority To Apply Frailty 

Adjustment Under PACE Payment Rules 

for Certain Specialized MA Plans for 

Special Needs Individuals (§ 422.308) 

Section 3205 of the ACA provides the 

Secretary with the authority to apply a 

frailty adjustment to payments to certain 

SNPs, 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 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 are interpreting this new statutory 

language to mean that payments to 

frailty-qualifying SNPs will 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 are interpreting this new 

statutory language to permit 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. 

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 will announce 

any changes to the methodology used to 

pay for the frailty, as well as how we 

determine PACE program averages, and 

which frailty-qualifying SNPs have 

similar levels of frailty, in the Advance 

Notice and Rate Announcement for the 

plan year in question. 

The Secretary has the authority to 

make an adjustment to payment to take 

into account the level of frailty among 

the enrollees of a plan if the plan meets 

our proposed definition of a fully 

integrated dual-eligible special needs 

plan at § 422.2 and the plan has a 

similar average level of frailty as the 

PACE program. In order to have a frailty 

score that can be compared to the PACE 

program, MA organizations sponsoring a 

dual eligible SNP that meets our 

proposed definition of a fully integrated 

dual-eligible SNP must fund any survey 

used by us to support the calculation of 

frailty scores; the survey must 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). Further, the survey must 

adhere to the methodological 

requirements of any such survey. 

As indicated in section II.A. of this 

proposed rule, we propose that the 

regulations implementing this provision 

be effective 60 days after the publication 

of the final rule. 

b. Application of Coding Adjustment 

(§ 422.308) 

Section 1102(e) of the ACA amended 

section 5301(b) of the Deficit Reduction 

Act (DRA) of 2005. Beginning in 2006, 

section 1853(a)(1)(C)(ii), as added by 

section 5301(b) of the DRA, required the 

Secretary, in risk adjusting payments for 

health status under 1853(a)(1)(C)(i), to 

ensure that such adjustment reflects 

changes in treatment and coding 

practices in the FFS sector and 

beginning in 2008 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. The ACA adds new 

statutory language clarifying our 

existing authority to adjust risk scores 

for coding trends in the FFS sector, 

under its 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. 

Adjusting risk scores for the 

underlying FFS trend—or 

normalization—is necessary to ensure 

accurate payments because, each time 

we recalibrate a risk adjustment model, 

the average risk score is set to 1.0 using 

the fixed set of coefficients appropriate 

to the population and data for that 

calibration year. When the model with 

fixed coefficients is used to predict 

expenditures for other years, predictions 

for prior years are lower and predictions 

for succeeding years are higher than for 

the calibration year. Because average 

predicted expenditures increase after 

the model calibration year due to coding 

and population changes, we apply a 

normalization factor to adjust 

beneficiaries’ risk scores so that the 

average risk score is 1.0 in subsequent 

years. 

Adjusting risk scores for the 

difference between MA and FFS coding 

patterns is also necessary in order for 

payments to be accurate because we 

calibrate the CMS–HCC model using 

FFS data, and the relative factors reflect 

the FFS pattern of coding. We adjust for 

the trend in the rate of increase of 

diagnoses codes submitted by FFS 

providers with the application of a 

normalization factor that is updated 

annually and that adjusts risk scores 

with the goal that the average remains 

1.0 in each payment year. However, 

because MA coding patterns differ from 

those in FFS, MA risk scores generally 

increase more quickly and are, 

therefore, higher than they would be if 

MA plans coded in the same manner as 

FFS providers. 

The DRA also required the Secretary 

to conduct an analysis of the differences 

in FFS and MA coding patterns in order 

to ensure payment accuracy. Such an 

analysis was to be completed in time to 

ensure that the results of such analysis 

were incorporated into the risk scores 

for 2008 through 2010. In conducting 

such analysis, the Secretary was to use 

data submitted with respect to 2004 and 

subsequent years, as available. 

The ACA made four modifications to 

this requirement for analysis. They 

are—(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 indefinitely. 

The ACA added two additional 

requirements to the DRA-mandated 

requirements. First, the ACA requires 

that the adjustment factor for 2014 be 

not less than the adjustment factor 

applied for 2010 plus 1.3 percentage 

points; for each of the years 2015 

through 2018, not less than the 

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. 


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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. 

As indicated in section II.A. of this 

proposed rule, we propose that the 

regulations implementing this provision 

be effective 60 days after the publication 

of the final rule. 

c. Improvements to Risk Adjustment for 

Special Needs Individuals With Chronic 

Health Conditions (§ 422.308) 

The CMS–HCC risk adjustment model 

incorporates a set of coefficients for 

calculating risk scores for new enrollees 

that are based on demographic factors 

only, such as age, sex, Medicaid status, 

and original reason for entitlement. A 

new enrollee risk score is used in the 

payment of a beneficiary who is 

enrolled in an MA plan or PACE 

organization and who does not have 

enough diagnoses in the data collection 

period to calculate a full risk score. We 

classify a beneficiary as a new enrollee 

when they do not have 12 months of 

Part B in the data collection period. 

Because chronic SNP enrollees must, 

as a condition of enrollment, have 

specific conditions, the average new 

enrollee risk score of new enrollees in 

chronic SNPs is likely to understate 

these beneficiaries’ risk. For 2011 and 

subsequent years, for purposes of the 

adjustment under section 

1853(a)(1)(C)(i) of the Act, the Secretary 

will use a risk score that reflects the 

known underlying risk profile and 

chronic health status of similar 

individuals. 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. 

For 2011 and periodically thereafter, 

the Secretary will 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. The Secretary is 

required to 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. 

As indicated in section II.A. of this 

proposed rule, we propose that the 

regulations implementing this provision 

be effective 60 days after the publication 

of the final rule. 

20. Medicare Advantage Benchmark, 

Quality Bonus Payments, and Rebate 

(§ 422.252, § 422.258, and § 422.266) 

a. Terminology (§ 422.252) 

In order to implement new ACA 

provisions affecting MA payments, we 

propose to revise § 422.252 by adding 

two new terms and revising one term. 

We propose to add the terms ‘‘new MA 

plan’’ and ‘‘low enrollment contract.’’ A 

new MA plan means, for the purpose of 

quality ratings under proposed 

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

respect to a year, a plan offered by an 

organization or sponsor that has not had 

a contract as an MA organization in the 

preceding 3-year period. A low 

enrollment contract is a contract that 

could not undertake Healthcare 

Effectiveness Data and Information Set 

(HEDIS) and Health Outcome Survey 

(HOS) data collections because of a lack 

of a sufficient number of enrollees to 

reliably measure the performance of the 

health plan. 

We also propose to revise the 

definition of Unadjusted MA areaspecific non-drug monthly benchmark 

amount to reflect the provision of the 

ACA that, 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 

§ 422.258(d). In addition, this revision 

clarifies that ratesetting rules for county 

capitation rates are specific to a time 

period, as set forth at § 422.258(a). 

Finally, this revision further clarifies 

that the term ‘‘unadjusted’’ refers to a 

standardized amount, reflecting a risk 

profile based on the national average. 

b. Calculation of Benchmarks 

(§ 422.258) 

Section 1102(b) of the ACA 

establishes a new blended benchmark as 

the MA county rate, effective 2012, and 

section 1102(c) of the Act establishes 

quality-based increases to the blended 

benchmark. To implement these ratesetting rules for the MA program 

effective 2012 onward, we propose 

amendments to § 422.258(a) and 

§ 422.258(c)(3), and propose the 

addition of a new paragraph 

§ 422.258(d), which sets forth the 

provisions for MA blended benchmarks, 

including increases to the benchmarks 

for quality bonuses at § 422.258(d)(7). 

Proposed § 422.258(a) implements 

section 1853(j) of the Act to reflect the 

ACA requirement that CY 2011 MA 

capitation rates be set at 2010 levels. 

Proposed § 422.258(a) also clarifies 

which ratesetting rules are in effect for 

a particular time period by 

distinguishing the (c)(1) capitation rates 

in effect prior to 2007 from the 

applicable amount rates in effect from 

2007 to 2011 (section 1853(k)(1) of the 

Act), and from the blended benchmark 

rates effective for 2012 (section 1853(n) 

of the Act). 

We also propose to amend 

§ 422.258(c)(3) to require that the MA 

regional plan statutory component of 

the region-specific benchmarks be 

calculated using the county rates 

determined under proposed § 422.258(a) 

for the year. This amendment ensures 

that the statutory component of the 

regional plan benchmarks reflects ratesetting rules regarding blended 

benchmarks for counties that are 

effective in 2012. 

To implement sections 1853(n) and 

(o) of the Act, as added by sections 

1102(b) and (c) of the ACA, respectively, 

on blended benchmarks and qualitybased increases to the benchmarks, we 

propose to add a new paragraph 

§ 422.258(d). Paragraphs (1) through (6), 

and (8) and (9), of paragraph (d) 

implement provisions regarding the 

blended benchmark, effective for 2012 

onward. Paragraph (7) implements the 

provisions to increase the blended 

benchmarks for MA plans that receive 

quality ratings of a specified level. The 

quality bonus provisions in 

§ 422.258(d)(7) are discussed following 

presentation of other provisions on the 

blended benchmarks that are 

implemented in this proposed 

paragraph. 

The MMA established the concept of 

the ‘‘unadjusted MA area-specific nondrug monthly benchmark amount’’ as 

the service-area level benchmark for an 

MA plan, as specified in section 1853(j) 

of the Act and implemented at 

§ 422.258(a) for MA local plans and 

§ 422.258(b) for MA regional plans. 

Under rules established by the MMA, 

the service area-level benchmark for an 

MA plan is, in effect, the bidding target. 

Service area-level benchmarks are based 

on county capitation rates, and the 

general amendments to the rules for 

setting county capitation rates are as 

follows. The MMA eliminated the 

‘‘higher of three’’ rate-setting rule that 

had been established by the Balanced 

Budget Act of 1997 (BBA), and 

mandated a transition to the ratesetting 

rule that a county capitation rate was 


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the (redefined) minimum percentage 

increase rate for a year (that is, the 

previous year’s rate increased by the 

greater of 102 percent or the National 

Per Capita Medicare Advantage Growth 

Percentage), except in years when 

county average FFS expenditures were 

rebased (updated with more recent 

data); in rebasing years a county rate for 

a year was the greater of the FFS rate 

and the minimum percentage increase 

rate. The DRA introduced section 

1853(k)(1) of the Act, which mandated 

that a county rate is an ‘‘applicable 

amount’’ for an area for a year, also used 

‘‘for purposes of subsection (j),’’ that is, 

to determine a plan’s service area-level 

benchmark. Effective in 2007, the 

applicable amount under section 

1853(k)(1) of the Act for an area for a 

year was the (again, redefined) 

minimum percentage increase rate (that 

is, the prior year’s rate increase by the 

National Per Capita Medicare Advantage 

Growth Percentage), except in a year 

when we rebased the FFS rates; in a 

rebasing year, the applicable amount 

was the greater of the county’s rebased 

FFS rate and its minimum percentage 

increase rate. In other words, the 

‘‘unadjusted MA area-specific non-drug 

monthly benchmark amount’’ was now 

based on applicable amounts under 

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

Section 1102(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 determined ‘‘for purposes 

of subsection (j)’’—to determine MA 

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). This 

percentage varies depending on several 

rules discussed below. The minimum 

percentage increase rate will no longer 

exist. Rather, we must rebase the 2012 

county FFS rates, and all 2012 county 

capitation rates are based on the FFS 

rates. The rebasing rule at section 

1853(c)(1)(D)(ii) of the Act remains in 

effect, requiring us to rebase the FFS 

rates at least every 3 years. In years after 

2012 when the FFS rates are not 

rebased, the county rate is the previous 

year’s rate increased by the National Per 

Capita Medicare Advantage Growth 

Percentage. In effect, the ACA mandates 

that the ‘‘unadjusted MA area-specific 

non-drug monthly benchmark amount’’ 

will be based on the blended benchmark 

rate, thus replacing the applicable 

amounts determined under section 

1853(k)(1) of the Act. 

However, section 1853(n) of the Act 

states that there are two components of 

the blended benchmark: The applicable 

amount determined under section 

1853(k)(1) of the Act and described at 

proposed § 422.258(d)(1); and the 

‘‘specified amount’’ introduced at 

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

described at proposed § 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 proposed 

paragraphs (d)(8) and (d)(9) of § 422.258 

of the regulations. At the conclusion of 

an area’s phase-in period, the blended 

benchmark for the area for a year will 

be the area’s specified amount under 

section 1853(n)(2) of the Act. In other 

words, when all counties have 

concluded their transition periods to a 

blended benchmark based on 100 

percent of the specified amount, the 

‘‘blended’’ aspect of the benchmark will 

also be concluded, because the 

proportion attributed to the applicable 

amount under section 1853(k)(1) of the 

Act will be zero. However, we will 

continue to calculate the applicable 

amounts under section 1853(k)(1) of the 

Act because section 1853(n)(4) of the 

Act requires that the blended 

benchmarks for an area for a year must 

be capped at what the applicable 

amount under section 1853(k)(1) of the 

Act would be for a year if the blended 

benchmark provisions were not in 

effect. 

Specified Amount. Section 1853(n)(2) 

of the Act, as implemented by proposed 

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

forth the formula for the specified 

amount and the rules for tabulating the 

components of the formula. Specifically, 

the specified amount is the product of 

two quantities: the base payment 

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

of the Act (adjusted to carve-out the 

indirect medical education (IME) 

amount, as required at section 

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

at § 422.306(c); and the applicable 

percentage defined at section 

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

implemented at proposed 

§ 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 proposed § 422.306(b)(2). 

For subsequent years, the base payment 

amount for an area is the average FFS 

expenditure amount specified in 

§ 422.306(b)(2), which includes the 

requirement to rebase (update with 

more recent data) the FFS rates no less 

frequently than every 3 years. 

The applicable percentage is one of 

four values assigned to an area (a 

county) based on our determination of 

the quartile ranking for the previous 

year of the area’s average FFS 

expenditure amount (described at 

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

for all counties. The FFS rate used for 

the quartile ranking must be net of the 

IME amount determined under 

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

States or the District of Columbia, 

counties whose FFS rates (net of the 

IME amount for the year) fall in the 

highest quartile of all such amounts for 

the previous year receive an applicable 

percentage of 95 percent, while counties 

falling in the second highest quartile 

receive an applicable percentage of 100 

percent, counties falling in the third 

highest quartile receive an applicable 

percentage of 107.5 percent, and 

counties falling in the lowest quartile 

receive an applicable percentage of 115 

percent. To determine the applicable 

percentages for a territory, we must rank 

such areas for a year based on the level 

of the area’s FFS amount net of the IME 

amount, relative to the quartile rankings 

computed for the 50 States and the 

District of Columbia. 

After establishing the basic formula 

for the specified amount and setting the 

rules for calculating its components— 

the base payment amount and the 

applicable percentage, sections 1853(n) 

and (o) of the Act provide additional 

rules for determining the applicable 

percentage for a county for a year. There 

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

whether some counties receive quartile 

reassignments; (2) how to transition a 

county from one quartile assignment to 

another; (3) how to assign a county its 

transition period of 2, 4, or 6 years, 

whereby at the conclusion of the 

transition period, the county’s blended 

benchmark equals 100 percent of the 

specified amount; and (4) under what 

conditions the applicable percentage 

shall be increased to provide a quality 

bonus payments to qualifying plans. 

The first three types of rules are 

discussed here, and the fourth rule on 

quality bonuses is discussed in the next 

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

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

implemented at proposed 

§ 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 

§ 422.306(b)(2). For example, if we did 

not rebase the FFS rates for contract 

year 2013, but did rebase them for 

contract year 2014, the base payment 

amount for contract year 2014 would be 


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the 2014 rebased FFS rates, but the 

applicable percentage for contract year 

2014 must be based on the previous 

year’s quartile ranking, which would be 

the 2013 rates. Under this hypothetical 

scenario, because the 2013 FFS rates 

were not rebased, the 2013 FFS rates are 

the 2012 FFS rates increased by the 

2013 National Per Capita Medicare 

Advantage Growth Percentage; further, 

because the 2013 growth trend would be 

applied as a constant to all 2012 FFS 

rates, in effect the applicable 

percentages for contract year 2014 

would be based on the quartile ranking 

of the 2012 rebased FFS rates. 

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

Act, implemented at proposed 

§ 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. For example, if a county’s 

ranking changed from the third quartile 

to the second quartile, the applicable 

percentage would be 103.75 percent for 

the year of the change—the average of 

107.5 percent and 100 percent. 

Third, sections 1853(n)(2) and (n)(3) 

of the Act, implemented at proposed 

§ 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 proposed paragraph (d)(1) and 

‘‘the projected 2010 benchmark amount’’ 

at proposed (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 paragraph § 422.306(c); 

and the applicable percentage, which is 

determined under the rules set forth at 

proposed paragraph (d)(8)(ii)(B). 

Specifically, all applicable percentages 

are increased as if all counties were in 

qualifying plans in 2010 for the purpose 

of calculating the projected 2010 

benchmark amount (thus adding 1.5 

percentage points to each county’s 

applicable percentage). Further, we 

must determine a list of 2010 qualifying 

counties using the criteria set forth for 

2012 onward in proposed paragraph 

(d)(7)(ii), thus further increasing the 

applicable percentage of this subset of 

2010 counties an additional 1.5 

percentage points. 

Once the special quantity ‘‘projected 

2010 benchmark amount’’ is compared 

to the 2010 specified amount under 

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

county is assigned a 2-year phase-in 

period if the difference between the 

applicable amount and the projected 

2010 benchmark amount is less than 

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

difference is at least $30 but less than 

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

difference is at least $50. 

Finally, section 1853(n)(3), 

implemented at proposed 

§ 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 onefourth 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 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 phasein 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 onehalf of the specified amount for the area 

and year; for 2015 it is the sum of onethird 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. 

c. Increases to the Applicable 

Percentage for Quality (§ 422.258(d)) 

Under the ACA, the Secretary is 

required to implement increases to MA 

plan benchmarks (which are the basis of 

a plan’s bidding target) if they attain 4 

or more stars on a 5 star quality rating 

system implemented by the Secretary. 

The effective date for this provision is 

January 1, 2012. For the purposes of this 

preamble, we will refer to these qualitybased increases in MA benchmarks as 

quality bonus payments (QBPs) for MA 

plans. We propose to implement the 

quality payment provisions under 

section 1102 of the ACA at 

§ 422.258(d)(7) and at § 422.252. Below 

we discuss our proposal for applying a 

star rating system to MA plan 

benchmarks. 

Under the terms of proposed 

§§ 422.258(d)(7) and 422.252, MA 

organizations would be evaluated and 

scored on a 5-star rating system, with 

bonus payments made to qualifying 

organizations that have a star rating of 

4 or higher. As specified under section 

1102 of the ACA, 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. 

Under the proposed regulations, the 

blended benchmark for 2012 and future 

years would reflect the level of quality 

rating at the organization or contract 

level, as determined by the Secretary 

pursuant to a methodology that would 

be set forth in a notice to MA 

organizations for the calendar year in 

question. This notice would come in the 

form of a memorandum to the Medicare 

Compliance Officers of MA 

organizations. As discussed in section 

II.B.20.b of this proposed rule, the 

blended benchmark has two 

components—the applicable amount 

and the specified amount. A qualifying 

organization that receives 4 or more 

stars on a 5 star rating system would, 

under the proposed regulations, 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 

would receive double the applicable 


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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 plans 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. 

Under the proposed regulations, a new 

MA plan would 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 5 star ratings system that would 

be used is the system currently in place, 

which historically has served two 

purposes. First, the plan ratings provide 

beneficiaries information on 

organization performance that they may 

consider (in addition to cost and benefit 

information) when choosing a plan. The 

second purpose is to assist us in 

identifying poor performing 

organizations for compliance actions. 

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 will receive 

a combined Part C and D summary 

rating to summarize overall contract 

performance with respect to health and 

drug issues. This combined rating 

would, under the proposed regulations, 

be used to determine the new quality 

bonus payments (QBPs) based on 

quality. 

We have always considered the plan 

rating system to be based on information 

consistent with section 1852(e) of the 

Act, which specifies that MA 

organizations are required to collect, 

analyze and report data that measure 

health outcomes and other quality 

indices. Because section 1852(e) of the 

Act states that ‘‘The Secretary shall not 

collect data on quality, outcomes and 

beneficiary satisfaction to facilitate 

consumer choice and program 

administration other than the types of 

data that were collected by the Secretary 

as of November 1, 2003’’, we clarify here 

the types of data included under the 

plan rating system are consistent with 

the types of data collected as of 

November 1, 2003. Since 1997 Medicare 

managed care organizations have been 

required to annually report quality of 

care performance measures through 

HEDIS. HEDIS is a widely used quality 

measures set in the managed care 

industry, developed and maintained by 

the National Committee for Quality 

Assurance (NCQA). HEDIS data 

includes clinical measures assessing the 

effectiveness of care, access/availability 

measures such as telephone customer 

service, and use of service measures. We 

have also been conducting the 

Consumer Assessment of Healthcare 

Providers and Systems (CAHPS) survey 

since 1997 to measure beneficiary’s 

experiences and satisfaction with their 

health plans. HOS began in 1998 to 

capture changes in the physical and 

mental health of MA enrollees. 

Additionally, there are several measures 

based on performance that address 

telephone customer service, members’ 

complaints, disenrollment rates, and the 

seriousness of problems found during a 

Medicare audit. All of these measures 

reflect structure, process, and outcomes 

indices of quality that form the 

measurement set under plan ratings. 

Additionally, since 2007, we have 

publicly reported a number of measures 

related to the drug benefit as part of the 

plan ratings. For MA organizations that 

offer prescription drug coverage, we 

have developed a series of measures 

focusing on administration of the drug 

benefit. Similar to MA measures of 

quality relative to health services, the 

Part D measures focus on customer 

service and satisfaction, effectiveness, 

and access to care relative to the drug 

benefit. Because these measures focus 

on structure, process, and outcomes 

indices of quality, we believe that they 

too are consistent with the types of 

information referenced in section 1852 

(e) of the Act. Therefore, we believe that 

the Part C and D plan ratings are 

consistent with the limitation expressed 

in section 1852(e) of the Act limiting 

data collection for quality to the types 

of data collected as of November 1, 

2003. 

Additionally, for 2012 and thereafter, 

the ACA directs the Secretary to 

develop definitions for new 

organizations that lack sufficient data to 

produce a star rating. Those new plans 

as defined by the Secretary will be 

considered qualifying organizations and 

will receive a bonus payment. The ACA 

requires that for 2012 the Secretary 

develop definitions for low enrollment 

plans that lack sufficient data to 

produce a star rating. For years after 

2012, the Secretary must develop a 

methodology in order to rate these low 

enrollment plans for purposes of 

determining whether these plans qualify 

for quality bonus payments and what 

are the applicable beneficiary rebates 

percentages for these plans. We are 

proposing to add a new paragraph (d)(7) 

to § 422.258 to reflect our authority to 

make bonus payments based on quality. 

Under § 422.252, we propose definitions 

of a low enrollment organization and a 

new organization for the purpose of 

identifying qualifying organizations 

eligible to receive a bonus payment. 

Low enrollment plans will be qualifying 

plans for 2012 and in subsequent years, 

the Secretary is directed to develop a 

methodology to assign star ratings to 

low enrollment organizations. MA 

organizations that fail to report data as 

required by the Secretary shall be 

counted as having a rating of fewer than 

3.5 stars at the organization or contract 

level, as determined by the Secretary. 

For the purpose of awarding 2012 

quality bonus payments, we propose to 

define low enrollment organizations as 

those that could not undertake HEDIS 

and HOS data collections because of a 

lack of a sufficient number of enrollees 

to reliably measure the performance of 

the health plan. New MA organizations 

that meet criteria specified by the 

Secretary are also treated as qualifying 

organizations for the purposes of QBPs. 

We propose to define a new MA 

organization as a MA contract offered by 

a parent organization that has not had 

another MA contract in the previous 3 

years; these contracts would qualify for 

the QBP. Other MA contracts that open 

in a given year, but have had other 

contracts offered by the parent 

organization offering the new plan in 

the prior three 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. Also 

under the ACA, new MA organizations 

that meet criteria specified by the 

Secretary are treated as qualifying 

organizations for the purposes of QBPS. 

We propose to define a new MA 

organization as a MA contract offered by 

a parent organization that has not had 

another MA contract in the previous 3 

years; these contracts would qualify for 

the QBP. Other MA contracts that open 

in a given year, but have had other 

contracts offered by the parent 

organization offering the new plan in 

the prior three 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. 

We anticipate moving toward 

transformation of the rating system in 

future years in order to advance more 

ambitious and comprehensive quality 

improvement objectives. These 


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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. 

As we develop a longer term strategic 

framework for transforming the MA 

quality rating system, over the near 

term, we also will consider 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 being proposed as a 

framework for the MA Quality Strategic 

Plan. The IOM Report provides the 

following definitions for the six aims: 

Safe is defined as avoiding injuries to 

patients from the care that is intended 

to help them. Effective refers to 

providing services based on scientific 

knowledge to all who could benefit, and 

refraining from providing services to 

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

respectful of and responsive to 

individual patient preferences, needs, 

and values, and ensuring that patient 

values guide all clinical decisions. 

Timely is defined as reducing waits and 

sometimes harmful delays for both those 

who receive and those who give care. 

Efficient is avoiding waste, including 

waste of equipment, supplies, ideas, and 

energy. Equitable is providing care that 

does not vary in quality because of 

personal characteristics such as gender, 

ethnicity, geographic location, and 

socioeconomic status (IOM, 2001). 

We invite 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), 

NCQA, the Agency for Healthcare 

Research and Quality and Research 

(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? 

As a part of developing our long-term 

quality strategy, we have begun 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. We are 

also examining the use of alternative 

measurement sets (for example, 

ACOVE), exploring the use of data 

collected in other settings (for example, 

rural hospital quality data 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 all-cause readmission rates 

and ambulatory care sensitive 

conditions that we would look to 

implement as they become available. 

These are some of the activities that we 

anticipate engaging in over the next few 

years, and we expect to undertake 

further measure identification, 

refinement, and development as we 

implement the MA quality bonus 

payments. 

Further, beyond broadening the goals 

of the MA quality rating system, for 

instance by incorporating more 

outcomes-based measures, we also seek 

to continually raise performance targets, 

so as to incentivize continual quality 

improvement across established metrics 

of performance and quality. We invite 

public comment on appropriate 

performance and quality benchmarks, 

and what approach should be used for 

updating these benchmarks, including 

frequency of updates. 

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 an 

agency-wide Quality Working Group 

Advisory 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’s 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 are proposing the following 

amendment to § 422.258 to add a new 

paragraph (d)(7) to reflect our authority 

to make bonus payments based on 

quality. Under § 422.252, we propose 

definitions of low enrollment 

organization and new organization for 

the purpose of identifying qualifying 

organizations eligible to receive a bonus 

payment. 

While the regulations we are 

proposing in this section would 

implement the QBP provisions specified 

in the ACA on a permanent basis, for 

the near term we will be conducting a 

demonstration project under which the 

rules for determining QBPs set forth in 

the Affordable Care Act and in these 

proposed regulations would be waived, 

and QBPs would instead be determined 

under the terms of the demonstration. 

For CYs 2012 through 2014, MA 

payment will be determined under the 

terms of the national quality bonus 

payment demonstration project. Details 

on the demonstration will be provided 

on the CMS Web site. 

d. Beneficiary Rebates (§ 422.266) 

The proposed rule for calculation of 

beneficiary rebates implements section 

1102(d) 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. 

The ACA does not change the basic 

rules for determining whether or not an 

MA plan must provide a beneficiary 

rebate. These three basic rules are as 

follows. As set forth at § 422.262, we 

determine whether an MA plan must 

charge a basic beneficiary premium for 

coverage of Original Medicare benefits 

by comparing the unadjusted 

(standardized) Parts A/B bid amount to 

the unadjusted (standardized) Parts A/B 

benchmark amount for the plan for the 

year. If the bid is less than the 

benchmark, the basic beneficiary 

premium for coverage of Original 

Medicare benefits is zero. Second, as set 

forth at § 422.264(c) and (d) for local 

and regional plans, we calculate the 

amount of savings for MA plans with 

zero basic beneficiary premiums, which 

is 100 percent of the difference between 


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the risk-adjusted bid amount and the 

risk-adjusted benchmark amount. 

Finally, as set forth at § 422.266, the MA 

plan’s beneficiary rebate amount is 

calculated as a percentage of the savings 

amount. Rebates must be used to reduce 

the costs of Part C mandatory 

supplemental benefits, Part D 

supplemental benefits, and/or to reduce 

the Part D basic premium and Part B 

premium. 

Section 1102(d) of the ACA changes 

the share of savings that MA plans must 

provide to enrollees as the beneficiary 

rebate specified at § 422.266(a). 

Specifically, this provision mandates 

that the level of rebate is tied to the level 

of a plan’s star rating for quality of 

performance. Under the new provisions, 

the highest possible rebate, for plans 

with a 4.5 star rating or higher, is set at 

70 percent of the average per capita 

savings. The rebate is reduced further 

for plans with lower star ratings for a 

year. These new provisions are phasedin from 2012 through 2014. The 

demonstration project mentioned in 

section II.B.20.c. of this proposed rule 

would not affect the rebate percentages 

associated with a particular star rating, 

under the terms of the ACA. 

We propose to revise § 422.266 by 

first redesignating paragraph (a) as 

paragraph (a)(1), and amending it to 

apply to years 2006 through 2011. We 

further propose to add paragraph (a)(2), 

which sets forth the rebate 

determination rules for 2012 and 

subsequent years. Proposed 

§ 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 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. 

Proposed § 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: Twothirds 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: 

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 or contract 

based on the plan’s star rating for the 

year. 

Proposed § 422.266(a)(2)(iii) describes 

the rules for low enrollment plans. For 

2012, the ACA requires that low 

enrollment plans shall be treated as 

having a rating of 4.5 stars for the 

purpose of determining the beneficiary 

rebate amount. Proposed 

§ 422.266(a)(2)(iii) describes the rules 

for new MA plans. For 2012 or a 

subsequent years, a new MA plan 

defined at § 422.252 that meets the 

criteria specified by us for purposes of 

§ 422.258(d)(7)(v) shall 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. 

For the purpose of setting a plan’s 

rebate level for 2012 and 2013, we 

anticipate that MA organizations will 

receive adjustments to their quality 

ratings in a manner similar to the 

adjustments proposed for benchmarks, 

in recognition that MA organizations 

have limited ability to influence their 

summary plan ratings for purposes of 

the 2012 and 2013 determination of the 

plan rebate amount. 

21. Quality Bonus Payment and Rebate 

Retention Appeals (§ 422.260) 

Section 1853(o) of the Act requires us 

to make QBPs to MA organizations that 

achieve performance rating scores of at 

least 4 stars under a five star rating 

system. While we have applied a star 

rating system to MA organizations for a 

number of years, these star ratings have 

thus far been used only to provide 

additional information for beneficiaries 

to consider in making their Part C and 

D plan elections. Beginning in 2012, the 

star ratings we assign for purposes of 

QBPs under section 1858(o) of the Act 

will directly affect the monthly payment 

amount MA organizations receive from 

us under their contracts. In effect, the 

bonus payment provisions of the new 

statute create a new category of CMS 

determinations related to MA 

organizations that affect their payments, 

arguably similar in terms of possible 

adverse impact to determinations 

related to contract qualification, 

termination, sanction, and payment 

reconciliation. Historically, a key aspect 

of the exercise of our authority to make 

such organization-specific 

determinations has been making an 

administrative review process available 

to MA organizations. Accordingly, we 

are proposing a review process through 

which MA organizations may seek 

review of their star rating (‘‘QBP status’’) 

for QBP determinations. 

Section 1854(b)(1)(C)(v) of the Act, as 

added by the ACA, also requires us to 

change the share of savings that MA 

organizations must provide to enrollees 

as the beneficiary rebate specified at 

§ 422.266(a) based on the level of a 

sponsor’s star rating for quality 

performance. This review process will 

also apply to the determinations made 

by us where the organization’s plan 

rating sets its QBP status at ineligible for 

rebate retention. 

While the statute does not specify a 

process for appealing low star ratings for 

QBP purposes, we are proposing this 

process pursuant to our authority to 

establish MA program standards by 

regulation at section 1856(b)(1) of the 

Act. We are proposing to afford the MA 

organization the opportunity to seek an 

appeal of their QBP status by a hearing 

officer. Prior to a request for an appeal, 

we will afford MA organizations the 

benefit of a technical report on the 

calculation of their QBP status, at the 

organization’s request. 

As previously discussed, for calendar 

years 2012 through 2014, QBP payments 

will be awarded under the terms of a 

demonstration project. Because the 

appeals process proposed in this 

proposed rule contemplates that the 

regulations governing QBP payments 

would be in effect, we are considering 

that these regulations not take effect 

until after the demonstration project has 

terminated. We anticipate making the 

appeals regulations effective when the 

demonstration project has terminated. 

In the interim, we will announce a 

process to appeal low star ratings for 

both QBP determinations under the 

demonstration and rebate retention 

allowances in separate guidance. We 

request comment regarding our proposal 

to delay the effective date of the appeals 

process set forth in this proposed rule 

until after the end of the demonstration. 

Under the proposed regulations 

described in this section, MA 

organizations would be permitted to 

request a report on the calculation of 

their QBP status upon CMS’ issuance of 

its final QBP payment determinations 

each year. Currently, we make plan star 

ratings available to MA organizations 

each September. As we have in prior 

years, we will continue to provide all 

organizations with a two-week preview 

period during which they can review 

their plan rating and raise questions 

concerning its accuracy with us before 

it is displayed on the CMS Web site. As 

noted in the discussion of the 

implementation of quality bonus 

payments earlier in this preamble, the 

plan ratings play a significant role in 

identifying MA organizations that 

qualify for QBPs. While we reserve the 


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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 

will be considered made, subject to the 

appeal rights described in this section, 

when the notice of QBP status is 

released. 

Under our proposed regulations, MA 

organizations would have 5 calendar 

days from the date of CMS’ release of its 

QBP determinations to request from 

CMS a technical report explaining the 

development of their QBP status. The 

report would be produced by an 

independent contractor engaged by us to 

review the application of CMS’ QBP 

payment methodology to the 

organization’s performance for the most 

recent evaluation period. The technical 

report would be designed primarily to 

allow MA organizations to ‘‘see CMS’ 

work’’ by providing the organization 

with a full explanation of how the 

values were determined for each 

performance area and how those values 

were in turn incorporated into the 

methodology used to calculate the QBP. 

This information would help MA 

organizations identify the ways in 

which their organization would need to 

improve to qualify for a QBP in future 

MA program years. The technical report 

contractor would provide its report in 

writing by electronic mail to the MA 

organization and CMS within 30 days of 

CMS’ receipt of the organization’s 

request for the report. 

If, after reviewing the technical report, 

the MA organization believes that we 

were incorrect in its QBP determination, 

the MA organization would be able to 

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. Such request 

would have to include a statement that 

describes the errors that we made in our 

QBP determination and how correction 

of those errors would result in the 

organization’s qualification for a QBP. 

We propose that the scope of the 

hearing 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 CMS 

used to make the QBP determination. 

We would make available and request 

comment from the public on the star 

rating calculation methodology each 

year. Once that process is concluded, 

the appeals process proposed may not 

be used as a means to challenge the 

validity of the adopted methodology. 

Generally, we do not believe that the 

appeals process should provide a forum 

for MA organizations to challenge the 

accuracy of plan rating data as such data 

has often been made available to the 

sponsor and been subject to 

independent review (for example, 

HEDIS, CAHPS) prior to their use in 

QBP determinations. However, we 

acknowledge that while MA 

organizations often have access to the 

their raw performance data, the data sets 

we actually develop and use for the 

calculation of some of the performance 

measures may not be made available to 

the MA organization until they are 

released to them during the star rating 

preview period or through the technical 

report proposed here (for example, call 

center studies, appeals processing 

analysis). With respect to those data 

sets, we think it is appropriate to afford 

MA organizations the opportunity to 

challenge their accuracy during an 

appeal. Therefore, we propose to limit 

the scope of the hearing officer’s 

consideration concerning the 

underlying data sets to those that have 

not been previously subject to 

independent validation. We are 

soliciting comments on whether this is 

an appropriate limitation on the scope 

of a QBP status appeal. 

We expect that the appropriately 

limited scope of the appeal means that 

the relevant issues can be developed 

sufficiently for review by a hearing that 

would be conducted on the record, 

unless the parties requested and the 

hearing officer approved, a live or 

telephonic hearing. Also, the parties 

will not be permitted to conduct 

discovery as the only facts at issue will 

already have been sufficiently 

developed by CMS and in the QBP 

technical report contractor. 

In determining the appropriate official 

to conduct a QBP appeal, we must 

consider issues of expertise and 

efficiency. We are proposing to 

designate a hearing officer who was not 

directly involved in the QBP 

determinations but who has sufficient 

understanding of the QBP methodology 

to promptly and effectively consider an 

MA organization’s appeal. The 

designated hearing officer for the 

purpose of these appeals may or may 

not be the CMS Hearing Officer. 

The hearing officer would be required 

to issue his or her decision on or before 

May 15 of the year preceding the year 

in which the plans for which the QBP 

is to be applied will be offered. This 

deadline is necessary to afford MA 

organizations time to incorporate their 

QBP status into their plan bids, due to 

us by the first Monday in June. 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 would have the right to revise, on 

its own initiative, an MA organization’s 

QBP status at any time after the initial 

release of the QBP determinations 

through May 15 of each year. We may 

take this action on the basis of any 

credible information, including the 

technical report issued pursuant to the 

process proposed here, which 

demonstrates that the initial QBP 

determination was incorrect. 

At this time, we are not proposing 

another level of administrative review 

beyond the hearing officer. While many 

of our administrative processes include 

the potential for review by the CMS 

Administrator, given the timing 

considerations of concern for both CMS 

and the MA organizations, we have 

opted not to propose Administrator 

review in these cases. We expect that 

the time between our notification to MA 

organizations of their QBP status and 

the date by which organizations need to 

have certainty concerning their QBP 

status to develop their MA plan bids 

each year may only be sufficient to 

accommodate the completion of the 

technical report and the hearing officer 

review. We believe that it would not 

benefit MA organizations to afford them 

an appeal right which they likely may 

not be able to avail themselves of in 

time to affect their bid calculations. 

However, we are soliciting comments 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 Administratorlevel review both in terms of its 

contribution to administrative due 

process and its impact on the annual 

MA bid submission timeline. 

C. Clarify Various Program Participation 

Requirements 

The proposed regulations in this 

section clarify existing regulations or 

implement new requirements consistent 

with existing policy guidance to assist 

sponsoring organizations with attaining 

the goals envisioned by the Congress 

when the legislation implementing the 

Medicare Advantage and Prescription 

Drug Benefit programs was first passed. 

These clarifications are detailed in 

Table 4. 


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

Section 1866(a)(1)(O) of the Act and 

regulations at § 422.214(b) require that, 

when paid by an MA organization for 

services furnished to an MA plan 

enrollee, a non-contracting provider of 

services (for example, a hospital, skilled 

nursing facility or home health agency) 

must accept, as payment in full, the 

amounts that the provider could collect 

if the beneficiary were enrolled in 

Original Medicare. While this provision 

acts as a cap on what an MA 

organization is required to pay a noncontracting provider of services, if the 

provider of services bills the MA 

organization an amount that is less than 

the Original Medicare payment amount, 

the MA organization is only obligated to 

pay the amount billed. 

Payment disputes have occurred in 

recent years for services provided on a 

non-contract basis to MA enrollees by 

providers of services that are paid under 

prospective payment (PPS) 

methodologies, such as hospitals and 

home health agencies. In several cases, 

MA organizations have interpreted 

requests for payment by such providers 

to be requests for amounts less than the 

amount that would be paid under 

Original Medicare. This is because, 

under PPS methodologies, providers are 

to submit estimated charges, which are 

then combined with diagnostic 

information in pricing software to 

determine the PPS payment rate for the 

service. Under Original Medicare, if 

these estimated charges are less than the 

PPS payment amount produced by the 

Medicare pricing software, the higher 

Medicare payment amount is paid. 

Because this is the method for 

requesting payment at the Original 

Medicare payment amount under the 

Original Medicare program, we believe 

that the same information should 

similarly be treated as a request for the 

full Medicare payment amount when 

submitted to an MA organization in a 

request for payment unless the provider 

has made clear that it intends to bill the 

MA organization less than the Original 

Medicare amount. Thus, if the provider 

of services notifies the MA organization 

in writing that it intends to bill less than 

the payment amount it would receive 

under Original Medicare, consistent 

with longstanding policy, the MA 

organization may pay the provider the 

lower amount that is billed. 

In response to questions about this 

issue, CMS clarified its expectations for 

plans and out-of-network providers in 

its Out-of-Network Payment Guide 

released February 25, 2010. This 

guidance reflected 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. However, the 

guide 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 


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‘‘billed’’ or ‘‘charge’’ amount from the 

claim) that Original Medicare would 

pay in the case of the same submission. 

We propose to reflect the policy set 

forth in our February 25, 2010 guidance 

in the regulations governing payment to 

non-contract providers by adding a new 

paragraph (c) to § 422.214 to provide 

that a request for payment from an MA 

organization by a non-contract provider 

paid under a 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 also think it is important to clarify 

in this proposed rule that MA 

organizations offering regional PPO MA 

plans must always pay non-contract 

providers the Original Medicare 

payment rate in those portions of their 

service area where they are meeting 

requirements for access to services by 

non-network means as described in 

§ 422.111(b)(3)(ii). We believe this 

requirement is justified under 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. 

We propose adding a new paragraph 

(d) to § 422.214 clarifying that an MA 

organization must always pay noncontract providers at least the Original 

Medicare payment rate in those portions 

of its service area where it is meeting 

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

2. Pharmacist Definition (§ 423.4) 

Pursuant to our authority under 

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

4(c)(2)(A)(i) of the Act, we propose 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 (D.C.) (collectively 

referred to as ‘‘United States 

authorities’’). We propose adding a 

definition for the word ‘‘pharmacist’’ to 

§ 423.4 in Subpart A to reflect this 

understanding. 

The proposed change is prompted by 

recent Medicare Part D sponsor audit 

findings in which CMS 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. We 

believe that there are potential threats to 

beneficiary safety and access when 

decisions are made by clinicians who 

are not licensed by United States 

authorities. 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; make 

clinical decisions consistent with the 

Federal Drug Administration (FDA) 

prescribing information for products; 

and are knowledgeable about the range 

of pharmaceutical products available on 

the United States market, appropriate 

generic substitutions, and over-thecounter and behind-the-counter 

products. We believe that requiring 

pharmacists to be licensed by United 

States authorities will help guarantee 

that Part D sponsors meet these 

expectations. 

3. Prohibition on Part C and D Program 

Participation by Organizations Whose 

Owners, Directors, or Management 

Employees Served in a Similar Capacity 

With Another Organization That 

Terminated Its Medicare Contract 

Within the Previous 2 Years (§ 422.506, 

§ 422.508, § 422.512, § 423.507, 

§ 423.508, and § 423.510) 

In our final rule (75FR 19678) entitled 

‘‘Policy and Technical Changes to the 

Medicare Advantage and the Medicare 

Prescription Drug Benefit Programs.’’ 

that appeared in the April 15, 2010 

Federal Register, we modified § 423.508 

by adding a paragraph (e) stating that 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 circumstances warranting special 

consideration. Similarly, in 

§ 423.504(b), we added a new paragraph 

(b)(6) stating that as a necessary 

condition to contract as a Part D 

sponsor, an organization must not have 

terminated a contract by mutual consent 

and, as part of that consent, agreed not 

to apply for new contracts or service 

area expansions for a period of up to 2 

years. Similar modifications were made 

for the MA regulations. Specifically, we 

modified § 422.508 by adding paragraph 

(c) and § 422.503(b) by adding a new 

paragraph (b)(7). These changes ensured 

consistency across all situations in 

which a sponsor elects—through nonrenewal, termination, or mutual 

termination—to discontinue its 

participation in the Part C or D 

programs. 

In this rule we are proposing to 

amend the 2-year new contract 

prohibition in both § 422.508 and 

§ 423.507 by adding a new subsection 

entitled ‘‘Prohibition of Part C and 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 propose adding similar 

clarifying language to the existing 

language at § 422.506, § 422.512, 

423.508, and § 423.510. Under sections 

1857(e)(1) and 1860D–12(b)(3)(D) of the 

Act, the Secretary may add terms to the 

contracts with MA and Part D sponsors 

including requiring the organization to 

provide the Secretary with such 

information as the Secretary may find 

necessary and appropriate. It is our 

belief that to carry out the intentions of 

the 2-year exclusion we 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 D programs. In order to meet 

this goal we want to evaluate the new 

organization’s management and 

ownership to detect a situation in which 

‘‘ABC, Inc.’’ applies for a new contract as 

‘‘XYZ, Inc.’’ Therefore, we are proposing 

a requirement which will 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 nonrenewed, terminated, or mutually 

terminated a Medicare contract. We are 

proposing to develop standards and 

benchmarks regarding the percentage of 

ownership or management control that 

we would conclude is problematic. 

This proposed requirement will 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. Since the start of the Medicare 

Advantage and Part D programs, we 

have seen MA organizations and Part D 

entities that terminated a contract for 

various reasons apply as a new 

organization with Medicare within the 

2-year exclusion period with the same 

ownership and management structure as 

the previous organization. This 

proposed requirement will help ensure 

that the provisions of the 2-year 

application prohibition are given full 

effect. 

Therefore, we are proposing that the 

2-year ban on new Part C or D sponsor 

contracts to which non-renewing, 

terminating, or mutually terminating 

organizations are currently subject 

under the regulation be expanded to 


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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 D 

organization. Under this proposed 

regulation, we would then 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. For 

this proposal we are defining ‘‘covered 

persons’’ to include— 

• All owners of applicant 

organizations who are natural persons 

(other than shareholders who: (1) Have 

an ownership interest of less than 5 

percent; and (2) acquired the ownership 

interest through public trading). In 

addition, is a natural person who is an 

owner in whole or part interest in any 

mortgage, deed of trust, note or other 

obligation secured (in whole or in part) 

by the entity or any of the property 

assets thereof, which whole or part 

interest is equal to or exceeds 5 percent 

of the total property, and assets of the 

entity; or 

• An officer or member of the board 

of directors or board of trustees of the 

entity, if the entity is organized as a 

corporation. 

This standard for disclosure is 

modeled after the authority granted to 

the Secretary by section 1124(a) of the 

Act (42 U.S.C. 1320a–3) which provides 

for disclosure standards for, among 

other entities, Medicaid managed care 

organizations and Medicare carriers and 

fiscal intermediaries. 

We solicit comments on whether plan 

sponsors, or other stakeholders consider 

the proposed definition of ‘‘5 percent or 

more’’ truly represents current market 

conditions. We are requesting comments 

on this section because we do not want 

to arbitrarily decide on the percentage of 

interest the above mentioned persons 

could have in an organization, 

especially if this percentage does not 

reflect standard business practices. 

We are proposing to amend § 422.508 

and § 423.507 to make the 2-year 

exclusion applicable to organizations for 

which any covered persons were also 

covered persons for the excluded 

organization. We are proposing to make 

similar amendments to § 422.506, 

§ 422.512, § 423.508, and § 423.510. 

4. Timely Transfer of Data and Files 

When CMS Terminates a Contract With 

a Part D Sponsor (§ 423.509) 

Federal regulations at § 423.509(a)(1) 

through (a)(12) clearly defines 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 

effectuate a smooth transition of the 

sponsor’s enrollees to new Part D 

coverage in a fashion that facilitates 

continuity of care and fiscal 

responsibility. These responsibilities 

include providing timely 

documentation requested by CMS, 

retaining all documents for the periods 

specified in the Federal laws and CMS 

regulations (see § 423.505(d) and (e)) 

and otherwise providing the resources 

necessary for an orderly transition of 

Medicare beneficiaries to their newly 

assigned or selected plan. 

In order for a timely and orderly 

transition to occur, the terminated Part 

D sponsor must provide us with certain 

critical Medicare beneficiary data 

including information to identify each 

affected beneficiary, pharmacy claims 

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

balances, and information concerning 

pending grievances and appeals. Data 

such as TrOOP balances are necessary to 

correctly place the beneficiary in the 

benefit and provide the catastrophic 

level of coverage at the appropriate 

time. This list is an example of various 

required data and is not intended to be 

all inclusive of the data necessary to 

assure a timely and smooth transition 

for the Medicare beneficiary when 

leaving the terminated plan and 

enrolling in a new plan. 

The requirement to provide such data 

and files is already clearly articulated 

for voluntarily non-renewing Part D 

plan sponsors (§ 423.507(a)(4)); for 

contracts terminated by mutual consent 

(§ 423.508(d)); and for contracts 

terminated by the plan sponsor for 

cause (§ 423.510(f)). However, the 

regulation is currently silent regarding 

contracts terminated by CMS. Therefore, 

in order to protect both Medicare 

beneficiaries and CMS and to ensure 

that the requirement to provide such 

data and files is clear for all types of 

contract non-renewals and terminations, 

we are proposing to add a new section 

(e) ‘‘Timely transfer of data and files’’ to 

§ 423.509 (Termination of Contract by 

CMS) to state that should the Part D 

plan sponsor’s contract be terminated by 

CMS, the Part D sponsor must ensure 

the timely transfer of any data or files. 

This language will inform Part D 

sponsors being terminated by CMS that 

they are required by Federal regulation 

to timely transfer all requested data and 

files to CMS or its designee for the 

required time as specified under 

§ 423.505(d) and (e). 

Sponsors that fail to provide the 

necessary data directly harm 

beneficiaries, as these individuals will 

likely be charged incorrect amounts for 

their medications when transferring to a 

new Part D sponsor. Specifically, 

beneficiaries may be forced to re-satisfy 

deductible requirements under the new 

plan, or prevented from moving into the 

catastrophic phase of the benefit (where 

there are minimal out-of-pocket costs) 

when otherwise eligible. Therefore, 

plans that do not comply with this 

section may be subject to a Civil 

Monetary Penalty as defined by 

§ 422.752(c) and § 423.752(c). 

5. Review of Medical Necessity 

Decisions by a Physician or Other 

Health Care Professional and the 

Employment of a Medical Director 

(§ 422.562, § 422.566, § 423.562, and 

§ 423.566) 

Pursuant to our authority under 

sections 1852(g) and 1860D–4(g) of the 

Act, which incorporates by reference 

paragraphs (1) through (3) of section 

1852(g), CMS established procedures for 

making organization determinations and 

reconsiderations regarding health 

services under Part C, and coverage 

determinations and redeterminations 

regarding covered drug benefits under 

Part D. These requirements are codified 

in our regulations at part 422 subpart M 

part 423 subpart M, respectively. 

Section 1852(g)(1)(A) of the Act gives 

us broad authority to determine how 

best to establish the procedures Part C 

organizations must follow for processing 

organization determinations. 

Furthermore, section 1852(g)(2)(B) of 

the Act requires Part C plan 

reconsiderations related to medical 

necessity determinations to be made by 

physicians with appropriate expertise in 

the applicable field of medicine, and 

that those physicians be different from 

a physician involved in the initial 

determination. Although § 422.590(g)(2) 

requires physician review of adverse 

organization determinations that 

involve medical necessity, we do not 

specify in this provision or elsewhere in 

part 422 subpart M who must conduct 

the initial medical necessity 

determinations. Given the language in 

§ 422.590(g)(2), we believe Congress 

expected that appropriate health care 

professionals would review initial 

determinations involving medical 

necessity. Further, by requiring that all 

organization determinations and plan 

reconsiderations involving medical 

necessity be reviewed by an appropriate 

health care professional with sufficient 

medical and other expertise, including 

knowledge of the Medicare program, 

enrolled beneficiaries would be assured 

of consistent and accurate decisions by 

Part C organizations. We propose to 

modify our requirements in § 422.566 by 


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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 propose 

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. 

Consistent with the rationale for 

requiring 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, and pursuant to our 

authority under section 1857(e) of the 

Act to add additional terms to our 

contracts with MA organizations as 

necessary and appropriate, we also 

propose to revise § 422.562(a) by adding 

paragraph (4), which will require each 

MA organization to employ a medical 

director who is responsible for ensuring 

the clinical accuracy of all organization 

determinations and reconsiderations 

regarding medical necessity. Under our 

proposal, 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. Because the requirement to 

employ a medical director will enhance 

the coordination and accountability of 

plan operations and strengthen quality 

assurance activities across the 

organization, we believe that this 

proposal strikes the appropriate balance 

between our interest in ensuring that 

plans are properly administering the 

Part C benefit, and the plans’ interest in 

minimizing their administrative burden. 

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. As noted above, we 

are proposing a requirement that Part C 

organizations employ (1) physicians or 

other appropriate health care 

professionals with sufficient medical 

and other expertise, including 

knowledge of the Medicare program, to 

review organization determinations 

involving medical necessity; and (2) a 

medical director who is responsible for 

ensuring the clinical accuracy of all 

organization determinations and 

reconsiderations regarding medical 

necessity. Consistent with the proposed 

changes to the Part C organization 

determination process, we propose 

adding paragraph (d) to § 423.566, 

which will require Part D coverage 

determinations involving 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, and 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. Also, we 

propose revising § 423.562(a) by adding 

paragraph (5), which will require each 

Part D plan sponsor to employ a 

Medical Director who is responsible for 

ensuring the clinical accuracy of all 

coverage determinations and 

redeterminations that involve medical 

necessity issues, and who 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. In addition to being 

consistent with the proposed changes to 

the Part C organization determination 

process, we believe that the proposed 

changes are necessary under Part D to 

prevent certain issues that have been 

discovered while auditing plan 

sponsors, such as: (1) Preventing 

enrollees who were stable on a 

protected-class drug from accessing that 

drug; (2) applying inappropriate prior 

authorization and step therapy criteria 

when adjudicating prescriptions; (3) 

issuing denials based on a lack of 

medically accepted indications when 

medically accepted indications were 

specified in at least one of the 

applicable compendia; and (4) failing to 

provide transition supplies for existing 

members who experienced formulary 

changes across plan years. We believe 

the proposed changes to § 423.562(a) 

and § 423.566 will enhance Part D plan 

sponsors’ ability to ensure consistent 

formulary administration, application of 

plan coverage rules, and assist in the 

early identification and resolution of 

potential quality concerns. 

6. Compliance Officer Training 

(§ 422.503 and § 423.504) 

Pursuant to our authority under 

sections 1860D–4(c)(1)(D) and 1860D– 

12(b)(3)(C) of the Act which 

incorporates by reference section 

1857(d) of the Act, we propose to clarify 

that MA organization and Part D 

sponsor compliance officers must 

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 must have their 

compliance officers obtain training in 

2012 to prepare for the upcoming 

contract year. We propose adding 

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

subpart K and § 423.504(b)(4)(vi)(B)(1)(i) 

and (ii) to subpart K to reflect this 

clarification. 

Under § 422.503(b)(4)(vi)(B) and 

§ 423.504(b)(4)(vi)(B), MA organizations 

and Part D sponsors (collectively 

referred to as plan sponsors) must 

designate a compliance officer to 

oversee the day-to-day operations of the 

compliance program. We are proposing 

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. 

Compliance officers are the individuals 

whom we expect to be among the most 

familiar of any sponsor’s executives 

with basic program requirements. 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 D contract compliance matters for 

them. 

We believe that requiring annual 

training for compliance officers will 

help to address these deficiencies by 

emphasizing the critical role of the 

compliance officer in maintaining and 

ensuring program compliance. Our 

expectations of Medicare plan sponsor 

compliance officers are different from 

what the expectations might be for a 

commercial health insurance 

compliance officer. We expect plan 

sponsors’ compliance officers to have, at 

minimum, a basic, working knowledge 

of the MA and/or Part D programs and 

an awareness of the corresponding 

operational activities within their 

organizations. Program knowledge and 

operational awareness are necessary 

skills for a compliance officer, in 

addition to being able to implement an 

effective compliance program. We rely 

on the compliance officer to have the 

authority and resources needed to foster 

compliance-oriented organizational 

processes and effectuate changes needed 

to ensure sustained program 


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compliance. We will announce our 

expectations regarding the content and 

hours of annual training required in 

forthcoming guidance. At this time, we 

expect that one to two days of annual 

Medicare Part C and D specific 

compliance training offered by an entity 

with expertise in MA and Part D 

compliance will be sufficient. We are 

exploring the current programs available 

as well as considering offering CMSsponsored training. 

7. Removing Quality Improvement 

Projects and Chronic Care Improvement 

Programs From CMS Deeming Process 

(§ 422.156) 

We have delegated our authority to 

evaluate whether an MA organization is 

in compliance with certain Medicare 

requirements to three private 

accrediting organizations. This 

evaluation method is known as 

‘‘deeming,’’ and is conducted as a part of 

the audit process. Currently, an MA 

organization may be deemed to meet 

requirements in the following areas: 

• Quality improvement. 

• Confidentiality and accuracy of 

enrollee records. 

• Anti-discrimination. 

• Access to services. 

• Information on advance directives. 

• Provider participation rules. 

• Access to covered drugs. 

• Drug utilization management, 

quality assurances measures and 

systems, medication therapy 

management, and a program to control 

fraud, waste, and abuse. 

• Confidentiality and accuracy of 

enrollee prescription drug records. 

We require all MA organizations to 

submit their quality improvement 

projects (QIPs) and chronic care 

improvement programs (CCIPs) on an 

annual basis. We propose to exclude the 

QIPs and CCIPs as components of the 

deeming process. Removing the QIPs 

and CCIPs from the deeming process 

avoids redundancy and reduces the 

burden for the MA organizations. 

Further, this process provides for 

improved consistency in the evaluation 

and assessment of the QIPs and CCIPS. 

Improved consistency in the assessment 

of the QIPs and CCIPs is important as 

these elements may be incorporated into 

future plan ratings. The QIPs and CCIPs 

will be reviewed and evaluated by CMS 

or an appropriate CMS contractor. 

Therefore, we propose to amend 

§ 422.156 to specify that the deeming 

process should focus on evaluating and 

assessing the overall quality 

improvement (QI) program, but that 

QIPs and CCIPs will be excluded from 

the deeming process. 

8. Definitions of Employment-Based 

Retiree Health Coverage and Group 

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

As provided under section 1857(i) of 

the Act and as codified at § 422.106(d), 

we may waive or modify requirements 

that hinder the design of, the offering of, 

or the enrollment in, an MA plan 

offered by one or more employers, 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. The purpose of this 

authority is to facilitate the offering of 

MA plans under contracts between MA 

organizations and employers, labor 

organizations, or the trustees of a fund 

established by one or more employers or 

labor organizations (or combination 

thereof). Following implementation of 

the Medicare Modernization Act 

(MMA), similar authority was 

established with respect to Part D 

sponsors in relation to employmentbased retiree health coverage at section 

1860D–22(b) of the Act. In addition, 

unlike the original authority established 

for employment-based retiree health 

coverage under the MA program at 

section 1857(i) of the Act, section 

1860D–22(c) of the Act establishes 

definitions of terms related to this 

authority, including of the terms 

‘‘employment-based retiree health 

coverage’’ and ‘‘group health plan.’’ The 

definition of ‘‘group health plan’’ at 

section 1860D–22(c)(3) of the Act refers 

to the definition of such term in section 

607(1) of the Employee Retirement 

Income Security Act of 1974 (ERISA). 

Since the enactment of the MMA, we 

have become concerned that MA 

organizations have been contracting 

with entities providing coverage that, in 

some instances, cannot properly be 

characterized as ‘‘employment-based’’ 

group health plan coverage—for 

example, with professional or group 

associations. Examples of existing 

employer contracts furnished through 

an association include a professional 

trade association representing 

employers and its employees within the 

builders association; a professional 

trade association representing new car 

and heavy-duty truck dealers; and a 

professional trade association 

representing physicians and medical 

students. As provided in our 

subregulatory guidance on MA 

employer group/union sponsored group 

health plans, Chapter 9 of the Medicare 

Managed Care Manual (http:// 

www.cms.gov/manuals/downloads/ 

mc86c09.pdf), entitled ‘‘Employer/ 

Union Sponsored Group Health Plans,’’ 

we restrict 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. Thus, a beneficiary’s enrollment in 

one of these MA plans must be based on 

receiving ‘‘employment-based’’ health 

coverage from an employer/union group 

health plan sponsor 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. In that guidance, we also note 

that coverage obtained through a 

professional or other type of group 

association would not make a 

beneficiary eligible for these kinds of 

plans, except to the extent that the 

coverage obtained through the 

association can properly be 

characterized as ‘‘employment-based’’ 

group health plan coverage. We are 

aware that some MA organizations have 

contracted with professional or group 

associations and offered coverage via 

EGWPs to individuals who are 

members, but not employees, of such 

associations. While there is no reference 

to the ERISA definition of group health 

plan in section 1857(i) of the Act, we 

believe Congress did not envision 

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 

ERISA. 

In order to provide clarification with 

respect to our requirements for offering 

employment-based retiree health 

coverage via an MA plan, we propose to 

codify—under the general authority 

provided at section 1857(i) of the Act— 

definitions of the terms ‘‘employersponsored group MA plan, 

‘‘employment-based retiree health 

coverage,’’ and ‘‘group health plan’’ at 

§ 422.106(d)(4) through (6). These 

proposed definitions are consistent with 

those provided for Part D sponsors at 

§ 423.454 and § 423.882. We also 

propose to change the reference to an 

MA plan at § 422.106(d) to a reference 

to an employer-sponsored group MA 

plan. 

We solicit comment on our proposals 

to revise these definitions. 

D. Strengthening Beneficiary Protections 

This section includes provisions 

aimed at strengthening beneficiary 

protections under Parts C and D. Some 

of the proposals affecting both Parts C 


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and D include requiring that MA 

organizations and Part D sponsors must 

provide interpreters for all 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-ofpocket costs in the current plan year to 

the following plan year. 

Changes affecting Part C include our 

proposal to extend the mandatory 

maximum out-of-pocket (MOOP) 

amount requirements to regional PPOs, 

and prohibit the use of tiered cost 

sharing by MA organizations. Under 

Part D, we address the delivery of 

adverse coverage determinations. 

In the area of Parts C and D marketing, 

proposals include requiring MA 

organizations’ and Part D sponsors’ 

agents and brokers to receive training 

and testing via a CMS endorsed or 

approved training program and 

extending the annual training and 

testing requirements to all agents and 

brokers marketing and selling Medicare 

products. 

This information is detailed in 

Table 5. 

1. Agent and Broker Training 

Requirements (§ 422.2274 and 

§ 423.2274) 

a. CMS Approved or Endorsed Agent 

and Broker Training and Testing 

(§ 422.2274 and § 423.2274) 

Section 1851(h)(2) of the Act requires 

us to establish marketing standards for 

Medicare Advantage organizations. 

Section 1860D–1(b)(1)(B)(vi) of the Act 

requires that we ensure that 

beneficiaries are not misled or provided 

inaccurate information by Part D 

sponsors. Additionally, section 

1851(j)(2)(E) of the Act provides the 

Secretary the authority to establish 

limitations with respect to agent and 

broker training. Section 1860D–4(l)(2) of 

the Act applies the same requirements 

with respect to sales and marketing 

activities to Part D sponsors. 

Our current regulations at 

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

and (c), require MA plans and Part D 

sponsors to ensure agents selling 

Medicare products are trained and 

tested annually on Medicare rules and 

regulations specific to the plan products 

they intend to sell. Since the training 

and testing requirements were 

implemented following the enactment 

of MIPPA, MA organizations, and Part D 

sponsors conducted training and testing 

largely on their own or through third 

party vendors. We have reviewed some 

training programs upon request by third 

party vendors, but we do not routinely 

review MA organization, Part D sponsor, 

or third party vendor training programs 

to ensure their comprehensiveness or 

accuracy. 

To develop a uniform understanding 

of the Medicare program requirements 

and further ensure beneficiary 

protection, we launched a pilot online 

training and testing module on July 31, 

2009 for the CY 2010 marketing season. 

Twenty-six MA organizations and Part 

D sponsors volunteered to participate in 

the pilot, and about 3,700 agents and 

brokers were trained and tested. About 

85 percent of trained agents and brokers 

passed the certification exam. 

Based on our experience with the 

pilot, we have concluded that we 

should move toward greater 

standardization of agent and broker 

training and testing. 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. More specifically, we 

believe that MA organizations’ and Part 

D sponsors’ agents and brokers not only 

should be annually trained and tested 

on Medicare rules and regulations 

specific to the products they intend to 

sell, as currently provided under 

§ 422.2274(b) and (c) and § 423.2274(b) 

and (c), but that the training and testing 

vehicles MA organizations and Part D 

sponsors use meet our minimum 

standards. 

To that end, we are proposing to 

revise § 422.2274(b) and (c) and 

§ 423.2274(b) and (c) to require MA 

organizations’ and Part D sponsors’ 

agents and brokers to receive training 

and testing via a CMS-endorsed or 

approved training program. Following 

implementation of this proposal, we 


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would review and endorse or approve 

one or more entities to provide 

Medicare agents and brokers with their 

annual testing and training. We would 

review and approve or endorse 

proposed training programs for 

comprehensiveness and consistency 

with marketing rules and policies. We 

are considering implementing this 

requirement through a request for 

proposal (RFP) competitive process; 

however, we seek comments and 

suggestions about alternatives to using 

the RFP competitive process. We note 

that these proposed new requirements 

would also be applicable to section 1876 

cost contract plans, since in our April 

15, 2010 final rule (75 FR 19784 through 

19785), we extended the Part 422 

requirements regarding MA marketing 

to section 1876 cost contract plans by 

cross-referencing the MA marketing 

requirements at § 417.428. 

We believe this proposed change 

would ensure that agents and brokers 

selling Medicare products have a 

comprehensive and consistent base of 

understanding of Medicare rules and 

would eliminate the duplication of 

training and testing requirements for 

agents and brokers who contract with 

multiple plans. 

b. Extending Annual Training 

Requirements to All Agents and Brokers 

(§ 422.2274 and § 423.2274) 

In addition to the proposed changes 

specified above to require that MA 

organization and Part D sponsor training 

and testing programs be CMS endorsed 

or approved, we propose a correction to 

our current regulations at § 422.2274(b) 

and (c) and § 423.2264(b) and (c), which 

require MA plans and Part D sponsors 

to ensure agents selling Medicare 

products are trained and tested annually 

on Medicare rules and regulations 

specific to the plan products they intend 

to sell. In our November 2008 interim 

final rule implementing the MIPPA 

agent/broker requirements (73 FR 

67413), we inadvertently made a 

drafting error and applied the annual 

agent and broker training and testing 

requirements only to independent (such 

as, non-employee) brokers or agents. 

Our intent, which was initially stated in 

our September 2008 interim final rule 

(73 FR 54239), was to require that all 

agents and brokers, whether 

independent or employed by a plan, be 

subject to our annual training and 

testing requirements. We believe it is 

critical that all agents and brokers 

selling Medicare products receive 

training and testing on Medicare rules, 

regulations and the plan-specific 

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 are 

proposing to revise § 422.2274 and 

§ 423.2274 to correctly apply these 

requirements to all agents and brokers 

marketing and selling Medicare 

products. We also note that these 

proposed new requirements would be 

applicable to section 1876 cost contract 

plans, since in our April 15, 2010 final 

rule (75 FR 19784 through 19785), we 

extended the Part 422 requirements 

regarding MA marketing to section 1876 

cost contract plans by cross-referencing 

the MA marketing requirements at 

§ 417.428. 

2. Call Center and Internet Web Site 

Requirements (§ 422.111 and § 423.128) 

a. Extension of Customer Call Center 

and Internet Web Site Requirements to 

MA Organizations (§ 422.111) 

As provided in section 1852(c)(1)of 

the Act and as codified at § 422.111(b), 

MA organizations must disclose in a 

clear, accurate, and standardized form 

to each enrollee, at the time of 

enrollment and annually thereafter, 

detailed information about the MA 

plans they offer. Section 1860D–4(a)(1) 

of the Act provides similar authority for 

Part D sponsors, which is codified at 

§ 423.128(b). Section 1860D–4(a)(3) of 

the Act provides additional authority to 

require that Part D sponsors provide 

specific plan information on a timely 

basis to plan enrollees upon request 

through a toll-free telephone number, 

and that they make available on timely 

basis through an Internet Web site 

information on specific formulary 

changes under Part D plans. This 

authority is codified at § 423.128(d)(1) 

and § 423.128(d)(2), which require that 

Part D sponsors operate a toll-free 

customer service that is open during 

usual business hours and provide such 

service in accordance with standard 

business practices, as well as an Internet 

Web site that, at a minimum, provides 

the information Part D sponsors are 

required to provide enrollees at the time 

of enrollment and annually thereafter 

under § 423.128(b). 

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. 

We believe it is important to clarify 

that current and prospective enrollees of 

MA plans should 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. Furthermore, as a practical 

matter, most MA organizations must 

offer MA–PD plans in order to offer MAonly plans and are therefore already 

operating customer service call centers 

and Internet Web sites consistent with 

our regulatory and subregulatory 

requirements. Therefore, under our 

authority at section 1852(c) of the Act to 

require that MA organizations disclose 

MA plan information upon request, as 

well as our authority under section 

1857(e) of the Act to specify additional 

contractual terms and conditions the 

Secretary may find necessary and 

appropriate, we propose to extend call 

center and Internet Web site 

requirements to MA organizations. 

Specifically, we propose to amend 

§ 422.111 by adding a new paragraph (g) 

to expressly require MA organizations to 

operate a toll-free customer call center 

that is open during usual business hours 

and provides customer telephone 

service in accordance with standard 

business practices, as well as to provide 

current and prospective enrollees with 

information via an Internet Web site and 

in writing (upon request). We also 

propose deleting paragraph 

§ 422.111(f)(12), which requires 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 

move these requirements to 

§ 422.111(g)(2)(i). 

b. Call Center Interpreter Requirements 

(§ 422.111 and § 423.128) 

Pursuant to our authority under 

sections 1852(c)(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 propose 

to clarify Medicare Part C and D 

requirements regarding current and 

prospective enrollee toll-free customer 

call centers. Specifically, we propose 

clarifying that MA organizations and 

Part D sponsors must provide 

interpreters for all non-English speaking 

and limited English proficient (LEP) 

callers. We propose adding new 

paragraphs § 422.111(g)(1)(iii) and 


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§ 423.128(d)(1)(iii), respectively, to 

reflect this clarification. 

This proposed clarification is a result 

of findings from our call center 

monitoring, which revealed that a 

significant percentage of Medicare Part 

C and D sponsors were not providing 

foreign language interpreters for nonEnglish speaking callers. For example, 

only 65 percent of Spanish speaking 

callers in our monitoring study were 

connected with an interpreter, and only 

60 percent of Mandarin or Russian 

speaking callers were connected with an 

interpreter. The results varied widely 

among plan sponsors of all enrollment 

sizes. Some plan sponsors did not 

provide any interpreters at all. The 

preamble to our January 28, 2005 final 

rule (70 FR 4223) stated, ‘‘Call centers 

must be able to accommodate nonEnglish speaking/reading beneficiaries. 

Plan sponsors should have appropriate 

individuals or translation services 

available to call center personnel to 

answer questions that beneficiaries may 

have concerning aspects of the drug 

benefit.’’ Subsequently, the August 15, 

2005 Medicare Marketing Guidelines 

contained this statement from the 

preamble. When we followed up with 

sponsors and discussed the lack of 

interpreters for LEP callers, many 

indicated they were unaware of the 

requirement to provide interpreters to 

LEP callers. This clarification addresses 

the problem by explicitly codifying the 

requirement to provide interpreters for 

LEP callers in regulations. The origin of 

this requirement to serve LEP 

individuals is Title VI of the Civil Rights 

Act of 1964, which, in part, prohibits 

discrimination in federal programs 

based upon national origin. 

Additionally, this clarification is 

consistent with fulfilling the goals of 

Executive Order 13166, Improving 

Access to Services for Persons with 

Limited English Proficiency, and with 

the HHS Secretary’s implementation of 

the Executive Order as described in the 

Strategic Plan for Implementing Access 

to HHS Programs and Activities by LEP 

Persons and the CMS Language Access 

Plan. Providing interpreters for LEP 

beneficiaries is a key component of the 

CMS Language Access Plan and helps 

ensure that beneficiaries have access to 

all of the information they need to make 

appropriate decisions about their health 

care. Our rules do not require 

translation of marketing materials into 

all languages; therefore, call center 

interpreters are a safety net in 

geographic areas where only a few 

beneficiaries are LEP because 

interpreters can help answer questions 

and translate marketing materials over 

the phone. Compliance with the Civil 

Rights Act is included in plan sponsors’ 

contractual requirements in accordance 

with § 422.503(h)(1) and § 423.505(h)(1). 

3. Require Plan Sponsors To Contact 

Beneficiaries To Explain Enrollment by 

an Unqualified Agent/Broker 

(§ 422.2272 and § 423.2272) 

The regulations implementing section 

103 of MIPPA (§ 422.2268, § 422.2272, 

§ 422.2274, § 422.2276, § 423.2268, 

§ 423.2272, § 423.2274, and § 423.2276), 

included a number of provisions that 

prohibited or limited certain sales and 

marketing activities by MA 

organizations and PDPs. Specifically, 

§ 422.2272 and § 423.2272 require plan 

sponsors that used 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. 

We have become aware through 

recent audits that when plan sponsors 

discover that an unlicensed agent has 

assisted with an enrollment, they are 

not notifying the beneficiary involved 

that the agent representing them was 

unlicensed. Beneficiaries rely heavily 

on information they receive from agents 

regarding plan benefits and costs and 

should have the opportunity to ask 

additional questions or reconsider their 

enrollment when they have been 

enrolled in a plan by an unlicensed 

agent. Therefore, we are proposing to 

revise § 422.2272(c) and § 423.2272(c) to 

require that MA organizations and Part 

D sponsors must terminate unlicensed 

agents upon discovery and notify any 

beneficiaries who were enrolled in their 

plans by an unlicensed agent in order to 

give them the option of confirming 

enrollment in the plan or making a plan 

change. 

We believe that the proposed changes 

are consistent with the statute and with 

the beneficiary protections we specified 

in our regulations implementing 

MIPPA. We also note that these 

proposed requirements would be 

applicable to section 1876 cost contract 

plans, since in our April 15, 2010 final 

rule (75 FR 19784 and 19785), we 

extended the Part 422 requirements 

regarding MA marketing to section 1876 

cost contract plans. 

4. Customized Enrollee Data (§ 422.111 

and § 423.128) 

Section 1852(c) of the Act requires 

MA organizations to disclose a detailed 

plan description in a clear, accurate, 

and standardized form to each Medicare 

enrollee in a MA plan offered by the 

organization. The plan description is to 

be provided at the time of enrollment 

and annually thereafter and includes 

items such as service area, premium, 

benefits, plan providers and coverage. 

Additionally, section 1860D–1(c)(3) of 

the Act requires Part D sponsors to 

provide comparative information to 

beneficiaries about their qualified 

prescription drug benefits, premiums, 

cost sharing, quality and performance, 

and results of consumer satisfaction 

surveys. Specifically, the Part D plan 

description includes items such as 

service area, benefits, premium, 

formulary, network pharmacies, and 

coverage. These requirements are 

codified at § 422.111 and § 423.128 and 

are implemented through the annual 

notice of change (ANOC) and evidence 

of coverage (EOC) documents, which 

must be furnished to all plan enrollees 

at least 15 days before the annual open 

election period. 

While the ANOC describes plan 

benefit and cost sharing changes for the 

coming year, we are concerned that this 

information alone may not be enough to 

prompt enrollees to actively evaluate 

their plans annually with respect to 

plan costs, benefits, and overall value. 

In addition, we have received requests 

from the beneficiary advocacy 

community 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. 

Therefore, in accordance with authority 

cited above, we propose to also 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 

propose to add new paragraphs (12) and 

(11) to § 422.111(b) and § 423.128(b), 

respectively, to specify this 

requirement. Plans would disclose this 

information to plan enrollees in each 

year, in which a minimum enrollment 

period has been met, in conjunction 

with the annual renewal materials 

(currently the ANOC and EOC). 

We are considering several options for 

implementing this data disclosure 

requirement, and we note that this 

proposal would only specify our 

authority to require such a disclosure. 

As we contemplate implementation and 

model designs moving forward, we seek 

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 


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implementing these provisions. In 

addition, we are considering running 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 

receive. 

One option we are considering is a 

customized statement of the 

beneficiary’s estimated out-of-pocket 

costs in the following year based on 

utilization of the same health care 

services as in the prior year. We 

recognize that projecting past health 

care utilization as a predictor of future 

use would yield only an estimate of 

enrollee out-of-pocket costs. However, 

we believe that such an estimate, with 

appropriate caveats, would illustrate in 

real dollar terms how the member’s 

costs are likely to change in the coming 

year, and what this means for them. 

Such a statement would enable plan 

members to better understand how the 

costs of their plan are changing in the 

upcoming contract year and what that 

means for them if they remain in the 

plan and use similar services. This 

customized out-of-pocket cost statement 

would supplement general plan 

information in the ANOC and EOC 

documents as well as enhance the 

currently available information through 

tools such as Medicare Options 

Compare (MOC) and the Medicare 

Prescription Drug Plan Finder (MPDPF), 

which provide general information 

about plan costs. For example, the MOC 

approximates out-of-pocket costs based 

on self-selected health status and a 

national cohort sample of information 

calculated using data from the Medicare 

Current Beneficiary Survey. MPDPF 

allows a beneficiary to select certain 

drugs and calculate annual out-ofpocket costs, based on their expected 

use of those drugs. We intend for any 

customized out-of-pocket cost statement 

to provide personal information to 

beneficiaries that would help them 

consider using other tools and 

resources, including MOC and MPDPF, 

to determine whether to select a new 

plan. Such a statement would also 

include information for accessing these 

tools. 

We are considering several different 

designs for showing enrollees how their 

expenses would change in the following 

year, in addition to changes in the 

maximum out-of-pocket (MOOP) 

amount and network service area for the 

next year (see Tables 6 through 8). 

Options for categorizing services that we 

are considering include the following: 

(1) Premium; a summation of costsharing for all MA services; all 

prescription drug costs; and the total 

out-of-pocket costs for the enrollee; 

(2) premium; MA cost-sharing detailing 

inpatient care (Part A), outpatient care 

(Part B), and supplemental benefits; 

prescription drug costs; and total costs; 

and (3) premium; a more detailed 

breakdown of costs for services, 

including information specifying the top 

5 services utilized by each individual 

enrollee; as well as prescription drug 

costs and total costs. We seek comments 

on the categorizations described above. 

We also seek comments on including 

mandatory and/or optional 

supplemental benefits in the document, 

given their variety for individual 

enrollees or plan and impact on the 

overall premium cost. 

Since all MA organizations must 

currently track utilization and 

beneficiary responsibility related to the 

MOOP and, in some cases, catastrophic 

limits, we do not anticipate that they 

will have difficulty in determining at 

least 6 months of actual beneficiary outof-pocket cost liability. Since this 

statement is intended to be distributed 

in conjunction with the other renewal 

materials each fall, we understand that 

MA organizations and Part D sponsors 

will have only partial year data on 

beneficiary costs. Moreover, we also 

understand that people tend to incur 

increased utilization of services during 

the second half of the year, adding 

another trending factor to a calculation 

of average monthly or yearly cost. 

Therefore, we also seek comment as to 

whether the customized statement of 

costs should include six months of 

actual costs for each category described, 

an average monthly cost for each 

category described, or an estimated 

yearly cost for each category. Regardless 

of the time period, we would require 

that any costs be represented as 

estimates and that the notice clearly 

indicate to enrollees the time period on 

which the estimates are based. Tables 6 

through 8 describe possible types of 

service categorization, and each table 

includes a different option for 

representing the cost calculation 

(average monthly, actual 6 months, and 

yearly estimated costs). Dollar figures 

are for illustrative purposes only and do 

not reflect any decision on final 

document design or any calculation of 

actual beneficiary costs. 

BILLING CODE 4120–01–P 


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BILLING CODE 4120–01–C 

Another, but potentially 

complementary, option would be to 

require a periodic EOB for MA plans, 

similar to the EOB that Part D sponsors 

provide to Part D enrollees. This EOB 

would include a specific list of services 

and the enrollee’s utilization and out-ofpocket costs during a period of time to 

assist him or her in evaluating their 

options for the future. It would be 

furnished periodically throughout the 

contract year and could include current 

as well as cumulative data on utilization 

and costs for that period. It could also 

present data by service categories as a 

percentage of total costs. We also 

understand that there would be data 

collection and timing concerns for 

plans, and the frequency of the 

distribution of the EOB would affect the 

time period of the data collected. For 

example, an annual notice distributed at 

the end of the contract year would not 

arrive in sufficient time for a beneficiary 

to make determinations during an 

enrollment period. However, a notice 

furnished just prior to the open 

enrollment period could only contain 

partial year actual data, unless plans use 

12 months of data over two contract 

years. An EOB as described above could 

be used in conjunction with a 

customized annual out-of-pocket cost 

statement to fine-tune an enrollee’s 

search for another plan that might be a 

better fit for his or her particular health 

care needs. We seek comments and 

suggestions for implementing an EOB 

for MA enrollees, including suggestions 

for design, calculation of data and 

frequency of disclosure to enrollees. 

We note that we are considering 

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 EOB, since enrollees in 

these plans generally do not incur outof-pocket costs. We seek comment on 

exempting D–SNPs from this proposed 

requirement. 

In summary, we seek comments and 

suggestions regarding our proposal to 

add to the current disclosure 

requirements in § 422.111 and 

§ 423.128, a new requirement that MA 

organizations and Part D plan sponsors 

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 

utilization and out-of-pocket costs for 

the following plan year. Such data 

would be disclosed to plan members 

periodically in conjunction with other 

annual plan renewal materials 

(currently the ANOC and EOC). In 

addition, we seek comments and 

suggestions on the topics discussed 

above, including the number of 

disclosures per year, document design 

models, categories of services included, 

calculation, and presentation of costs, 

and standardization of information. 

5. Extending the Mandatory Maximum 

Out-of-Pocket (MOOP) Amount 

Requirements to Regional PPOs 

(§ 422.100 and § 422.101) 

In our April 15, 2010 final rule (75 FR 

19709 through 19711), we established a 

new mandatory maximum out-of-pocket 

(MOOP) requirement for local MA plans 

effective contract year 2011. As 

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

plans, including HMOs, HMOPOS, local 

PPO (LPPO) plans and PFFS plans, must 

establish an annual MOOP limit on total 

enrollee cost sharing liability for Parts A 

and B services, the dollar amount of 

which will be set annually by CMS. As 

provided at § 422.100(f)(5), effective for 

contract year 2011, 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. All 

cost sharing (that is, deductibles, 

coinsurance, and copayments) for Parts 

A and B services must be included in 

plans’ MOOPs. In our April 15, 2010 

final rule (75 FR 19709 through 19711), 

we stated that for contract year 2011, we 

would implement a mandatory MOOP 

limit in accordance with the 

requirements at § 422.100(f)(4), as well 

as continue to allow MA organizations 

the option of adopting a lower, 

voluntary MOOP limit. MA 

organizations that adopt the lower 

voluntary MOOP are provided more 

flexibility in establishing cost sharing 

amounts for Parts A and B services than 

those that do not elect the voluntary 

MOOP. However, we did not include 

regional PPOs in the mandatory MOOP 

and catastrophic limit requirements, as 

discussed below. 

Since implementation of the Medicare 

Modernization Act of 2003, RPPOs have 

been required under section 1858(b)(2) 

of the Act to establish a MOOP for innetwork cost sharing and a catastrophic 

limit inclusive of both in- and out-ofnetwork cost sharing for Parts A and B 

services; however, those amounts are 

currently at the discretion of MA 

organizations offering RPPO plans. 

Because the statutory MOOP 

requirement was already in effect with 

respect to RPPO plans, we applied the 

new mandatory MOOP requirement 

only to local MA plans in our final rule 

(75 FR 19711). We stated that for 

contract year 2011, RPPOs would 

continue to be permitted to establish 

their own in-network MOOP and 

catastrophic limits without a maximum 

limit set by CMS, but we encouraged 

them to adopt either the mandatory or 

voluntary MOOPs established in CMS 

guidance. We stated 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 proposed Parts A and 

B services cost sharing amounts. 

However, we also stated that, while we 

believe RPPOs should be subject to the 

same requirements with respect to a 

MOOP as local PPO plans, we would 

address this discrepancy in future 

notice-and comment rulemaking, since 

our proposed rule did not give MA 

organizations offering RPPOs an 

opportunity to comment on such a 

proposal. We have concluded that, in 

order to make it easier for beneficiaries 

to understand and compare MA plans, 

RPPO plans should also be subject to 

the mandatory maximum MOOP 

requirements that currently apply to 


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local PPO plans. Therefore, we propose 

to extend the mandatory MOOP and 

catastrophic limit requirements to RPPO 

plans. Each RPPO plan would 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 would be included in 

RPPO plans’ MOOPs. We propose to 

codify this requirement by revising 

§ 422.100(f) (CMS review and approval 

of MA benefits and associated cost 

sharing), in paragraphs (f)(4) and (5) to 

include regional MA plans. In addition, 

we propose to revise paragraphs (d)(2) 

and (d)(3) of § 422.101(d) (Special costsharing rules for MA regional plans), to 

specify that the catastrophic limits set 

by RPPOs may not be greater than the 

annual limit set by CMS. 

6. Prohibition on Use of Tiered Cost 

Sharing by MA Organizations 

(§ 422.262) 

As provided in section 1854(c) of the 

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

an MA organization offering an MA plan 

must offer it to all Medicare 

beneficiaries residing in the service area 

of the MA plan at a uniform premium, 

with uniform benefits and levels of cost 

sharing throughout the plan’s service 

area, or segment of the service area, as 

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

this regulatory guidance, we have 

become aware that an increasing 

number of plans are charging 

beneficiaries different amounts of cost 

sharing for services depending on, for 

example, which provider group the 

beneficiary selects, the plan’s network 

of hospitals, or how frequently the 

beneficiary uses selected services. 

Program experience has demonstrated 

that differential, or ‘‘tiered,’’ cost sharing 

is simply not transparent and can be 

deceptive and misleading in terms of 

the cost to beneficiaries. We do not 

believe it is consistent with the intent of 

the uniformity requirement in section 

1854(c) of the Act for MA organizations 

to impose such differential benefit cost 

sharing, or to differentially design innetwork health care benefits, network 

access, or cost sharing for covered 

benefits in a manner that is not uniform 

or transparent to the beneficiary. We 

believe that MA organizations should 

impose uniform plan care, cost sharing 

and MA benefits throughout the plan’s 

service area. Furthermore, we believe 

that tiered cost sharing in certain 

circumstances may deter beneficiaries 

from seeking care, otherwise negatively 

affect beneficiaries who are sicker, or 

impose greater cost sharing on 

beneficiaries who utilize services 

infrequently. 

As a consequence of MA 

organizations’ increasing and 

inappropriate imposition of differential 

or ‘‘tiered’’ cost sharing, we have become 

increasingly concerned and believe that 

revisions to the regulations are 

warranted. Accordingly, we propose to 

revise § 422.262 to stipulate that MA 

organizations cannot vary the level of 

cost sharing for basic or supplemental 

benefits for any reason, including based 

on provider groups, hospital network, or 

the beneficiary’s utilization of services. 

7. Delivery of Adverse Coverage 

Determinations (§ 423.568) 

Section 1860D–4(g) of the Act 

requires Part D plan sponsors to 

establish procedures for processing 

requests for coverage determinations 

and redeterminations. Those procedures 

must apply to Part D plan sponsors in 

the same manner as they apply to MA 

organizations with respect to 

organization determinations and 

reconsiderations under Part C. Under 

§ 422.568(d), an MA organization must 

provide written notice when it makes an 

unfavorable standard organization 

determination. 

In accordance with section 1860D– 

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

notice provision for unfavorable Part D 

standard coverage determinations in 

§ 423.568(f). Neither § 422.568(d) nor 

§ 423.568(f) allow an MA organization 

or Part D plan sponsor to make the 

initial notice of an adverse standard 

organization/coverage determination 

orally. However, for the reasons noted 

below, we propose to revise § 423.568(f) 

by allowing a Part D plan sponsor to 

first provide 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 

notification. 

We believe that the proposed change 

is necessary because the timeframe for 

providing notice of an adverse standard 

determination is much shorter under 

Part D than under Part C. Under 

§ 422.568(a) and (e), MA organizations 

provide enrollees with written notice of 

adverse standard organization 

determinations within 14 calendar days, 

but pursuant to § 423.568(a) and (c), Part 

D plan sponsors must provide written 

notice of adverse standard coverage 

determinations within 72 hours. While 

MA organizations are largely able to 

meet the 14-calendar day timeframe for 

providing written notice of adverse 

standard organization determinations, 

we believe many Part D plan sponsors 

are having difficulty providing written 

notice of adverse standard coverage 

determinations within the 72-hour 

timeframe given the significant number 

of coverage determination requests that 

are auto-forwarded to the Part D 

Independent Review Entity (IRE) 

because decisions were not issued 

timely. Thus, we believe plan sponsors 

need the ability to first provide oral 

notice in order to meet the very short 

72-hour timeframe. 

We also believe the proposed change 

is consistent with the Part C 

organization determination process. An 

MA organization is required under 

§ 422.572(a) to make an expedited 

organization determination and provide 

notice of its decision within 72 hours 

after receiving a request. Consistent 

with § 422.572(c), an MA organization 

may choose to meet the 72-hour 

timeframe by 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. Given that MA organizations 

are permitted under the regulations to 

meet the 72-hour timeframe by first 

providing oral notice and following up 

with written notice, we believe giving 

Part D plan sponsors the same option 

when required to provide notice within 

72 hours is consistent with the Part C 

organization determination process and 

section 1860D–4(g) of the Act. 

Therefore, we propose to revise 

§ 423.568(f) by allowing 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. 

8. Extension of Grace Period for Good 

Cause and Reinstatement (§ 422.74 and 

§ 423.44) 

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

provides that MA plans may terminate 

the enrollment of individuals who fail 

to pay basic and supplemental 

premiums after a grace period 

established by the plan. Section 1860D– 

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

to use disenrollment rules for Part D 

sponsors that are similar to those 

established for MA plans under section 

1851 of the Act. Consistent with these 

sections of the Act, the Part C and D 

regulations set forth our requirements 

with respect to involuntary 

disenrollment procedures under 

§ 422.74 and § 423.44, respectively. 

Currently, § 422.74(d)(1)(i)(B) 

specifies that an MA organization must 

provide, at minimum, a 2-month grace 

period before disenrolling individuals 

for failure to pay the premium. 

Similarly, under current regulations at 


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§ 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 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. 

Thus, 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 a period of no 

less than 2 months in which to resolve 

the delinquency. The plan must also be 

able to demonstrate to us that it has 

made reasonable efforts to collect the 

unpaid premium amounts. 

Consistent with the provision for 

delinquent premium payments for 

Supplementary Medical Insurance (Part 

B of Medicare), we propose 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 had demonstrated good 

cause for failing to submit the premium 

payment timely. We propose 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. For example, 

if an individual failed to pay plan 

premiums due to an unexpected and 

extended hospital stay, we would 

encourage a plan to consider 

reinstatement of the individual’s 

enrollment on the basis that he or she 

had good cause for failing to submit the 

payment timely. However, we would 

not expect a plan 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. We would hold the beneficiary 

accountable for the actions, or inactions, 

of his or her representative. We also 

propose that good cause would not exist 

if the only basis for requesting 

reinstatement was a change in the 

individual’s circumstances subsequent 

to the involuntary disenrollment 

resulting in his or her ability to pay the 

premiums. 

Examples of circumstances that may 

establish good cause include, but are not 

limited to, the following: (1) Serious 

illness, such that the illness prevented 

the enrollee from making payment or 

contacting the plan by telephone, in 

writing, or through a friend, relative, or 

other person; (2) a government 

employee, government contractor (for 

example, 1–800–MEDICARE 

representative), or plan representative 

gave the enrollee incorrect or 

incomplete information about when 

premium payments were due and how 

to make payments; (3) the enrollee did 

not receive premium billing statements 

and/or delinquency notices due to an 

error on the part of the plan or the U.S. 

Post Office; or (4) premium payments 

were sent, or requested by the enrollee 

to be sent, but were not received by the 

plan due to an error on the part of the 

U.S. Post Office or the enrollee’s 

financial institution. 

Since a beneficiary who is disenrolled 

from an MA or Part D plan for failure 

to pay premiums is not eligible for a 

special enrollment period, the 

beneficiary’s only 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. Therefore, we are proposing to 

amend the regulations at § 422.74(d)(1) 

and § 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 would require an individual to 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), 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. 

9. Translated Marketing Materials 

(§ 422.2264 and § 423.2264) 

Pursuant to our authority under 

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

1860D–4(a) of the Act, we propose to 

clarify MA and Part D requirements for 

marketing materials in markets with a 

significant non-English speaking 

population or large percentage of 

limited English proficient (LEP) 

individuals. We propose to clarify 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 propose 

revising § 422.2264(e) of Subpart V and 

§ 423.2264(e) of Subpart V to reflect this 

clarification. 

The proposed clarification codifies 

existing guidance regarding translated 

marketing materials. We are codifying 

this guidance 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 

translating marketing materials were 

required. For example, plan sponsors 

we talked to were confused whether the 

10 percent threshold applied to a 

specific age group (for example, only 

those 65+, 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. This clarification addresses the 

problem by explicitly codifying the 

requirement to translate marketing 

materials for LEP individuals. The 

origin of the requirement to provide 

translated materials is derived from 

Title VI of the Civil Rights Act of 1964, 

which prohibits discrimination in 

federal programs based upon national 

origin. Compliance with the Civil Rights 

Act is included in plan sponsors’ 

contractual requirements under 

§ 422.503(h)(1)and § 423.505(h)(1). 

Additionally, this clarification is 

consistent with fulfilling the goals of 

Executive Order 13166, Improving 

Access to Services for Persons with 

Limited English Proficiency, and with 

the HHS Secretary’s implementation of 

the Executive Order as described in the 

Strategic Plan for Implementing Access 

to HHS Programs and Activities by LEP 

Persons and the CMS Language Access 

Plan. Providing translated materials for 

LEP beneficiaries is a key component of 

the CMS Language Access Plan and 

helps ensure that beneficiaries have 


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access to all of the information they 

need to make appropriate decisions 

about their health care. 

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 

proposals 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 

and initial implementation of the 

prescription drug programs 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 nonrenewals and contract 

terminations has evolved as well. The 

changes we propose below will further 

allow us to make these determinations 

more effectively. These provisions are 

described in detail in Table 9. 

1. Expand Network Adequacy 

Requirements to Additional MA Plan 

Types (§ 422.112) 

In our April 15, 2010 final rule (75 FR 

19678 through 19826), we established 

criteria that Medicare Advantage (MA) 

coordinated care (CCP) plans and 

Private Fee-for-Service (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 met. 

We focused on specifying benchmarks 

in community patterns of health care 

delivery that we would use to evaluate 

any proposed MA plan health care 

delivery networks. As provided under 

§ 422.112(a)(10) these benchmarks 

include, but are not limited to— 

• The number and geographical 

distribution of eligible health care 

providers available to potentially 

contract with an MA organization to 

furnish plan-covered services in the 

proposed area of the MA plans; 

• The prevailing market conditions in 

the service area of the MA plan— 

specifically, the number and 

distribution of health care providers 

contracting with other health care plans 

(both commercial and Medicare) 

operating in the service area of the plan; 

• Whether the service area is 

comprised of rural or urban areas or 

some combination of the two; 

• Whether the MA plan’s proposed 

provider network meets Medicare time 

and distance standards for member 

access to health care providers 

including specialties; and 

• Other factors that we determine to 

be relevant in setting a standard for an 

acceptable health care delivery network 

in a particular service area. 

As noted in our April 15, 2010 final 

rule, our operational experience has 

demonstrated that community patterns 

of health care delivery provide useful 

benchmarks for measuring a proposed 

provider network, permitting varying 

geographical and regional conditions to 

be taken into consideration when 

determining ‘‘reasonable’’ access in a 

given area. Our final rule provides a 

detailed discussion of our proposal and 

the response to public comments on the 

factors making up community patterns 


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of care that we established as 

benchmarks for evaluating proposed 

MA plan health care delivery networks. 

We did not include MA MSAs in the 

regulation proposal initially because 

MSA plans historically have not had 

networks and enrollees in a MSA plan 

thus were able to 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 Medicare MSA network 

plans, we are aware of possible interest 

in offering such plans. As a result, we 

want to ensure that any MA plan that 

meets Medicare access and availability 

requirements through direct contracting 

network providers does so consistent 

with the requirements at 

§ 422.112(a)(10). Therefore, we are 

proposing to apply the network 

adequacy standards at § 422.112(a)(10) 

to all MA plans that meet Medicare 

access and availability requirements 

through direct contracting network 

providers, including MSAs, should 

MSAs choose to develop contracted 

networks of providers. This proposed 

change would put all MA plans with 

contracted networks, and their 

enrollees, on a level playing field with 

respect to network access. 

2. Maintaining a Fiscally Sound 

Operation (§ 422.2, § 422.504, § 423.4, 

and § 423.505) 

Sections 1857(d)(4)(A)(i) and 1860D– 

12(b)(3)(C) of the Act establish 

requirements for MA organizations and 

PDP sponsors to report financial 

information demonstrating that the 

organization has a fiscally sound 

operation. This reporting requirement is 

separate from the requirement that MA 

organizations and PDP sponsors must be 

organized and licensed under State law 

as a risk-bearing entity eligible to offer 

health insurance or health benefits 

coverage in each State in which it offers 

a Medicare product. 

The authority to license an MA 

organization or PDP sponsor and set 

solvency standards rests with the State 

licensing authority (sections 1856(b)(3) 

and 1860D–12(g) of the Act). Sections 

1855(a)(3) and 1860D–12(e) of the Act, 

however, establish that licensure does 

not substitute for or constitute 

certification. Specifically, licensure 

does not deem the organization to meet 

other requirements imposed on the 

organization under Part C or Part D. 

Furthermore, sections 1857(d)(2)(B) 

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

us the authority to audit and inspect any 

books and records of the ‘‘* * * 

organization that pertain (i) to the 

ability of the organization to bear the 

risk of potential financial losses, or (ii) 

to services performed or determinations 

of amounts payable under the contract.’’ 

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. We consult regularly 

with state insurance regulators to ensure 

that sponsoring organizations are 

meeting state reserve requirements and 

solvency standards required for state 

licensure, as this is a key component of 

the organization or sponsor’s contract 

with CMS. However, we interpret the 

requirement for plans to report financial 

information demonstrating that the 

organization has a fiscally sound 

operation and CMS’ authority to audit 

and inspect any books and records, as 

described above, as 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 

requirements for an organization. 

We are concerned that some 

organizations or sponsors may not have 

a positive net worth, may be fiscally 

unsound, and may be therefore unable 

or unwilling to expend resources 

necessary to continue to provide 

adequate care and services to their 

members. However, we have historically 

been limited in our ability to take 

compliance and enforcement action 

against an organization solely on the 

basis of these 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 aware 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, rather than 

waiting for the state to act. We believe 

that an organization’s failure to 

maintain a fiscally sound operation 

constitutes a failure to substantially 

carry out the terms of its contract with 

CMS. 

Therefore, we are proposing to modify 

the definitions at § 422.2 and § 423.4 to 

define a fiscally sound operation as one 

which, at the very least, maintains a 

positive net worth (total assets exceed 

total liabilities). In addition, sections 

1857(e)(1) and 1860D–12(b)(3)(D) of the 

Act afford the Secretary the authority to 

include terms and conditions in the 

contract that are necessary and 

appropriate. Thus, we are proposing to 

add a contract provision at § 422.504(a) 

and § 423.505(b)(23), under which the 

MA organization or Part D sponsor 

agrees to maintain a fiscally sound 

operation by at least maintaining a 

positive net worth (total assets exceed 

total liabilities). 

We believe these changes will ensure 

that we have the authority to take the 

steps necessary to protect beneficiaries 

enrolled in organizations or sponsors 

that encounter financial difficulties. 

3. Release of Part C and Part D Payment 

Data 

This proposed rule would allow 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. 

In keeping with the President’s 

January 21, 2009, Memorandum on 

Transparency and Open Government 

(74 FR 26277), CMS is proposing to 

routinely release Part C and Part D 

payment data. 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 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 would release data for 

payment year 2010 in the fall of 2011. 

This 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. If an applicable 

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 other Part 

C and D payment data. We propose to 

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. 

For Part C, we are proposing the 

release of payment data summarized at 

the plan benefit package level. 

Specifically, we would release average 

per member per month (PMPM) 

payments for A/B (Medicare covered) 

benefits and average PMPM rebate 

amounts for each MA plan. These 

payments and amounts would be 

standardized to the 1.0 (average risk 


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score) beneficiary. Given that we 

already make Part C enrollment data 

publicly available, interested parties 

could readily calculate gross Part C 

payments to MA organizations and for 

the specific plan benefit packages 

offered by these organizations. As part 

of the annual release, we would also 

release the average Part C risk score for 

each plan benefit package for the 

payment year in question. In addition, 

we would also release aggregated Part C 

payment data by county. Specifically, 

we would release county-level average 

PMPM payment amounts for A/B 

benefits and average rebate amounts at 

the MA plan type level (that is, HMO, 

PPO, etc.) for each county in which 

such plan types are represented. 

For Part D, we are also proposing the 

release of payment data summarized at 

the plan benefit package level. 

Specifically, we would release average 

per member per month (PMPM) 

payments for the direct subsidy, the 

low-income cost sharing subsidy, and 

the Federal reinsurance subsidy. Given 

that we already make Part D enrollment 

data publicly available, with these new 

data interested parties could readily 

calculate gross Part D payments to Part 

D sponsors and for the specific plan 

benefit packages offered by these 

sponsors. In addition, as part of the 

annual release, we would release the 

average Part D risk score for each plan 

benefit package for the payment year in 

question. 

TABLE 12: Part D 

CMS makes monthly prospective 

payments to sponsors for providing 

prescription drug coverage to Medicare 

beneficiaries. These payments are based 

on estimates that sponsors provide in 

their approved bids prior to the 

beginning of the plan year. CMS makes 

prospective payments to sponsors for 

three subsidies based on sponsors’ 

approved bids. These subsidies are: 

(1) The direct subsidy which, together 

with beneficiary premiums, is designed 

to cover the sponsor’s cost of providing 

the benefit; (2) the reinsurance subsidy, 

which covers the Federal Government’s 

share of drug costs for beneficiaries who 

have reached catastrophic coverage; and 

(3) the low-income cost-sharing subsidy, 

which covers the Federal Government’s 

portion of the cost-sharing payments for 

certain low-income beneficiaries. 

After the close of the plan year, CMS 

must reconcile these prospective 

payments with sponsors’ actual costs to 

determine whether sponsors owe money 

to Medicare or Medicare owes money to 

sponsors. In 2007 and 2008 (for Part D 

plan years 2006 and 2007) CMS 

published Part D reconciliation payment 

data. See, for instance, https://www.cms.

gov/MCRAdvPartDEnrolData/

Downloads/Part_D_2007_

Reconciliation.pdf and https://www.

cms.gov/MCRAdvPartDEnrolData/

Downloads2006_Part_D_Payment_

Recon.pdf CMS is proposing to resume 

this disclosure in the late summer/early 

fall of 2011, for payment data related to 

Part D reconciliation payments/ 

recoveries for CY 2010. These data are 

different than the Part D data discussed 

above since they represent final end of 

year adjustments to the prospective 

payments made to a Part D plan sponsor 

based on the difference between the 

plan’s estimated revenue needs and it’s 

actual revenue needs. The prospective 

Part D payment amounts we propose to 


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report above are different from the 

reconciliation data proposed to be 

reported here in the sense that these 

specific reconciliation data provide a 

summary of a Part D plan sponsor’s 

ability to accurately predict Part D costs. 

Finally, we are proposing to release 

retiree drug subsidy (RDS) data. These 

data will be released as a dollar amount 

of the gross aggregate subsidy amount 

paid to the eligible sponsors of qualified 

retiree prescription drug coverage and 

the total number of unduplicated 

Medicare eligible retirees for each 

sponsor. 

We are not proposing to release 

detailed data that have been provided to 

CMS by MA organizations or Part D 

sponsors as part of their annual bids. 

The payment data we will release are 

quite different than the bid data plans 

submit. Furthermore, the gross payment 

data we are proposing to disclose cannot 

be disaggregated to derive the 

components of plan bids, nor can it be 

used to generate meaningful estimates of 

any nominally proprietary bid 

component such as profitability, 

administrative load, medical expenses, 

and projected utilization. By releasing 

payment data at an aggregate level, we 

believe we are protecting not only the 

proprietary interests of MA and Part D 

plan sponsors, but that we are also 

protecting the privacy rights of 

individual MA plan enrollees. 

The differences between bidding data, 

which MA organizations and Part D 

sponsors submit to CMS, and payment 

data, which CMS computes and from 

which it makes payments to plan 

sponsors, are meaningful and significant 

in the context of this proposal for two 

basic reasons. The first is that since 

CMS is not releasing data provided by 

plan sponsors, the release of proprietary 

information provided by plan sponsors 

in the course of bidding is not 

implicated. The second is that we are 

releasing payment data in such a way 

that individual components of plan bids 

cannot be derived. We are not providing 

information in sufficient detail to allow 

others to disaggregate the information 

we are providing in such a way as to 

compromise information provided by 

plan sponsors in the course of bidding. 

Under the Act, the Secretary has the 

authority to include in MA organization 

and Part D sponsor contracts any terms 

or conditions the Secretary deems 

necessary and appropriate. (See section 

1857(e)(1) of the Act and 1860D– 

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

incorporates section 1857(e) into Part 

D.) Our regulations at § 422.504(j) and 

§ 423.505(j) also 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, under 

§ 423.884(c)(3)(i), RDS sponsors agree to 

comply with the terms and conditions 

for eligibility for a subsidy payment in 

our regulations and in related CMS 

guidance. Accordingly, we propose to 

amend Part C and Part D contracts (and, 

in the case of RDS sponsors, 

agreements) to include a statement 

informing such sponsors that CMS 

payment data, as discussed in this 

notice, will be released as indicated 

above for research, analysis, and public 

information purposes. The purposes 

underlying such release include 

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 addition, we believe the 

availability of the payment data we are 

proposing to release 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 of existing plan 

sponsors. In other words, we believe the 

availability of plan payment data will 

enhance the competitive nature of these 

programs. 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. As a result, we believe 

including a provision in our contracts 

with plan sponsors regarding the release 

of payment information is both 

necessary and appropriate for the 

effective operation of these programs. 

We note that because this proposed 

rule 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 solicit comment generally on the 

public release of Part C and Part D 

payment data as outlined above. We 

also specifically solicit comment on 

whether any of the Part C and Part D 

payment data we propose to release 

contain proprietary information, and if 

they do, what safeguards might be 

appropriate to protect those data. 

4. Required Use of Electronic 

Transaction Standards for MultiIngredient Drug Compounds; Payment 

for Multi-Ingredient Drug Compounds 

(§ 423.120) 

Section 1860D–4(b)(2)(A) of the Act, 

as codified in § 423.120(c), requires Part 

D sponsors to 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. Section 

1860D–4(b)(2)(B) of the Act requires 

CMS to 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 to consult with the NCPDP and 

other standard setting organizations, as 

appropriate. Pursuant to this authority, 

we recently added a new paragraph 

(c)(2) to § 423.120 to codify existing 

guidance that Part D sponsors utilize 

standard electronic transactions 

established by 45 CFR 162.1102 for 

processing Part D claims (75 FR 19726). 

We noted that we routinely work with 

the NCPDP and industry representatives 

in arriving at recommendations relating 

to the use of the HIPPA standard 


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transactions when necessary to improve 

administration of the Part D benefit. 

The NCPDP Telecommunications 

Standard Version D.0 (Version D.0) is an 

updated version of the HIPAA standard 

for retail pharmacy drug claims 

transactions. Version D.0 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. Version D.0 includes a 

modification from the current version of 

the standard to standardize the claims 

processing for compounded drugs. 

Unlike the current version of the 

standard, all components of drug 

compounds will now be reflected on a 

pharmacy claim. Since under 

§ 423.120(c)(2) Part D sponsors will be 

required to adhere to the new standard, 

we are undertaking additional 

rulemaking in order to provide further 

guidance to Part D sponsors on how to 

appropriately treat compounded 

products under the Part D program. 

Historically, compounds have filled 

an important role in pharmacy practice 

by providing medically necessary drug 

therapies that would otherwise be 

unavailable to patients. We believe the 

main use of compounded products 

under Part D has been associated with 

home infusion therapy. The appropriate 

role of compounded products is less 

clear to us when compounds are used 

outside of home infusion therapy. With 

this proposed rule, it is not our intent 

to incentivize the use of compounded 

drug products as a substitute for FDA 

approved products. 

Under Part D, compounded products 

as a whole generally do not satisfy the 

definition of a Part D drug. Under 

section 10.4 of Chapter 6 of the 

Medicare prescription Drug Benefit 

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

PrescriptionDrugCovContra/Downloads/ 

Chapter6.pdf), CMS clarified that only 

those costs associated with those 

components of a compounded product 

that satisfy the definition of a Part D 

drug are allowable costs under Part D. 

Since pharmacy transactions up to this 

point have not captured all components 

of a billed compounded drug, our policy 

clarification has generally resulted in 

Part D plans’ paying for the most 

expensive Part D drug component in a 

compound and submitting that 

component on the prescription drug 

event record transmitted to CMS for Part 

D payment reconciliation purposes. 

Generally, our policy guidance 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 

component of the compound was a Part 

D drug) and to providing guidance on 

appropriate cost-sharing that may be 

charged. With respect to the latter, we 

have specified that in the case of a 

compounded product that contains all 

generic products, the generic costsharing should be applied. However, if 

a compounded product contains any 

brand name products, the Part D 

sponsor may apply the higher brand 

name cost-sharing to the entire 

compound. Beyond these requirements, 

we have not provided more explicit 

guidance. 

As noted above, the adoption under 

HIPAA of Version D.0 for retail 

pharmacy claims transactions will 

require the inclusion of individual 

components that make up a 

compounded product. Because, as a 

result, plan sponsors will have access to 

more complete information regarding 

the components of a compound, we 

believe it is appropriate to provide 

additional clarification with respect to 

the treatment under Part D of 

compounds in general and with respect 

to the treatment of compounded 

products that include non-Part D drugs 

in particular. 

First, we propose to codify our 

existing guidance—which will comprise 

the general rule—that only compounded 

products that contain at least one 

component that independently meets 

the definition of a Part D drug may be 

covered under Part D. Such 

compounded products may, for 

example, contain all Part D drug 

components or some Part D 

components. Consistent with our 

current policy, we propose to clarify 

that sponsors may cover the Part D 

components even if the compounded 

product as a whole does not satisfy the 

definition of a Part D drug (subject to 

the exception for Part B drug 

compounds described below). For 

purposes of this preamble, these 

compounds are referred to as ‘‘Part D 

compounds.’’ As specified in our 

existing guidance, and consistent with 

the statute, however, components of a 

Part D compound that do not 

independently meet the definition of 

Part D drug are not allowable costs 

under Part D, so, non-Part D drug 

components of these compounds are not 

covered under Part D. 

An exception to our general policy 

will apply to those compounds that 

include a drug component that is 

covered under Part B. If a compound 

includes a Part B drug component, no 

components of the compound may be 

covered under Part D, even if one or 

more components of the compound 

would meet the definition of Part D drug 

if the component were dispensed or 

administered separately. This exception 

to the general rule is based both on 

current Part B payment policy and 

Section 1860D–2(e)(2)(B) of the Act. 

Section 1860D–2(e)(2)(B) specifies that a 

drug prescribed to a Part D eligible 

individual cannot be considered a Part 

D drug if payment for such drug, as 

prescribed and dispensed or 

administered to the beneficiary, is 

available under Medicare Part A or B. In 

general under Part B, when a 

compounded product meets the 

definition of a drug in section 1861(t)(1) 

of the Act, fits within a Part B benefit 

category, and otherwise meets coverage 

requirements, then payment is available 

for that compounded product. 

Therefore, in our view, when a 

compound that otherwise would be a 

Part D compound contains a Part B 

component that meets the above 

requirements, the exclusion of section 

1860D–2(e)(2)(B) of the Act applies—in 

other words, because payment for such 

a compound is available under Part B, 

the compound as a whole is excluded 

from Part D. We propose to codify this 

exception to the general rule for Part D 

compounds. 

We also propose a requirement that 

the Part D sponsor make a 

determination as to which copayment or 

coinsurance applies to a Part D 

compound. In making this 

determination, we propose that a flat 

copay amount submitted and approved 

under § 423.104, must represent the 

copay of the tier for the most expensive 

Part D ingredient and a coinsurance 

amount, submitted and approved under 

§ 423.104, must be applied to the cost of 

all Part D ingredients of the Part D 

compound. In either case, we are 

proposing to applying the cost sharing 

to the whole amount of the claim, 

having selected the cost sharing amount 

based on the tier of the most expensive 

ingredient. In the case of low income 

subsidy (LIS) beneficiaries, the costsharing amount (either copayment or 

coinsurance) is based on whether the 

most expensive Part D component is a 

generic or brand drug (as described 

under § 423.782). In the case of non-Part 

D components that could otherwise be 

covered under a supplemental benefit 

for excluded drugs as described under 

423.104(f)(1)(ii)(A), we clarify that the 

sponsor may not apply cost-sharing for 

these covered excluded drug 

components in addition to the most 

expensive Part D components. 

An underlying premise of our policy 

is that if a compound as a whole is 

considered by a Part D sponsor to be onformulary at the time of adjudication, 

for the sake of consistency, then all Part 

D components of that compound should 

be considered on-formulary, even if 


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individual Part D components would be 

considered nonformulary as a single 

drug claim. Accordingly, we propose 

that if a Part D compound as a whole is 

considered by a Part D sponsor to be onformulary, the Part D sponsor must 

adjudicate the Part D components as 

formulary drugs. Alternatively, if a Part 

D compound as a whole is considered 

by the Part D sponsor to be nonformulary, but is later approved for a 

beneficiary under a coverage 

redetermination or appeal, we propose 

that the Part D sponsor must apply CMS 

transition rules such that all Part D 

components in the compound are 

covered in the event of a transition fill 

under § 423.120(b)(3) of the compound. 

We note that while Part D sponsors 

may elect to contract with pharmacies to 

pay the additional ingredient costs of 

Part D compounds that are not Part D 

drugs and are not reimbursable by the 

government, they are not required to do 

so. Thus, the majority of the 

compounded ingredients may not be 

reimbursable to pharmacies in 

accordance with payment terms 

between sponsors and pharmacies. We 

propose to clarify that for a Part D 

compound otherwise determined to be 

payable under Part D, the sponsor may 

either contract with the pharmacy to 

pay for the non-Part D components 

without charging the beneficiary for 

these amounts or reporting these costs 

to CMS; deny payment to the pharmacy 

for any non-Part D components, but 

allow these components to be balance 

billed by the pharmacy to the 

beneficiary; or deny payment to the 

pharmacy for any non-Part D 

components and prohibit these 

components from being balance billed 

by the pharmacy. In proposing these 

requirements, we are considering 

whether the financial impact of 

unreimbursed compound components 

may deter pharmacies from continuing 

to provide compounding services, 

subsequently affecting beneficiary 

access to drugs. We invite comment on 

whether this policy is technically 

feasible at point-of-sale and/or 

otherwise appropriate. 

We note that we will separately issue 

guidance on the treatment of PDEs in 

light of Version D.0. We expect that, 

consistent with the treatment of 

compounds under current guidance, 

Part D sponsors will likely continue 

reporting the National Drug Code (NDC) 

and quantity associated with the most 

expensive Part D ingredient on the PDE. 

However, we envision that the total cost 

will represent the sum of the individual 

Part D components that make up the 

compounded product. 

Based on the preceding, we propose 

to add a new paragraph (d) to § 423.120 

to clarify the aforesaid proposals 

effective January 1, 2012. 

5. Denial of Applications Submitted by 

Part C and D Sponsors With Less Than 

14 Months Experience Operating their 

Medicare Contracts (§ 422.502 and 

§ 423.503) 

Pursuant to § 422.502(b) and 

§ 423.503(b) applicants with current or 

prior contracts with CMS are subject to 

CMS denial of their applications if they 

fail during the preceding 14 months to 

comply with the requirements of the 

Part D program even if their 

applications otherwise demonstrate that 

they meet all of the Part D sponsor 

qualifications. In the final rule, entitled 

‘‘Policy and Technical Changes to the 

Medicare Advantage and the Medicare 

Prescription Drug Programs’’ (75 FR 

19678), that appeared in the April 15, 

2010 Federal Register, we modified 

existing provisions at § 422.502(b) and 

§ 423.503(b) concerning our ability to 

deny an application for a Part C or Part 

D contract or service area expansion 

based on the applicant’s failure to 

comply with the requirements of the 

Part C or Part D program under any 

current or prior contract with CMS. The 

two modifications we made to the prior 

language concerned: (1) Revising the 

language to refer to ‘‘any current or prior 

contract’’ held by the organization, 

instead of the former language referring 

to a ‘‘previous year’s contract;’’ and (2) 

clarifying that the period that will be 

examined for past performance 

problems will be limited to those 

identified by us during the 14 months 

prior to the date by which organizations 

must submit contract qualification 

applications to CMS. 

At this time, we are proposing to 

further refine our intended approach to 

using past performance in making 

application determinations. 

Specifically, we are concerned about 

entities submitting applications to us 

where the entity has operated its 

contract(s) with us for less than 14 

months at the time it submits a new 

application or service area expansion 

request. Practically speaking, an entity 

contracting with us for the first time 

would have merely 2 months experience 

before applications would be due for the 

following contract year. Two months is 

an inadequate amount of time for the 

entity to demonstrate its ability to 

comply with all Part C and/or Part D 

requirements. 

As such, we are faced with two 

options—either to assume full 

compliance and exempt the entity from 

the past performance review, or to 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. The 

practical effect of denying applications 

from entities with less than 14 months 

experience operating a Medicare 

contract is that new entrants to the Part 

C or Part D programs would not be 

permitted to expand their operations 

(either via a new contract or a service 

area expansion of an existing contract) 

until the beginning of their third year of 

experience with CMS. As an example, 

an entity that submits an application for 

its first Part C or Part D contract in 

February 2010 is approved and begins 

delivering Part C or D services on 

January 1, 2011. Because 2012 

applications would be due in February 

2011, when the applicant has only two 

months experience with the Part C or 

Part D programs, its applications would 

be denied. The next opportunity to 

submit a viable application would be in 

February 2012 for the 2013 contract 

year. At that point, the entity would 

have exactly 14 months performance 

history for CMS to consider in making 

application determinations. 

By making this change, we will 

ensure that new entrants to the Part C 

or Part D program can fully manage 

their current contracts and books of 

business before further expanding. This 

change will also 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 propose to modify 

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

additional language at § 422.502(b)(2) 

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

of 14 months performance history, we 

may deny an application based on a lack 

of information available to determine an 

applicant’s capacity to comply with the 

requirements of the Part C or Part D 

program, respectively. 

F. Other Clarifications and Technical 

Changes 

We propose seven technical changes 

in this section, affecting as noted in 

Table 14 below, cost contract plans, MA 

plans, or Part D plans. 


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71242 Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Proposed Rules 

1. Clarification of the Expiration of the 

Authority To Waive the State Licensure 

Requirement for Provider-Sponsored 

Organizations (§ 422.4) 

We propose to clarify in this section 

that we will no longer waive the state 

licensure requirement for organizations 

seeking to offer a provider-sponsored 

organization (PSO) because, under 

section 1855(a)(2)(A) of the Act and 

§ 422.370 of our regulations, we had the 

authority to waive the state licensure 

requirement for PSOs only for requests 

for waivers submitted prior to 

November 1, 2002. While we currently 

contract with organizations that have 

previously met the conditions for 

becoming a PSO and will continue to 

contract with these organizations, 

organizations that do not meet state 

licensure requirements can no longer 

offer new PSOs because waiver of state 

licensure laws is necessary in order to 

offer a PSO. 

Section 1851(a)(2)(A) of the Act 

allows for the participation of a PSO in 

the MA program as a coordinated care 

plan. A PSO is defined in section 

1855(d) of the Act and codified in 

§ 422.350 as a public or private entity 

that— 

• Is established or organized, and 

operated, by a provider or group of 

affiliated providers; 

• Provides a substantial proportion 

(as defined in § 422.352) of the health 

care services under the MA contract 

directly through the provider or 

affiliated group of providers; and 

• When it is a group, is composed of 

affiliated providers who share, directly 

or indirectly, substantial financial risk, 

as determined under § 422.356, for the 

provision of services that are the 

obligation of the PSO under the MA 

contract, and have at least a majority 

financial interest in the PSO. 

As provided under § 422.352, an 

organization is considered a PSO for 

purposes of a MA contract if the 

organization— 

• Has obtained a waiver of State 

licensure as provided for under 

§ 422.370; 

• Meets the definition of a PSO set 

forth in § 422.350 and other applicable 

requirements of this subpart; and 

• Is effectively controlled by the 

provider or, in the case of a group, by 

one or more of the affiliated providers 

that established and operate the PSO. 

Section 1855(a)(1) of the Act requires 

that MA organizations be licensed as 

risk-bearing entities under the laws of 

the state, but section 1855(a)(2)(A) of the 

Act establishes an exception to this 

requirement by allowing PSOs to obtain 

a Federal waiver of the state licensure 

requirement from the Secretary under 

certain circumstances. Accordingly, we 

specified in § 422.370 that CMS may 

waive the state licensure requirement 

for PSOs if the organization requests a 

waiver no later than November 1, 2002, 

and we determine there is a basis for a 

waiver under § 422.372. 

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 are taking the opportunity to clarify 

this policy in this proposed rule because 

of questions we have received. 

Accordingly, we propose to revise 

paragraph (a) of § 422.4 to clarify that 

we no longer have the authority to 

waive the state licensure requirement 

for PSOs. 

2. Cost Plan Enrollment Mechanisms 

(§ 417.430) 

As part of the enrollment process, 

§ 417.430 requires that application 

forms be submitted to an HMO or CMP 

and must include a beneficiary’s 

signature. The organization must 

provide the beneficiary with written 

notice of acceptance or rejection of the 

application. We are proposing changes 

to § 417.430(a)(1) that would allow us to 

approve other enrollment mechanisms 

for cost plans in addition to paper 

forms, such as electronic enrollment. 

We are also proposing to streamline 

§ 417.430(b)(3) and § 417.430(b)(4)(i) to 

allow for notice delivery options other 

than the traditional mailing of 

documents. These proposed changes 

take into consideration the advancement 

of communication technology and 

comport with revisions we made with 

respect to the MA program under 

§ 422.50(a)(5) and § 422.60(e). 


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3. Fast-Track Appeals of Service 

Terminations to Independent Review 

Entities (IREs) (§ 422.626) 

To correct a typographical error in 

§ 422.626(f)(3), we propose removing 

the word ‘‘to’’ before the word ‘‘may.’’ 

4. Part D Transition Requirements 

(§ 423.120) 

Pursuant to our authority under 

section 1860D–11(d)(2)(B) of the Act, we 

previously codified plan transition 

policies at § 423.120(b)(3). For enrollees 

residing in a long-term care (LTC) 

facility, a Part D sponsor is required to 

provide a LTC resident enrolled in its 

Part D plan at least a 31 day supply of 

a prescription when presenting in the 

first 90 days of enrollment (unless the 

prescription is written for less) with 

refills provided, if needed, up to a 93 

day supply. As a result of section 3310 

of the ACA and the proposed rule at 

§ 423.154 for dispensing brand-name 

medications in increments of 7 days or 

less, we are proposing to revise the 

existing transition policy for LTC 

facilities to be more consistent with 7 

day or less dispensing. Consistent with 

our proposed rule that would require 

Part D sponsors to require all 

pharmacies servicing LTC facilities to 

dispense no more than a seven-day 

supply of brand-name medication when 

dispensing covered Part D drugs to 

enrollees who reside in LTC facilities, 

with certain exceptions for specific 

types of drugs and certain waivers of the 

requirement for specific types of 

pharmacies, we propose revising the 

transition fill supply from 93 days to 91 

days to accommodate multiple fillings 

of 7 days or less in the LTC setting 

whenever § 423.154 (a) applies to drugs 

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

proposed change to a 91-day supply 

would permit exactly 13 weeks of 7-day 

transition fills. Under this revised 

requirement, a Part D sponsor would be 

required to provide a LTC resident 

enrolled in its Part D plan a temporary 

supply of a prescription when 

presenting in the first 90 days of 

enrollment up to a 91-day supply, with 

supply increments consistent with 

§ 423.154 (unless the prescription is 

written for less), with refills provided, if 

needed. 

We also propose to amend 

§ 423.120(b)(3)(iii) to clarify transition 

notice requirements that must be sent to 

beneficiaries within 3 business days of 

adjudication of a temporary fill. Upon 

review of the regulatory language, we 

believe revisions are needed in the case 

of multiple dispensing of 7 days or less 

of a single prescription. While we 

continue to believe that written notice 

must be sent to each affected enrollees, 

in the case of a LTC enrollee impacted 

by the 7-day-or-less dispensing 

requirement, we believe that the written 

notice should be sent within 3 business 

days after adjudication of the first 

transition fill. Otherwise, we are 

persuaded based on 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. We solicit 

comments on this proposed revision. 

Accordingly, based on the preceding, 

we have proposed revisions to 

423.120(b)(3)(iii)(B) and (iv) to be 

consistent with the proposed 

requirements related to dispensing 

brand-name medications in 7-day-orless increments effective January 1, 

2012. 

5. Revision to Limitation on Charges to 

Enrollees for Emergency Department 

Services (§ 422.113) 

As provided under section 1852(d)(1) 

of the Act and codified at 

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

financially responsible for emergency 

and urgently needed services, with a 

limit on charges to enrollees for 

emergency department services of $50 

or what an MA organization would 

charge an enrollee if he or she obtained 

the services through the MA 

organization, whichever is less. The 

limit on cost sharing at the lesser of $50 

or what the plan would charge the 

enrollee if he or she obtained the 

services through the organization was 

first included in the regulations at 

§ 422.112(b)(4) in the June 26, 1998 

interim final rule (63 FR 35081) as the 

cost sharing limit for emergency 

services received out-of-network. 

Subsequently, new section § 422.113 

was added to the regulations in the June 

29, 2000 final rule (65 FR 40322) and 

required that same limit on cost sharing 

for emergency services regardless of 

whether they were received in- or outof-network. 

We are proposing to revise the 

regulations to remove the $50 cost 

sharing amount for CY 2012 because we 

believe that it is outdated considering 

the increasingly higher costs of 

emergency care during the past decade. 

The relatively low cost-sharing limit for 

emergency department services has 

constrained MA organizations’ ability to 

control unnecessary use of emergency 

departments. We believe that we are in 

a position to evaluate the cost-sharing 

limit for emergency care as part of our 

annual benefits review process to strike 

a balance between reasonable costsharing amounts and MA organizations’ 

ability to appropriately control 

utilization and costs. 

Therefore, we propose revising 

§ 422.113(b)(2)(v) to remove the $50 

amount and replace it with language 

indicating that we will evaluate and 

determine the appropriate enrollee costsharing limit for emergency department 

services. We would annually evaluate 

the emergency department cost sharing 

limit and inform MA organizations of 

any changes to the limit in annual 

guidance, such as the Call Letter. 

6. Clarify Language Related to 

Submission of a Valid Application 

(§ 422.502 and § 423.503) 

Since the enactment of the MMA in 

2005, we have adapted our processes for 

reviewing applications for qualification 

for contracts to operate as Medicare Part 

C or D sponsoring organizations to 

accommodate the timely review of large 

numbers of applications each year. That 

adaptation has included the 

establishment of strict deadlines for the 

initial submission of applications and 

the resubmission of materials needed to 

cure identified deficiencies. We do not 

review applications that are submitted 

after the established deadline, meaning 

that an organization that misses the 

deadline would not receive a Part C or 

D sponsor contract for the following 

benefit year. Because we do not review 

such applications, we do not provide a 

notice of intent to deny under 

§ 422.502(c)(2) or § 423.503(c)(2), nor is 

the organization entitled to a hearing 

under § 422.660 or § 423.650. 

To avoid the consequences of missing 

the initial submission deadline, some 

organizations have submitted 

applications that we considered so 

lacking in required information or 

correct detail as to fail to constitute a 

valid, timely submission. We suspect 

that in many instances, these 

organizations expected to take 

advantage of our policy of affording 

applicants two later opportunities 

during the review process (including the 

10-day cure period following the 

issuance of a notice of intent to deny an 

application issued under § 422.502(c)(2) 

and § 423.503(c)(2)) to make their 

applications complete by providing 

information that had been omitted from 

the initial submission. We established 

the submission deadline to ensure that 

all organizations had the same amount 

of time in which to develop their 

materials and that the agency could 

provide each applicant a fair and timely 

review of its application. Our adoption 

of a policy of strict enforcement of 

application submission deadlines is 

entirely consistent with our regulatory 

authority, stated at § 422.501(b) and 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2
71244 Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Proposed Rules 

§ 423.502(b), to require organizations to 

submit applications in a form and 

manner required by CMS. 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. As a result, in the CY 2010 

Call Letter, we informed all current and 

potential Part C and D organizations that 

we would not review any application 

for contract qualification that amounted 

to a ‘‘placeholder’’ application. We 

inadvertently stated in the Call Letter 

that we would deny such applications 

pursuant to § 423.503(c), which could 

have been interpreted to mean that we 

were providing an opportunity for an 

administrative appeal. This was not our 

intent as we do not accept invalid 

applications, and where there is no 

valid application, we have no obligation 

to issue a notice of intent to deny or a 

right to appeal under § 422.660 or 

§ 423.650. 

In addition, we believe that confusion 

about our authority to enforce the 

application deadline may be created by 

the provisions of § 422.502(c)(2)(i) and 

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

will provide an applicant a notice of 

intent to deny when the organization 

‘‘has not provided enough information 

to evaluate the application.’’ We 

intended this language to afford an 

organization that had made a good faith 

effort to complete a contract 

qualification application the 

opportunity to provide the materials 

necessary to cure a discrete application 

deficiency. It now appears that this 

language could provide an unintended 

protection to an organization that 

circumvented our established 

application deadline by submitting a 

‘‘placeholder’’ application. 

We believe that the language in 

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

stating that the agency will issue a 

notice of intent to deny if CMS finds 

that the applicant does not appear 

qualified to contract as a Part C or D 

sponsor, combined with the language of 

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

allowing the organization to ‘‘revise its 

application to remedy any defects CMS 

identified’’ is sufficient to authorize us 

to consider additional curing materials 

submitted by a good faith applicant. 

Therefore, to remove all ambiguity that 

may exist concerning our authority to 

decline to accept or review substantially 

incomplete applications, we propose to 

revise the provisions of 

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

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

provided enough information to 

evaluate the application.’’ 

7. Modifying the Definition of 

Dispensing Fees (§ 423.100) 

As stated in our August 3, 2004 

proposed rule, MMA does not define the 

term ‘‘dispensing fee,’’ although the 

terms ‘‘dispensing fee’’ and ‘‘dispense’’ 

appear several times throughout the Act. 

Because the statute is ambiguous on the 

meaning of ‘‘dispensing fee,’’ in the 

August 3, 2004 proposed rule we offered 

three options and sought comments on 

the proposed definitions. ‘‘Dispensing 

fees’’ as defined in our final rule, 

January 28, 2005, distinguished between 

pharmacies owned and operated by a 

Part D plan itself and all other 

pharmacies. 

‘‘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 propose to clarify 

that the salaries of pharmacists and 

other pharmacy workers may be 

reasonable pharmacy costs for any 

pharmacy. Consistent with that 

clarification, we simplify the definition 

of ‘‘dispensing fees’’ and remove 

reference to ‘‘pharmacies owned and 

operated by a Part D plan itself.’’ 

We propose to modify the definition 

of ‘‘dispensing fee’’ under § 423.100 to 

include costs associated with the 

acquisition and maintenance of 

technology to maintain reasonable 

pharmacy costs. We also propose to add 

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. 

Although it is not our intent to include 

all activities that are ‘‘reasonable costs’’ 

in the definition of ‘‘dispensing fees,’’ in 

light of the statutory requirements 

regarding LTC pharmacy dispensing, we 

believe that it is particularly important 

to highlight the potential pharmacy 

costs aimed at reducing waste and 

increasing efficiency of dispensing. We 

also believe dispensing fees should 

differentiate among the costs associated 

with different dispensing methodologies 

and appropriately address costs that are 

incurred to offset waste. 

We now propose to simplify and 

clarify the definition of ‘‘dispensing 

fees’’ by modifying § 423.100 and 

eliminating the distinction between 

pharmacies owned and operated by a 

Part D plan itself and all other 

pharmacies. We also propose modifying 

§ 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. 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. 

III. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 60- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 

approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

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

Reduction Act of 1995 requires that we 

solicit comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

The following sections of this 

document contain paperwork burden 

but not all of them are subject to the 

information collection requirements 

(ICRs) under the PRA for reasons noted. 

A. ICRs Regarding Cost Sharing for 

Specified Services at Original Medicare 

Levels (§ 417.101 and § 422.100) 

Under proposed § 417.101(g) and 

§ 422.100(g) and (h), we would clarify 

that MA organizations may not impose 

cost sharing that exceeds that required 

under Original Medicare. We would 

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 


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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 proposed 

requirement is the time and effort 

necessary for MA organizations and 

section 1876 cost contracts to submit 

their benefit designs, including costsharing amounts, via the Plan Benefit 

Package (PBP) software. While this 

proposed requirement is subject to the 

PRA, the burden associated with it is 

currently approved under OMB control 

number (OCN) 0938–0763 with a May 

31, 2011, expiration date. 

B. ICRs Regarding SNP Provisions 

(§ 422.101, § 422.107, and § 422.152) 

1. Dual-Eligible SNP Contracts With 

State Medicaid Agencies (§ 422.107) 

Proposed § 422.107(d)(ii) would 

extend the time allowed for the 

continuance of existing SNPs that do 

not have contracts with the State 

Medicaid agencies in which they 

operate. For new and existing dual 

eligible SNPs 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, we do not expect the 

burden to change from the existing 

burden estimate, as currently approved, 

under OCN 0938–0753, with a 

November 30, 2011, expiration date. 

2. ICRs Regarding NCQA Approval of 

SNPs (§ 422.101 and § 422.152) 

Proposed § 422.101 and § 422.152 

provide for the approval of all SNPs, 

existing and new, by the National 

Commission for Quality Assurance 

(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 overall quality improvement (QI) 

program and the model of care (MOC) 

to CMS for NCQA evaluation and 

approval as per CMS guidance. 

Although the submission of the MOC 

and the QI program documents is 

already part of the application process, 

scrutiny of these documents by NCQA 

for approval is a new requirement. 

Additionally, in the past all SNPs were 

not required to complete the SNPs 

proposal portion of the application each 

year, resulting now in all SNPs, (that is, 

all of the SNP plans offered by an MA 

organization) being required to complete 

the SNPs proposal within the 

application and possibly provide 

documentation external to the existing 

electronic application process. It is 

estimated that it will take each SNP 

plan 40 hours to complete the annual 

application. Within those 40 hours, the 

SNP portion of the burden is 6 hours. 

For the existing 544 SNPs, the burden 

associated with completing the SNP 

section only is estimated to be 3,264 

hours. 

The number of new plans each year 

will vary and cannot easily be 

predicted. However, based on the 

number of new plans that submitted 

SNP Proposals during the application 

period in February 2010 for operation in 

2011, we estimate that approximately 15 

new applications will be submitted 

annually. Thus, for 15 new plans at 40 

hours each, we estimate the total annual 

burden hours to be 600. The burden 

associated with the proposed 

requirement for the new plans is 

currently approved under OCN 0938– 

0935 with a January 21, 2011 expiration 

date. 

C. ICRs Regarding Voluntary De 

Minimis Policy for Subsidy Eligible 

Individuals (§ 423.34 and § 423.780) 

Our proposed regulatory 

modifications pursuant to section 3303 

of the ACA ensure that our regulations 

reflect the new statutory prohibition on 

reassigning low-income subsidy (LIS) 

beneficiaries from Part D plans that 

waive a de minimis amount of their 

premium. Further, the proposed 

regulatory modifications reflect 

statutory discretion for us to autoenroll 

or reassign LIS beneficiaries to Part D 

plans that waive the de minimis amount 

of the premium. The proposed 

modifications to § 423.34 do not by 

themselves impose any new information 

collection requirements on any external 

entity. 

However, related proposals to modify 

§ 423.780 do impose new information 

collection requirements. Specifically, 

the proposed modifications provide for 

the process for a Part D plan to 

volunteer to waive a de minimis amount 

over the monthly beneficiary premium 

for certain low income subsidy eligible 

(LIS) individuals. As specified in 

proposed changes to § 423.34, we are 

prohibited from reassigning LIS 

beneficiaries from Part D plans that 

waive the de minimis amount of the 

premium based on the fact that their 

premiums exceed the LIS benchmark 

premium amount, and we may choose 

to autoenroll 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 

annually, it will take an additional 10 

minutes 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 

(D—IRMAA) (§ 423.44) 

Proposed § 423.44(e)(4) would require 

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 Office of Personnel Management, or 

the Railroad Retirement Board, or the 

monthly benefit payment is not 

sufficient to have the Part D—IRMAA 

withheld. 

Of the 80,000 Part D enrollees who 

will be directly billed for the Part D— 

IRMAA, CMS cannot estimate how 

many might accrue Part D—IRMAA 

arrearages and be subsequently 

terminated. However, in the event that 

the 80,000 Part D enrollees who pay the 

Part D—IRMAA through direct billing 

become delinquent, PDPs would be 

required to send all 118,000 enrollees a 

notice of termination in accordance 

with § 423.44(e)(4), and the burden 

associated with this requirement would 

be the time and effort that it takes a PDP 

to populate the notice with a 

beneficiary’s information. Termination 

notices are generally automated; 

therefore, CMS estimates that it will 

take 1 minute to generate a termination 

notice. As such, the total maximum 


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annual hourly burden associated with 

this requirement is 1,333 hours (1 

minute multiplied by 80,000 enrollees, 

divided by 60 minutes). We estimate 

that the hourly wage paid to an 

individual tasked with generating the 

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

Department of Labor statistics for hourly 

wages for administrative support). The 

associated burden amount for this work 

is $53,320. Additionally, Part D plan 

sponsors will have to retain a copy of 

the notice in the beneficiary’s records. 

We estimate 5 minutes multiplied by 

80,000 enrollees divided by 60 minutes. 

This equates to 6,666 hours at 

approximately $40 an hour (based on 

U.S. Department of Labor statistics for 

hourly wages for administrative 

support). This associated burden 

amount is $266,640. We estimate the 

total maximum annual burden for all 

Part D plan sponsors resulting from this 

proposed provision to be $319,960. 

E. ICRs Regarding Elimination of 

Medicare Part D Cost-Sharing for 

Individuals Receiving Home and 

Community-Based Services (§ 423.772 

and § 423.782) 

We proposed to amend § 423.772 and 

§ 423.782 in accordance with section 

3309 of the ACA. Specifically, the 

proposed 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 

would require State Medicaid Agencies 

to submit data at least monthly 

identifying these individuals. There is 

an already established data exchange for 

States to identify their dual eligible 

individuals to CMS at least monthly. We 

would leverage that data exchange by 

adding a new value for the existing 

institutional field, which also prompts 

CMS to set a zero copayment liability 

for full benefit dual eligible 

beneficiaries. 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. 

The burden associated with the 

requirement for States to provide CMS 

with the specified information is 

estimated to include a one-time 

development cost as well as 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 

Medicaid Agencies. Assuming an hourly 

salary of $34.10 for computer 

programmers, we estimate an ongoing 

cost of $20,862 per fiscal year. 

F. ICRs Regarding Appropriate 

Dispensing of Prescription Drugs in 

Long-term Care Facilities under PDPs 

and MA–PD plans (§ 423.154) and 

Dispensing Fees (§ 423.100) 

Under § 423.154(a), we propose to 

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 proposing a new requirement 

under § 423.154(a)(3) for Part D 

sponsors to collect and report to CMS 

the method of dispensing technique 

used for each dispensing event 

described under § 423.154(a). We 

anticipate a billing standard that 

incorporates the collection of this 

information. While the requirements 

under this proposed section are subject 

to the PRA, should the rule be finalized, 

the reporting requirement will be 

proposed under currently approved 

OCN 0938–0992. 

The proposed requirements will 

necessitate the renegotiation of contracts 

between Part D sponsors and the 

pharmacies servicing LTC facilities. We 

anticipate dispensing fees will increase, 

consistent with our proposed change in 

the definition of dispensing fees 

(§ 423.100), with the relative investment 

in the dispensing technologies and 

corresponding dispensing efficiencies 

associated with the dispensing 

technologies used in § 423.154. 

We estimate that the total annual 

hourly burden for negotiating a contract 

between the Part D sponsors and entity 

contracting with the pharmacies 

servicing long-term care facilities (for 

example, PBM) to be equal to the 

number of Part D sponsors (731) 

multiplied by the average estimated 

hours per sponsor (10), equaling 7,310 

hours. We estimate the number of 

entities contracting with pharmacies 

servicing long-term care facilities to be 

40 (28 processors and 12 other entities). 

We estimate the total annual hourly 

burden for negotiating a contract 

between the entity described above and 

the pharmacies servicing long-term care 

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 

requirements is $1,578,602. This is a 

one-time contract negotiation cost. 

G. ICRs Regarding Complaint System for 

Medicare Advantage Organizations and 

PDPs (§ 422.504 and § 423.505) 

Under proposed § 422.504(a) and 

§ 423.505(b) we would require MA 

organization and Part D sponsors to 

address and resolve all complaints in 

the CMS complaint tracking system and 

to include a link to the electronic 

complaint form at http:// 

www.medicare.gov on their main Web 

page. This requirement would allow 

thorough monitoring of complaints 

through the tracking system by 

identifying how plan sponsors resolve 

and close complaints and allow 

members to access complaint forms 

electronically on http:// 

www.medicare.gov. 

The burden associated with this 

proposed provision is the time and 

effort of the MA organizations and Part 

D sponsors in recording complaint 

closure documentation in the CTM and 

training staff, as well as posting and 

maintaining a link from their Web site 

to the electronic complaint form at the 

Medicare.gov Internet Web site. While 

this requirement is subject to the PRA, 

we believe this burden is exempt as 

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

the time, effort, and financial resources 

necessary to comply with the 

requirement would be incurred by the 

Part D sponsors in the normal course of 

their business activities. 

H. ICRs Regarding Uniform Exceptions 

and Appeals Process for Prescription 

Drug Plans and MA–PD Plans (§ 423.128 

and § 423.562) 

In accordance with the new section 

1860D–4(b)(3)(H) of the Act, we propose 

to revise § 423.128 at paragraphs (b)(7) 

and (d) 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. 

At § 423.128(b)(7), we proposed 

adding paragraph (i) to require that plan 

sponsors make available standard forms 

to request coverage determinations and 


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redeterminations (should this be 

determined feasible and to the extent 

that standard request forms have been 

approved for use by CMS). 

We also propose to add paragraph (ii) 

to § 423.128(b)(7), which would require 

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 proposed at § 423.128(b)(7)(i). 

Similarly, we propose to revise 

§ 423.128(d) by requiring sponsors to 

provide a toll-free telephone line for 

requesting coverage determinations and 

redeterminations. The burden 

associated with these proposed 

requirements involves collecting the 

coverage determination request 

information submitted through the 

various proposed processes. 

We estimate that all 731 plan 

sponsors will receive a total of 484,468 

coverage determination requests 

submitted by mail, with some using the 

standardized coverage determination 

request form if available, and 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 80,745 hours. We 

also estimate that all plan sponsors will 

receive a total of 52,086 coverage 

determination requests submitted 

through secure websites, but that this 

process will not create an additional 

burden for plan sponsors beyond that 

required for requests submitted by mail 

because enrollees will enter information 

into a claims processing system 

themselves. Finally, we estimate that all 

plan sponsors will receive a total of 

690,064 coverage determination 

requests submitted by telephone, and it 

will 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 and information collected when 

conducting an administrative action is 

not subject to the PRA. 

We also proposed to require Part D 

sponsors to modify their electronic 

transactions to pharmacies so that they 

can transmit codes instructing 

pharmacies to distribute notices at the 

point-of-sale (POS). That is, pharmacies 

and processors will be required to 

program their systems to relay the 

message at the pharmacy to distribute 

the appeal notice. In cases when a 

prescription cannot be filled as written, 

Part D sponsors are required under 

§ 423.562(a)(3) to arrange with their 

network pharmacies to distribute a 

pharmacy notice advising the enrollee 

of his or her right to contact the plan to 

request a coverage determination. 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, for a total one-time burden of 

1,600 hours. The estimated one-time 

cost associated with the processor tasks 

is $64,000 (1600 hours × $40). Each 

pharmacy will need to program to 

receive the code and print the response. 

Programming by the pharmacies (40 

pharmacy software vendors) in order to 

receive the code by each pharmacy will 

be 10 hours, for a total of 400 hours. The 

estimated one-time cost associated with 

the processor tasks is $16,000 (400 

hours × $40). 

We estimated that the average time to 

process a coverage determination is 10 

minutes (0.167 hours) and that the 

average number of coverage 

determination requests received by mail 

or secure Web site processed for each 

respondent (n=731) was 734. Requiring 

plan sponsors to process the 

information submitted in standardized 

coverage determination requests forms 

(§ 423.128(b)(7)(i)) is, therefore, 

estimated to result in an annual burden 

of 89,605 hours (731 entities × 734 

contracts per entity × .167 hours per 

contract to process). At an estimated 

cost of $40.00 per hour, the estimated 

total annual cost of this change is $3.2 

million. We estimated that processing 

coverage determination requests that are 

received by telephone (§ 423.128(d)) 

will take an average of 10 minutes 

(0.167 hours) per request and that 

entities (n = 731) would process on 

average 944 coverage determination 

requests. This is estimated to result in 

an annual burden of 115,240 hours (731 

entities × 944 determination requests 

per entity × 0.167 hours per 

determination request). At an estimated 

cost of $40.00 per hour, the estimated 

total annual cost of this change is $4.6 

million (115,240 hours × $40.00 per 

hour). We estimated that contacting 

entities (n = 731) would distribute an 

average of 2,200 pharmacy notices. 

Therefore, requiring plan sponsors to 

arrange with their network pharmacies 

to distribute pharmacy notices at the 

point-of-sale when prescriptions cannot 

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

estimated to result in an annual burden 

of 53,071 hours (2 minutes or 0.033 

hours at point-of-sale × 731 contracts × 

2200 pharmacy notices per contract). At 

an estimated cost of $40.00 per hour, the 

estimated total annual cost of this 

change is $2.1228 million. 

I. ICRs Regarding Including Costs 

Incurred by AIDS Drug Assistance 

Programs and the Indian Health Service 

Toward the Annual Part D Out-ofPocket Threshold (§ 423.100 and 

§ 423.464) 

Our revised definition of ‘‘incurred 

cost’’ at § 423.100 to include the costs 

associated with IHS/ADAPs as a cost 

that counts towards TrOOP does not 

impose new information collection for 

CMS’ COB contractor or ADAPs. The 

COB contractor currently collects datasharing agreements from ADAPs under 

the MSP information collection process. 

The burden associated with this 

collection is accounted for under OMB 

0938–0214. 

J. ICRs Regarding Improvements to 

Medication Therapy Management 

Programs (§ 423.153) 

We propose to amend § 423.153(vii) to 

require the Part D sponsor use a 

standardized format for the action plan 

and summary resulting from the annual 

comprehensive medication review, 

permit the use of telehealth technology 

in the conduct of the CMR, and require 

sponsors to contract with LTC facilities 

to utilize independent consultant 

pharmacists to perform the targeted 

medication reviews that are required at 

least quarterly. 

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 requirement in 

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

action plan and summary in a 

standardized format is generally part of 

that burden; therefore, no additional 

burden is estimated. Further, since the 

use of telehealth technology to conduct 

the CMR is permitted but not required, 

there is no burden associated with this 

change. 

The proposed rule also requires Part 

D sponsors to coordinate MTM program 

quarterly medication reviews with LTC 

consultant pharmacist monitoring for 

Part D enrollees in LTC facilities. The 

ICR burden associated with this 

requirement is related to developing and 


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executing contracts with all the LTC 

facilities in which Part D enrollees 

reside to provide appropriate MTM 

services in coordination with LTC 

consultant pharmacist evaluation and 

monitoring. Although all Part D plan 

sponsors would need to contract with 

all the LTC facilities in which their 

enrollees reside, for purposes of 

determining the ICR burden, we assume 

that the contracts would be negotiated, 

drafted and executed by the sponsors’ 

parent organization on behalf of all the 

parent’s Part D contracts. In the absence 

of a parent organization, the sponsor 

would undertake the contracting 

activity directly. We expect a total of 

240 parent organizations and sponsors 

would have a contract with an average 

of 802 LTC facilities. 

We expect that complying with this 

requirement would primarily require 

the involvement of the parent 

organization’s or the sponsor’s general 

counsel to negotiate, draft and execute 

the contract. We estimate that 

complying with this requirement would 

require 4,812 burden hours (6 burden 

hours × 802 LTC facilities) for each 

parent organization or sponsor to 

execute a contract with a average of 802 

LTC facilities at an estimated cost of 

$402,957 (4,812 burden hours × $83.74 

estimated hourly cost). Thus, it would 

require 1,154,880 hours (4,812 burden 

hours per parent organization or 

sponsor × 240 parent organizations or 

sponsors with Part D LTC residents) for 

all Part D sponsors to comply with this 

requirement at an estimated cost of 

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

per parent organization or sponsor × 240 

parent organizations or sponsors with 

Part D LTC residents). 

After the first fiscal year, we estimate 

that continued compliance with this 

requirement would require 1,604 

burden hours in each fiscal year (2 

hours × 802 LTC facilities) per parent 

organization or sponsor general counsel 

to review the contract and, if necessary, 

execute updated contracts with the LTC 

facilities at an estimated cost of 

$134,319 per parent organization or 

sponsor. Thus, it would require 384,960 

burden hours per fiscal year (1,604 

annual burden hours per parent 

organization or sponsor × 240 parent 

organizations or sponsors with Part D 

LTC residents) for all Part D sponsors 

with Part D LTC residents to comply 

with this requirement at an estimated 

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

cost per parent organization or sponsor 

× 240 parent organizations or sponsors 

with Part D LTC residents). 

K. ICRs Regarding Changes To Close the 

Part D Coverage Gap (§ 423.104 and 

§ 423.884) 

Proposed § 423.104(d)(4) would 

require the approximately 40 pharmacy 

claims processors currently responsible 

for adjudication of pharmacy benefits to 

identify the applicable Part D covered 

drugs in their systems and apply a 

different cost-sharing percentage when 

processed in the coverage gap than the 

percentage applied to non-applicable 

drugs. We estimate a one-time burden to 

be 12,000 hours per processor to make 

the initial coding changes necessary to 

implement this requirement and an 

annual burden of 250 hours per 

processor to perform periodic updates of 

the applicable drugs in their systems. 

There are an estimated 40 processors. At 

an average labor cost of $105 per hour 

for a senior computer programmer, we 

estimate the first fiscal year annual 

burden associated with this requirement 

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

processors) at an estimated total cost of 

$50.4 million. After the first fiscal year, 

the estimated burden associated with 

this requirement would be 10,000 hours 

(250 hours × 40 processors) at an 

estimated total annual cost of 

$1,050,000. 

L. ICRs Regarding Medicare Advantage 

Benchmark, Quality Bonus Payments, 

and Rebate (§ 422.252, § 422.258 and 

§ 422.266) 

Under § 422.258(d)(6) we propose to 

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. 

OCNS ASSOCIATED WITH THE 5-STAR

RATING SYSTEM FOR QUALITY

BONUS PAYMENTS

OCN Expiration date 

0938–1028 ................ November 30, 2011. 

0938–0732 ................ November 30, 2010. 

0938–0701 ................ August 31, 2010. 

We have also proposed new calculations 

for the benchmarks and rebates in 

§ 422.252, § 422.258, and § 422.266. The 

burden associated with the bid data 

used in these calculations is included in 

the burden estimate associated with the 

Bid Pricing Tool which is currently 

approved under OCN 0938–0944 with a 

May 31, 2011, expiration date. 

M. ICRs Regarding Quality Bonus 

Appeals § 422.260 

We propose to add a new § 422.260 to 

state that each MA organization is 

afforded the right to request an 

administrative review of CMS’ 

determination concerning the 

organization’s qualification for a quality 

bonus payment. The burden associated 

with this proposed provision is the time 

and effort of the MA organizations in 

developing and presenting their case to 

a CMS official and, ultimately, the CMS 

Administrator, to demonstrate that they 

in fact should qualify for the quality 

bonus payment. 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 

CMS’ application of the methodology to 

their performance. 

We estimate that the total hourly 

burden in a fiscal year for developing 

and presenting a case to us for review 

is equal to the number of organizations 

likely to request an appeal multiplied by 

the number of hours for the attorneys of 

each appealing MA organization to 

research, draft, and submit their 

arguments to CMS. Based on the star 

rating distributions of previous contract 

years, out of the approximately 350 MA 

contracts that are subject to star rating 

analysis (that is, those not excluded 

from analysis because of low 

enrollment, contract type not required 

to report data, or new contract with no 

performance history), approximately 

250 may receive less than a four-star 

rating. We estimate that 10 percent of 

those contracts (25) will request an 

appeal of their rating under the 

proposed rule. We further estimate that 

one attorney working for 8 hours could 

complete the documentation to be 

submitted to CMS for each contract, 

resulting in a total burden estimate of 

200 hours (8 hours × 25 contracts = 200 

hours). The estimated fiscal year cost to 

MA organizations associated with this 

provision (assuming an attorney billing 

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

hours × $250). 

N. ICRs Regarding Timely Transfer of 

Data and Files When CMS Terminates a 

Contract With a Part D Sponsor 

(§ 423.509) 

We propose to amend § 423.509 to 

state when CMS terminates a contract 

with a Part D plan sponsor, the Part D 

plan sponsor must ensure the timely 


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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 Compliance Officer 

Training (§ 422.503 and § 423.504) 

The proposed 

§ 422.503(b)(4)(vi)(B)(1)(b) and 

§ 423.504(b)(4)(vi)(B)(1)(b) regarding 

compliance officer training will clarify 

existing requirements by providing 

additional guidance with respect to the 

particular training requirements. The 

burden associated with this requirement 

is the time and effort put forth by the 

plan sponsor to train a compliance 

officer to meet the existing training 

requirements of this section. The 

proposed clarification is related only to 

the content and timing of the existing 

training requirement. While these 

requirements are subject to the PRA, the 

burden associated with them is 

currently approved under OCN 0938– 

1000 with an expiration date of 

February 28, 2010. 

P. ICRs Regarding Agent and Broker 

Training Requirements (§ 422.2274 and 

§ 423.2274) 

Proposed § 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 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 

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 

for the preparer of the proposal will be 

$59.20 (based on hourly wages for 

management analysts reported by the 

U.S. Department of Labor Bureau of 

Labor Statistics). The total annual labor 

cost of this proposal preparation is 

estimated to be $71,040 ($59.20 × 1200 

hours) per fiscal year. 

Also at § 422.2274 and § 423.2274, we 

propose to 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 training annually. While this 

requirement is subject to the PRA, we 

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 Call Center and 

Internet Web Site Requirements 

(§ 422.111 and § 423.128) 

We propose in § 422.111(g)(1)(2)(3) to 

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 propose 

in § 422.111(g)(1)(iii) and 

§ 423.128(d)(1)(iii) to 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 limited 

English proficient (LEP) beneficiaries. 

The burden associated with this 

proposed 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. 

R. ICRs Regarding Requiring Plan 

Sponsors To Contact Beneficiaries To 

Explain Enrollment by an Unqualified 

Agent/Broker (§ 422.2272 and 

§ 423.2272) 

Proposed § 422.2272(e) and 

§ 423.2272(e) would 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, we 

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. 

S. ICRs Regarding Customized Enrollee 

Data (§ 422.111 and § 423.128) 

Proposed § 422.111(b)(11) and 

§ 423.128(b)(12) would require MA 

organizations and PDP sponsors to 

periodically provide each enrollee with 

enrollee specific data to use to compare 

utilization and out-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 ANOC and EOC). 

Plan sponsors already collect enrollee 

utilization and cost-sharing information 

as part of their claims processing 

operations. Therefore, the burden 

associated with this proposed 

requirement is 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 

anticipate that it would take 30 hours 

per MA organization and 20 hours per 

Part D sponsor to develop and submit 

the required information. This includes 

2 hours for reading CMS’ published 

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 beneficiary. We developed 

this burden estimate using our burden 

estimates for the ANOC/EOC documents 

under OCN 0928–1051 as a baseline, 

then expanding on that baseline, and 

factoring in expected programming and 

development costs to provide 

beneficiary specific information. We 

estimate 564 MA organizations and 85 

Part D sponsors would be affected 

annually by this requirement. The total 

annual burden associated with this 

requirement is 18,620 hours in a fiscal 


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year. In subsequent years, the burden 

associated with this proposed 

requirement is the time and effort 

necessary for a plan sponsor to disclose 

(print and mail) this information to each 

beneficiary. We anticipate that it would 

take 20 hours per MA organization and 

15 hours per Part D sponsor to develop 

and submit the required information. 

This includes 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 estimate 

564 MA organizations and 85 Part D 

sponsors would be affected annually by 

this requirement. The total annual 

burden associated with this requirement 

is 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). 

T. ICRs Regarding Extending the 

Mandatory Maximum Out-of-Pocket 

(MOOP) Amount Requirements to 

Regional PPOs (§ 422.100(f) and 

§ 422.101(d)) 

We propose at § 422.100(f) and 

§ 422.101(d) to extend the mandatory 

MOOP and catastrophic limit 

requirements to RPPO plans. Each RPPO 

plan would 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 

would be included in RPPO plans’ 

MOOPs. Our proposal would not result 

in an additional data collection burden 

for RPPOs since they already collect this 

data to establish their own in-network 

MOOP and catastrophic limits under 

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

is subject to the PRA, the burden is 

exempt as defined in 5 CFR 

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

financial resources necessary to comply 

with the requirement would be incurred 

by persons in the normal course of their 

business activities. 

U. ICRs Regarding Prohibition on Use of 

Tiered Cost Sharing by MA 

Organizations (§ 422.100 and § 422.262) 

Under our proposed revision to 

§ 422.262, we would clarify that MA 

organizations may not impose cost 

sharing that varies across enrollees for 

any reason, including provider group, 

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 proposed 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. 

V. ICRs Regarding Translated Marketing 

Materials (§ 422.2264 and § 423.2264) 

This proposed clarification at 

§ 422.2264(e) and § 423.2264(e) does not 

impose any additional burden upon MA 

organizations because they have been 

required to provide translated marketing 

materials pursuant to § 422.2264(e) and 

§ 423.2264(e) (previously numbered 

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

believe the burden associated with these 

proposed requirements is exempt from 

the requirements of the Paperwork 

Reduction Act of 1995 (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. 

W. ICRs Regarding Expanding Network 

Adequacy Requirements to Additional 

MA Plan Types (§ 422.112) 

Our proposed amendment to 

§ 422.112(a)(10) would ensure that any 

MA plan that meets Medicare access 

and availability requirements through 

direct contracting network providers 

does so consistent with the 

requirements at § 422.112(a)(10). We did 

not include MA MSAs in 

§ 422.112(a)(10) because MSA plans 

historically have not had networks and 

enrollees in MSA plans may see any 

provider. However, MSA plans are not 

prohibited from having networks as long 

as enrollee access is not restricted to 

network providers. While there are 

currently no MA MSA network plans, 

we are aware of possible interest in 

offering such plans. 

The burden associated with this 

requirement is the time and effort 

required by MA organizations to submit 

network adequacy data to CMS for 

review and approval as part of the 

application process. This burden is 

already accounted for under OCN 

0938–0935. However, since this 

proposal would 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. 

X. ICRs Regarding Maintaining a 

Fiscally Sound Operation (§ 422.2, 

§ 422.504, § 423.4, and § 423.505) 

Proposed § 422.504(a) and 

§ 423.505(b) would 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 proposed requirement is the 

time and effort necessary to submit 

these financial reports. While this 

proposed requirement is subject to the 

PRA, the associated burden is currently 

approved under OCN 0938–0469 with 

an expiration date of April 30, 2013. 

Y. ICRs Regarding Release of Part C and 

Part D Payment Data (Parts 422 and 

423, Subpart K) 

This proposed rule would allow 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 would be routinely 

released on an annual basis in the year 

after the year for which payments were 

made. The data release would 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 would 

release data for payment year 2010 in 

the fall of 2011. This timeframe would 

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 application 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 proposed to 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 


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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 submitted to us, 

but rather are compiled and derived 

solely from CMS internal payment files. 

Z. ICRs Regarding Revision to Limitation 

on Charges to Enrollees for Emergency 

Department Services (§ 422.113) 

We are proposing at § 422.113(b)(2)(v) 

to eliminate the current $50 cost-sharing 

limit on emergency department services 

and, instead, to require CMS to evaluate 

and determine the appropriate enrollee 

cost sharing limit for emergency 

department services on an annual basis. 

The burden associated with this 

proposed requirement is the time and 

effort necessary to for MA organizations 

to submit their benefit designs, 

including cost-sharing amounts, via the 

Plan Benefit Package (PBP) software. 

While this proposed requirement is 

subject to the PRA, the associated 

burden is currently approved under 

OCN 0938–0763 with an expiration date 

of May 31, 2011. 

BILLING CODE 4120–01–P 


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BILLING CODE 4120–01–C 

V. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 on Regulatory Planning and 

Review (September 30, 1993), 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 (Pub. L. 

104–4), Executive Order 13132 on 

Federalism (August 4, 1999), and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Order 12866 directs 

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). A regulatory impact 

analysis (RIA) must be prepared for 

major rules with economically 

significant effects ($100 million or more 

in any 1 year). 

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). 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 of more 

than 3 to 5 percent. We do not believe 

that this threshold would be reached by 

the proposed requirements in this 

proposed rule because this proposed 

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 

proposed 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 603 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 has determined 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 2010, that 

threshold is approximately $135 

million. This proposed rule is expected 

to reach this spending threshold. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent 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 

proposed 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 

proposal to eliminate, pursuant to 

section 3309 of the ACA, Medicare Part 

D cost-sharing for full-benefit dual 

eligible individuals receiving home and 

community based services at § 423.772 

and § 423.782 will have a very small 

cost impact on States resulting from the 

need to identify eligible individuals and 

provide data to CMS. As discussed 

elsewhere in this RIA, we estimate the 

annual cost associated with the 

requirement for States to provide CMS 

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

year and $20,869 for subsequent years. 

The CMS Office of the Actuary has 

estimated savings and costs to the 

Federal government as a result of 

various provisions of this proposed rule. 

As detailed in Table 17, we expect 

savings to the Federal government of 

approximately $83.75 billion for fiscal 

years (FYs) 2011 through 2016 as a 

result of the implementation of the 

following provisions: 

Payment Changes Related to MA benchmarks, Quality Bonus Payments, Rebates, and Application of Coding Adjustment.$76.47 billion. 

Increase in Part D premiums Due to Income Related Monthly Adjustment Amount (D—IRMAA) ................................. $4.77 billion. 

Appropriate Dispensing of Prescription Drugs in Long-term Care Facilities under PDPs and MA–PD plans and Dispensing Fees.$2.33 billion. 

Elimination of the Stabilization Fund .................................................................................................................................. $181 million. 

In Table 16, we present Federal 

transfers, as well as total costs to the 

States, Part D sponsors, MA 

organizations, and other private sector 

entities, in the aggregate, as a result of 

various provisions of this proposed rule. 

As detailed in Table 16, we expect costs 

of approximately $5.57 billion for FYs 

2011 through 2016 as a result of the 

implementation of various additional 

provisions of this proposed 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 proposed 

rule: 


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Changes to Close the Part D Coverage Gap ........................................................................................................................... $3.67 billion. 

Determination of Part D Low-Income Benchmark Premium ............................................................................................... $770 million. 

Including Costs Incurred by AIDS Drug Assistance Programs (ADAPs) and the Indian Health Service (IHS) Toward 

the Annual Part D Out-of-Pocket Threshold.

$460 million. 

Voluntary De Minimis Policy for Subsidy Eligible Individuals .......................................................................................... $170 million. 

Cost-Sharing for Medicare Covered Preventive Services ..................................................................................................... $148 million. 

Tables 17, 18, and 19 detail the 

breakdown of costs by cost-bearing 

entity. Specifically, Table 17 describes 

costs and savings to the Federal 

government, Table 18 describes 

estimated administrative costs to MA 

organizations and/or PDP sponsors and 

third party entities, and Table 19 

describes costs to States. 

Taking into account both costs and 

savings estimated in this RIA, we 

estimate a net savings of $78.18 billion 

as a result of the provisions in this 

proposed rule over FYs 2011 to 2016. 

Therefore, this proposed 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 

proposed requirement. For collection of 

information burden associated with our 

proposed requirements and the bases for 

our estimates, refer to of the collection 

of information section of this proposed 

rule. 

B. Anticipated Effects Associated With 

This Proposed Rule 

1. Cost Sharing for Specified Services at 

Original Medicare Levels (§ 417.101 and 

§ 422.100) 

We estimate that our proposed 

implementation of section 3202 of the 

ACA will result in minimal additional 

program costs. In addition to our 

proposal to implement the ACArequired limits on cost sharing in MA 

plans for chemotherapy services, renal 

dialysis services, and skilled nursing 

facility care, we also are proposing to 

require the same cost sharing limits for 

in-network home health services 

provided under MA plans. We estimate 

that the Federal fiscal year 2012 (FY 

2012) costs to Medicare of limiting cost 

sharing in MA plans for the three 

service categories specified in the ACA 

(that is, chemotherapy 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 reflects, or is equivalent to, 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 

proposed implementation of the cost 

sharing limits specified in section 3202 

of the ACA. 

We estimate that the cost of our 

proposal to also limit MA plan cost 

sharing for in-network home health 

services so that it does not exceed that 

required under Original Medicare will 

not be significant. Cost sharing for home 

health services under Original Medicare 

is zero. In previous years, we have 

allowed increased flexibility in benefit 

package design for MA plans that 

establish a maximum out-of-pocket limit 

on beneficiary cost sharing for Parts A 

and B services (for example, $3,400 or 

less for contract year 2010). As a result, 

in contract year 2010, of the 2535 MA 

plans, 167 charged some beneficiary 

cost sharing (usually $15) for home 

health services. Those plans enrolled 

less than 4 percent of all MA enrollees. 

Given that, on average, home health 

visits account for less than 5 percent of 

total MA expenditures, only a small 

share (about 0.2 percent) of MA 

expenditures will be subject to the home 

health cost sharing prohibition. 

For two reasons, we believe that the 

proposed home health policy will have 

a negligible impact on MA plans. First, 

as mentioned above, only a small share 

of expenditures will be subject to the 

cost sharing prohibition so that any 

increase in plan costs related to this 

provision can be absorbed through 

modest increases in cost sharing for 

other services, administrative 

efficiencies, and/or small increases in 

the plan premium. Also, as evidenced 

by the large proportion of plan enrollees 

not subject to home health cost sharing 

in contract year 2010, MA organizations 

should be able to adequately manage the 

use of home health services absent 

enrollee cost sharing. 

To estimate the cost to the MA 

program for the loss of beneficiary cost 

sharing for home health services, we 

assumed that the enrolled beneficiaries’ 

utilization of home health services is 

lower than that of the Medicare 

population in general due to the 

required copayment, and used $15 as 

the estimated copayment amount. 

Approximately 9 percent of Original 

Medicare beneficiaries use home health 

services, and the average number of 

visits per user is 37, resulting in 3.3 

visits per beneficiary per year. We 

assume that utilization of home health 

services by enrollees in the MA plans 

that charge cost sharing is one-third of 

that for beneficiaries under Original 

Medicare, or 1.1 visits per MA enrollee. 

The resulting FY 2012 estimated cost to 

the MA program is $6.8 million, which 

is derived using the assumptions of $15 

copayment for the 1.1 visits per 

beneficiary for the 414,000 MA 

enrollees subject to in-network home 

health cost sharing in contract year 

2010. However, we estimate that the 

impact of having to provide home 

health services without cost sharing 

would be minimal because we expect 

that the costs would be reallocated 

across other plan benefits. We believe 

that the affected plans would 

accomplish that reallocation without 

affecting their actuarial equivalence 

relative to Original Medicare and that 

there would be no impact on these MA 

plans for FY 2012. Consequently, 

because we estimate that there would be 

only minor reallocation of the costs and 

zero impact on MA plans for FY 2012, 

we estimate zero impact for MA plans 

in all subsequent years. 

2. Approval of SNPs by NCQA (§ 422.4, 

§ 422.101, and § 422.152) 

The burden associated with this 

requirement is the time and effort put 

forth by MA organizations offering SNPs 

to submit their overall quality 

improvement (QI) program and the 

model of care (MOC) to CMS for NCQA 

evaluation and approval as per CMS 

guidance. Although the submission of 

the MOC and the QI program documents 

is already part of the application 

process, scrutiny of these documents by 

NCQA for approval is a new 

requirement. This requirement is for all 

SNPs, new and existing. We estimate 

that it will take each SNP plan 40 hours 

to complete the annual application. 

Within, those 40 hours, we estimate the 

SNP portion of the burden is 6 hours. 

Currently, there are 544 existing SNP 

plans. For the existing plans to complete 

the SNP sections only, the burden 

associated with this new requirement is 

3,264 hours. 


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The estimated costs associated with 

the burden hours are summarized in 

Tables 16 through 18. The costs in Table 

17 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 18 contains the 

projected administrative 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 proposed 

equivalent to that of one GS–13 step-10 

analyst at a salary of $55.46 an hour. 

3. Determination of Part D Low-Income 

Benchmark Premium (§ 423.780) 

Beginning in 2011, section 1860D– 

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

to calculate the LIS benchmarks using 

basic Part D premiums before the 

application of Part C rebates each year. 

This proposed rule would update our 

regulations at § 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 proposal 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 16 through 

18. Table 17 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 lowincome 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 will 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 16 does 

not include a projection for 

administrative savings. 

4. Voluntary De Minimis Policy for 

Subsidy Eligible Individuals (§ 423.34 

and § 423.780) 

The proposed new voluntary de 

minimis provisions in § 423.34(d) and 

§ 423.780(f) would 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 

would be 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 18 shows that this would 

result in a total cost of $30 million to 

PDPs during 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 proposed 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 

17 and 18 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 

cost plans is that Medicare’s lowincome cost-sharing subsidy and 

reinsurance payments will be greater 

than would have been the case if CMS 

reassigned these beneficiaries to lowercost plans. 

5. Increase In Part D Premiums Due to 

the Income Related Monthly 

Adjustment Amount (D—IRMAA) 

(§ 423.44) 

Proposed § 423.44(e)(3) would require 

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. 

Consistent with data from individuals 

paying the Part B IRMAA (1.8 million) 

and enrolled in a Part D plan, we 

estimate that approximately 1.05 

million of the 29.2 million Medicare 

beneficiaries enrolled in the Part D 

program will exceed the minimum 

income threshold amount and will be 

assessed an income related monthly 

adjustment amount. Out of the 1.05 

million affected beneficiaries, we 

estimate that 0.22 million will drop the 

Part D coverage in 2011. Under Part B, 

approximately 122,000 (14.8 percent) of 

the 1.8 million beneficiaries assessed an 

IRMAA are billed directly. This 

constitutes 5.17 percent of the Medicare 

population. We estimate that 

approximately 80,000 (7.6 percent) of 

the 1.05 million beneficiaries enrolled 

in Part D who must pay the Part D— 

IRMAA will be directly billed for the 

Part D—IRMAA either because they are 

not receiving monthly benefit payments 

from SSA, OPM, or the RRB, or the 

monthly benefit payment is not 

sufficient to have the Part D—IRMAA 

withheld. 

Of the 80,000 Part D enrollees who 

will be directly billed for the Part D— 

IRMAA, we cannot estimate how many 

might accrue Part D—IRMAA arrearages 

and be subsequently terminated. 

However, in cases where the PDP is 

required to send an enrollee a notice of 

termination in accordance with 

§ 423.44(e)(4), and all 80,000 Part D 

enrollees that have a Part D—IRMAA 

become delinquent, 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, we estimate 1 minute × 80,000 

enrollees divided by 60 minutes. This 

equates to an annual burden for PDP 

sponsors of 1,333 hours at 

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

Department of Labor statistics for hourly 


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wages for administrative support). The 

associated burden amount for this work 

is $53,320. Additionally, Part D plan 

sponsors would have to retain a copy of 

the notice in the beneficiary’s records. 

We estimate 5 minutes × 80,000 

enrollees divided by 60 minutes. This 

equates to 6,666 hours at approximately 

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

Labor statistics for hourly wages for 

administrative support). This associated 

burden amount is $266,640. We 

estimate the total maximum annual 

burden for all Part D plan sponsors 

resulting from this proposed provision 

to be $319,960. Therefore, as shown in 

Table 18, we estimate this proposed 

provision to result in a maximum 

burden cost, to PDP sponsors, in the 

amount of $1.92 million for FYs 2011 

through 2016. We believe this proposal 

will lead to 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 17. 

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. 

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

and Community-Based Services 

(§ 423.772 and § 423.782) 

We propose amending § 423.772 and 

§ 423.782 pursuant to section 3309 of 

the ACA. Specifically, the proposed 

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 18, this 

provision will not increase 

administrative costs for MA 

organizations or PDP sponsors. The 

affected beneficiaries already have LIS 

as full duals and are, therefore, lowincome 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. 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. 

7. Appropriate Dispensing of 

Prescription Drugs in Long-Term Care 

Facilities Under PDPs and MA–PD 

Plans (§ 423.154) and Dispensing Fees 

(§ 423.100) 

In our discussions with the industry, 

we learned 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 7- 

day supplies, we propose initially 

limiting 7-day-or-less dispensing to 

brand name drugs as defined in § 423.4. 

Pharmacies servicing LTC facilities 

may have the upfront costs associated 

with software upgrades, packaging and 

hardware changes, and ongoing costs of 

transaction fees, and additional 

deliveries. These costs are not reflected 

in Table 16, and we are soliciting 

comment on these costs. We expect 

some of these expenses to be offset by 

an increase in dispensing fees consistent 

with § 423.100. In addition, a decrease 

in volume of drugs dispensed may 

result in lower revenues and rebates. 

We learned from the industry that 

many pharmacies already have 7-day-orless dispensing techniques in place for 

their Part A population. Most 

pharmacies not already using a 7-dayor-less dispensing technique will 

generally be converting from their 

existing 14- or 30-day dispensing 

technique down to a 7-day-or-less 

dispensing technique. Based on 

discussions with the industry, we 

expect most pharmacies to initially 

convert from a 14- or 30-day punch card 

system to a 7-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 7-day 

packaging. We expect only a small 

number of pharmacies will convert to an 

automated dose dispensing system in 

the short-term. The industry tells us that 

the major barrier to adopting is 

automated dose dispensing technologies 

cost approximately $100,000 to 

$150,000 in capital acquisition costs per 

machine. 

Regardless of the dispensing 

technique used, pharmacies will likely 

have to change or update software. 

There will be a cost associated with the 

change in software and training of 

pharmacy staff associated with the 

change. We are soliciting comment on 

these costs. 

We expect some pharmacies to incur 

a small additional expense related to the 

number of deliveries required to service 

a facility with a 7-day-or-less dispensing 

technique. However, given the existing 

widespread agreements between 

pharmacies and skilled nursing facilities 

to dispense in 7-day-or-less packages for 

Part A residents and the pharmacy’s 

responsibility to deliver at least 5 to 6 

days a week to accommodate new 

residents, emergency supplies and 

changes in therapy, we expect only a 

small number of pharmacies to be 

adversely effected. 

LTC facilities will need to 

accommodate 7-day-or-less dispensing 

techniques for their Part D population. 

We anticipate LTC facilities will be 

impacted by an increase in the number 

of medication check-ins for those 

facilities and pharmacies not already 

using automated dispensing 

technologies. Based on conversations 

with the industry, we also anticipate 

that the LTC facility staff will require 

varying amounts of additional training. 

Training time will vary based on the 

extent to which the dispensing 

technique changes to accommodate 7- 

day-or-less dispensing. 

The costs associated with this 

proposed provision is the additional 

costs of dispensing fees to account for 

software upgrades, packaging and 

hardware changes, transaction fees, 

additional deliveries, and the time and 

effort of Part D sponsors to re-contract 

with entities (for example, pharmacy 

benefit managers) which contract with 

pharmacies servicing LTC facilities. 

We anticipate that dispensing fees 

will be developed to take into account 

of the marginal costs associated with 

additional dispensing events in a single 

billing cycle for a single prescription 

and consider costs undertaken to 

acquire and maintain technology aimed 

at reducing waste. Part D plans have the 

flexibility to vary the actual dispensing 

fees paid to pharmacies. We project 

dispensing fees to pharmacies servicing 

LTC facilities to be between 50 percent 

and 100 percent higher for contract year 

2012 than in previous contract years, 

with increases in the lower end for the 

large majority of the claims. For 


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4 James W. Moncrief, Advanced Pharmacy, data 

from a seven month study of 36 LTC facilities 

presented at the NCPDP Dispensing Meeting. 

Sheraton Hotel BWI, March 19, 2010. 

example, 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 7-day blister 

pack. 

We estimate the total yearly burden 

for negotiating a contract between the 

Part D sponsor and the entity (for 

example, PBM) contracting with the 

pharmacies servicing LTC facilities to be 

equal to the number of the Part D 

sponsors (731) × the average estimated 

hours per sponsor (10). This equals 

7,310 hours. We estimate the number of 

entities contracting the pharmacies 

servicing LTC facilities to be 40 (28 

processors and 12 sponsors). We 

estimate the total yearly hourly burden 

for negotiating a contract between the 

entity described above and the 

pharmacies servicing LTC facilities to be 

the number of entities (40) × the average 

estimated hours per entity (80). This is 

3200 hours. The total number of hours 

for contract negotiation is estimated to 

be 10,510 hours. The estimated hourly 

labor cost for reporting is $150.20. 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 

requirements is $1,578,602 ($150.20 × 

(3,200 + 7,310 hours) = $1,578,602) and 

is described in Table 18. This is a onetime contract negotiation cost. 

We anticipate that the initial upfront 

costs to convert to a 7-day-or-less 

dispensing technique will eventually be 

more than offset by the savings to the 

Federal government associated with 

dispensing. Initial industry estimates 

suggest that approximately 10 percent of 

the total LTC drug costs could be 

avoided through the adoption of 7-dayor-less dispensing methodologies. One 

7-month analysis using data from 36 

skilled nursing facilities suggested at 

least a 17 percent to 25 percent savings 

with 7-day dispensing and almost 26 

percent savings associated with 

automated dose dispensing when 

compared to 30-day dispensing for Part 

D drugs.4 Given that we are not aware 

of additional studies to determine the 

cost savings, we conservatively estimate 

a 10 percent savings for overall costs, 

and therefore estimate an overall 

savings associated with this provision 

(see Table 16 for estimates of the yearby-year savings). We solicit comments 

on this estimate. 

8. Complaint System for Medicare 

Advantage Organizations and PDPs 

(§ 422.504 and § 423.505) 

The burden associated with this 

proposed 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 well as 

posting and maintenance of a link from 

their Web site to the electronic 

complaint form at http:// 

www.medicare.gov. We estimate that the 

total annual hourly burden for training 

staff and recording complaint closure in 

the CTM is equal to the average 

estimated hours per sponsor for 

documentation for each complaint 

closure (.25) × the average number of 

complaints per sponsor (102) plus the 

average estimated hours per sponsor for 

training (8 hours), multiplied by the 

average cost of a technical health care 

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

D contracts (757). We also estimate that 

the total annual hourly burden for 

posting and continued maintenance of a 

link is 20 hours × the average cost of a 

Web site developer ($34) × the number 

of Part C and D contracts (757). We 

estimate the annual burden associated 

with all these changes equals 40,500 

hours. The average cost per hour is 

approximately $22.10. The estimated 

annual cost associated with these 

requirements is $895,160. 

9. Uniform Exceptions and Appeals 

Process for Prescription Drug Plans and 

MA–PD Plans § 423.128 and § 423.562) 

We expect that streamlining the 

appeals and exceptions process will 

allow beneficiaries to access appeals 

more quickly and will ensure 

beneficiaries have access to covered 

medications in a timely manner MA 

organizations and Part D sponsors will 

be required to process coverage 

determination requests submitted by 

mail or via an internet Web site 

(§ 423.128(b)(7)(i) and (ii)), which is 

estimated to result in an annual burden 

of 80,745 hours. At an estimated cost of 

$40.00 per hour, the estimated total 

annual cost of this requirement is $3.23 

million. Also, processing coverage 

determination requests that are received 

by telephone (§ 423.128(d)) is estimated 

to result in an annual burden of 115,010 

hours. At an estimated cost of $40.00 

per hour, the estimated total annual cost 

of this requirement is $4.6 million. 

In cases when a prescription cannot 

be filled as written, Part D sponsors are 

required under § 423.562(a)(3) to 

arrange with their network pharmacies 

to distribute a pharmacy notice advising 

the enrollee of his or her right to contact 

the plan to request a coverage 

determination. Under this proposal, Part 

D sponsors would be required to modify 

their electronic transactions to 

pharmacies so that they can transmit 

codes instructing pharmacies to 

distribute notices at the point-of-sale 

(POS). That is, pharmacies and PBMs 

will be required to program their 

systems to relay the message at the 

pharmacy to distribute the appeal 

notice. 

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, for a 

total one-time burden of 1600 hours. 

The estimated one-time cost associated 

with the processor tasks is $64,000 

(1600 hours × $40). Each pharmacy will 

need to program to receive the code and 

print the response. Programming by the 

pharmacies (40 pharmacy software 

vendors) in order to receive the code by 

each pharmacy will be 10 hours, for a 

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

tasks is $16,000 (400 hours × $40). 

We estimate that the 731 contracting 

entities would distribute an average of 

2,200 pharmacy notices. Therefore, 

requiring plan sponsors to arrange with 

their network pharmacies to distribute 

pharmacy notices at the point-of-sale 

when prescriptions cannot be filled as 

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

an annual burden of 53,071 hours (2 

minutes or 0.033 hours at point-of-sale 

× 731 contractors × 2,200 pharmacy 

notices per contract). At an estimated 

cost of $40.00 per hour, the estimated 

total annual cost of this change would 

be $2.14 million. 

10. Including Costs Incurred by the 

AIDS Drug Assistance Program (ADAP) 

and the Indian Health Services (IHS) 

Toward the Annual Part D Out-ofPocket Threshold (§ 423.100 and 

§ 423.464) 

This proposed requirement would 

allow Part D sponsors 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 


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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 onetime annual cost of $1,000 (50 entities 

(ADAPs that require VDSAs) × 5 hours 

× $40.00/hour = $1,000. 

The burden associated with this 

proposed 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, which is largely funded by the 

Federal government, with the exception 

of relevant beneficiary copays. 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. 

11. Cost Sharing for Medicare Covered 

Preventive Services (§ 417.101 and 

§ 422.100) 

We estimate that our proposed 

implementation of sections 4103, 4104, 

and 4105 of the ACA will result in 

additional program costs as 

beneficiaries will pay no portion of the 

costs for the Personalized Prevention 

Plan Services, the Initial Preventive 

Physical Exam and Medicare-covered 

preventive services for which cost 

sharing is waived under Original 

Medicare (§ 417.101 and § 422.100). We 

estimate that the FY 2012 costs to 

Medicare for increasing access to 

clinical preventive services in accord 

with sections 4103, 4104, and 4105 of 

ACA will be $410 million. 

Although slightly less than 30 percent 

of Medicare expenditures for Parts A 

and B are for MA enrollees, we estimate 

that the cost to the MA program of 

increasing access to clinical preventive 

services as described by sections 4103, 

4104, and 4105 of the ACA will be 

significantly less than 30 percent of the 

estimated cost to the Medicare program 

for implementation of these provisions. 

In contrast to the Original Medicare 

program, most MA plans already 

provide some in-network preventive 

services without charging beneficiary 

cost sharing. In contract year 2010, at 

least 78 percent of plans provide many, 

or all, of the Medicare-covered 

preventive services without charging 

beneficiary cost sharing. In fact, almost 

all MA plans currently provide a few of 

the Medicare-covered preventive 

benefits without cost sharing. Therefore, 

we estimate that our proposal to require 

MA plans to provide the Medicarecovered preventive services without 

beneficiary cost sharing will not 

increase plan costs by a significant 

amount. 

Based on our finding that 78 percent 

of plans provide some preventive 

benefits without cost sharing in contract 

year 2010, we estimate that for FY 2012 

plans will incur approximately $27.1 

million in costs by providing in-network 

Medicare preventive services without 

charging beneficiary cost sharing. 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. 

12. Elimination of the Stabilization 

Fund (§ 422.458) 

Section 10327(c) of the ACA repealed 

section 1858(e) of the ACA, eliminating 

the stabilization fund. Therefore, we are 

proposing to delete paragraph (f) from 

§ 422.458, since the statutory basis for 

the Fund no longer exists. The 

elimination of the stabilization fund 

will have the effect of savings for the 

Federal government, but will also result 

in a loss of financial incentives for 

regional plans to operate in regions with 

no or low MA penetration. 

We expect the Federal government to 

save approximately $181.2 million for 

the fiscal years 2011 through 2016 from 

the implementation of this provision. 

The savings are a result of the 

elimination of the national bonus 

payment and recruitment and retention 

bonus payments to MA plans that 

would operate in regions with no or low 

MA penetration. 

The fund will no longer offer a 

financial incentive for regional 

organizations to offer plans in regions 

with low or no MA penetration. The 

funds have never been accessible, 

however, because, since the fund’s 

inception, payments have been delayed 

through legislation. Therefore, the 

formal elimination of the fund will have 

little or no impact on the current 

operation of the MA program. 

13. Improvements to Medication 

Therapy Management Programs 

(§ 423.153) 

We estimate 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 is 

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

per parent organization or sponsor × 240 

parent organizations or stand alone 

sponsors with Part D LTC residents = 

$96,709,680 estimated cost). We 

estimate annual costs for updating the 

contracts for subsequent years to be 

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

per parent organization or sponsor × 240 

parent organizations or sponsors with 

Part D LTC residents = $32,236,560 

estimated cost). 

We expect Part D beneficiaries 

meeting the target criteria for MTM 

services will have improved access to 

these services both through the use of 

telehealth technologies and for those 

beneficiaries who are also LTC residents 

through the coordination of their MTM 

services with the monthly drug regimen 

reviews. 

14. Changes To Close the Part D 

Coverage Gap (§ 423.104 and § 423.884) 

With the implementation of proposals 

related to closing of the Part D coverage 

gap, Medicare beneficiaries will have 

improved access to the prescription 

drugs in the coverage gap and enter the 

catastrophic phase of the benefit earlier 

in the benefit year as a result of our 

proposed changes to close the Part D 

coverage gap. 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. 


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For changes associated with closing 

the Part D coverage gap, we estimated a 

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

(12,000 burden hours for each processor 

× 40 processors × $105 for the average 

labor cost of a senior programmer based 

on data from the Bureau of Labor 

Statistics) in the first year for the 40 

pharmacy claims processors to 

implement systems changes. In 

subsequent years, the estimated total 

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

hours per processor × 40 processors × 

$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. 

15. Medicare Advantage Benchmark, 

Quality Bonus Payments, and Rebate 

and Application of Coding Adjustment 

(§ 422.252, § 422.258, § 422.266, and 

§ 422.308) 

Prior to enactment of the ACA, MA 

payment benchmarks (county rates) 

were established only partially in 

relationship to average fee-for-service 

costs in a county. Section 1102 of 

reconciliation amendments links all 

county benchmarks to FFS costs, 

effective 2012. As a transition, the ACA 

sets the 2011 MA benchmarks equal to 

the benchmarks for 2010; for subsequent 

years it specifies that, ultimately, the 

benchmarks will be equal to a 

percentage (95, 100, 107.5, or 115 

percent) of the fee-for-service rate in 

each county. During a transition period, 

the benchmarks will be based on a 

blend of the pre-ACA and post-ACA 

benchmarks. The phase-in schedule for 

the new benchmarks will occur over 

2 to 6 years, with the longer transitions 

for counties with the larger benchmark 

decreases under the new method. 

The ACA, as amended, also 

introduces MA bonuses and rebate 

levels that are tied to the plans’ quality 

ratings. Beginning in 2012, benchmarks 

will be increased for plans that receive 

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

quality rating system. The bonuses will 

be 1.5 percent in 2012, 3.0 percent in 

2013, and 5.0 percent in 2014 and later; 

these bonuses increase the new 

benchmark portion of the blended 

benchmark until all transitions are 

complete. An additional county bonus, 

which is equal to the plan bonus, will 

be provided on behalf of beneficiaries 

residing in specified counties. The 

percentage of the ‘‘benchmark minus 

bid’’ savings provided as a rebate, which 

historically has been 75 percent, will 

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

2014, when the provision is fully 

phased in, the rebate share will be 50 

percent for plans with a quality rating 

of less than 3.5 stars; 65 percent for a 

quality rating of 3.5 to 4.49; and 70 

percent for a quality rating of 4.5 or 

greater. This provision will provide 

incentives for plan quality to increase. 

Plans will be paid based on quality 

performance rather than just the specific 

services they provide. However, the 

rules for determining quality bonus 

payments for CY 2012 through 2014 will 

be modified under the terms of the 

national quality bonus payment 

demonstration project. 

The ACA amended the statutory 

provision that requires us to make an 

adjustment to MA risk scores for 

differences in coding patterns between 

MA and FFS. The ACA made four 

modifications to this requirement: The 

analysis must be conducted annually; 

the data used in the analysis is to be 

updated as appropriate; the results of 

the analysis are to be incorporated into 

risk scores on a timely basis; and the 

application of an adjustment for 

differences in coding patterns was 

extended past 2010 indefinitely. 

Further, the ACA provides for minimum 

adjustments for MA coding in future 

years. 

Our proposed changes to § 422.252, 

§ 422.258, and § 422.266 codify section 

1102 of the ACA, which links county 

benchmarks to FFS costs and provides 

eligible plans with a quality bonus. 

These provisions will lower payments 

from us, bringing MA payments in line 

with FFS payments. The new provisions 

will also generally reduce MA rebates 

and benchmarks for plans and thereby 

result in less generous benefit packages. 

We estimate that the Federal 

government will save approximately 

$40.56 billion from FY 2011 to FY 2014. 

The Federal government will save 

approximately $76.470 billion from FY 

2011 to FY 2016. The year-by-year 

savings in millions of dollars are shown 

in Table 16. We estimate that in 2017, 

when the MA provisions will be fully 

phased in, enrollment in MA plans will 

be lower by about 50 percent (from its 

projected level of 14.8 million under the 

prior law to 7.4 million under the new 

law). 

16. Quality Bonus Appeals (§ 422.260) 

We estimate a minimal overall impact 

as a result of this provision, as we 

expect only a minority of MA 

organizations to take advantage of the 

opportunity to appeal CMS’ annual 

quality rating. Of those organizations 

that do appeal their rating, a minimal 

number of professional staff working 

over a short period of time would be 

required to prepare and present an 

organization’s appeal. 

We estimate that the total annual 

hourly burden for developing and 

presenting a case to us for review is 

equal to the number of organizations 

likely to request an appeal multiplied by 

the number of hours for the attorneys of 

each appealing MA organization to 

research, draft, and submit their 

arguments to CMS. Based on the star 

rating distributions of previous contract 

years, out of the approximately 350 MA 

contracts that are subject to star rating 

analysis (that is, those not excluded 

from analysis because of low 

enrollment, contract type not required 

to report data, or new contract with no 

performance history), approximately 

250 may receive less than a four-star 

rating. We estimate that 10 percent of 

those contracts (25) will request an 

appeal of their rating under the 

proposed rule. We further estimate that 

one attorney working for eight hours 

could complete the documentation to be 

submitted to us for each contract, 

resulting in a total burden estimate of 

200 hours (8 hours × 25 contracts = 200 

hours). The estimated annual cost to 

MA organizations associated with this 

provision (assuming an attorney billing 

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

hours × $250 = $50,000). 

17. Timely Transfer of Data and Files 

When CMS Terminates a Contract With 

a Part D Sponsor (§ 423.509) 

We anticipate minimal financial 

impact from our proposal to require 

terminated Part D plan sponsors to 

effectuate a smooth transition by 

providing CMS with Medicare 

beneficiary data including information 

to identify each affected beneficiary, 

pharmacy claims files, true out-ofpocket (TrOOP) cost balances, and 

information concerning pending 

grievances and appeals. 

We estimate that the total annual 

burden for this proposal to be the cost 

of maintaining sufficient staff to transfer 

the data required under § 423.509. As a 

result, we estimate the total annual 

burden to be the number of Part D 

sponsors we anticipate terminating in a 


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contract year (2) × the hourly rate of 

staff to transfer the required data ($75/ 

hour) × the number of hours required to 

provide data to us (20 hours). Therefore, 

the estimated annual cost associated 

with these requirements is $3,000. 

18. Review of Medical Necessity 

Decisions by a Physician or Other 

Health Care Professional and the 

Employment of a Medical Director 

(§ 422.562, § 422.566, § 423.562, and 

§ 423.566) 

We 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 proposed provision. 

Of the 5 percent of MA organization 

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 our proposed provisions 

to require review of medical necessity 

decisions by a physician or other health 

care professional and the employment 

of a medical director will help to 

prevent: (1) Failure to provide access to 

drugs for enrollees who are stable on a 

protected class drug; (2) application of 

inappropriate prior authorization and 

step therapy criteria when adjudicating 

prescriptions; (3) issuance of denials 

based on a lack of medically accepted 

indications when medically accepted 

indications are specified in at least one 

of the applicable compendia; and (4) 

failure to provide transition supplies for 

existing members who experience 

formulary changes across plan years. 

19. Compliance Officer Training 

(§ 422.503 and § 423.504) 

Starting in 2013 for existing sponsors 

and 2012 for new applicants, we would 

require sponsors to annually pay for 

travel expenses and training registration 

fees for each compliance officer 

associated with a MA or Part D contract 

to attend compliance officer training 

offered by an entity with expertise in 

Part D. With expected travel costs of 

$1,000 and registration fees of $700, the 

increase in costs for a single contract 

would be $1,700. In 2012, only new 

applicants would have to train their 

compliance officers. The average 

number of new applicants at the parent 

organization level over the past 2 years 

has been 8. We have reason to believe 

there will be a similar number of new 

applicants for 2012; therefore, we 

estimate the cost for compliance officer 

training in 2012 would be $13,600. For 

2013 and subsequent years, based on the 

current 316 compliance officers 

associated with all 2010 contracts, we 

estimate the annual cost associated with 

this requirement would be $537,200. 

The anticipated effect of requiring 

annual compliance officer training is 

that compliance officers will be more 

knowledgeable about the MA and Part D 

programs which should translate into 

more efficient internal plan oversight. 

As internal plan oversight increases, we 

anticipate a decrease in the volume and 

severity of compliance issues because 

compliance officers will be able to 

identify small problems before they 

become large problems with significant 

beneficiary impact. As a result, 

beneficiaries will be more likely to 

receive benefits consistent with plan 

sponsors’ bids and CMS requirements. 

20. Agent and Broker Training 

Requirements (§ 422.2274 and 

§ 423.2274) 

Proposed § 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 Request for 

Proposal (RFP) competitive process. The 

burden associated with this proposed 

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) × the estimated hours per 

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

the hourly labor cost for the preparer of 

the proposal will be $59.20 (based on 

the U.S. Department of Labor statistics 

for hourly wages for management 

analysts). The annual cost of proposal 

preparation is estimated to be $71,040 

($59.20 × 1200 hours). 

The anticipated effect of our proposed 

provision to require all agents and 

brokers to receive training and testing 

via a CMS-endorsed or approved 

training program would be beneficiary 

access to 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. 

21. Call Center Interpreter Requirements 

(§ 422.111 and § 423.128) 

We estimate the cost for our proposed 

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. 

22. Customized Enrollee Data (§ 422.111 

and § 423.128) 

Proposed § 422.111(b)(11) and 

§ 423.128(b)(12) would require MA 

organizations and PDP sponsors to 

periodically provide each enrollee with 

enrollee-specific data to use to compare 

utilization and out-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). 

Plan sponsors already collect enrollee 

utilization and cost-sharing information 

as part of their claims processing 

operations and for calculating MOOP 

limits. Therefore, we estimate the initial 

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proposed requirement is 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 

OCN 0928–1051as a baseline, then 

expanding on that baseline, and 

factoring in expected programming and 

development costs to provide 

beneficiary specific information. We 

estimate 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 proposed 

requirement is approximately 

$507,208.00. 

In subsequent years, the burden 

associated with this proposed 

requirement is the time and effort 

necessary for a plan sponsor to disclose 

(print and mail) this information to each 

beneficiary. We estimate 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 

proposed requirement is approximately 

$342,000. 

The anticipated effect of our proposed 

provision to require MA organizations 

and PDP sponsors to provide 

customized enrollee data would be 

greater access to individualized 

information for beneficiaries to use in 

making decisions about their enrollment 

and their health care options. While this 

proposed new requirement would result 

in cost burden for MA organizations and 

Part D sponsors to calculate, compile 

and disclose beneficiary-specific data, 

plans should already have the systems 

in place to collect the required 

information as part of their claims 

processing operations and for 

calculating MOOP limits; over time, 

therefore, 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 over time. 

23. Extending the Mandatory Maximum 

Out-of-Pocket (MOOP) Amount 

Requirements to Regional PPOs 

(§ 422.100 and § 422.101) 

Proposed § 422.100(f) and 

§ 422.101(d) would extend the 

mandatory MOOP and catastrophic 

limit requirements to RPPO plans. Each 

RPPO plan would 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 would be included in 

RPPO plans’ MOOPs. In the April 15, 

2010 final rule implementing policy and 

technical changes to the Medicare 

Advantage and prescription drug benefit 

programs (72 FR 19799 through 19800), 

we discussed the anticipated effects of 

our policy to require local MA plans to 

have a MOOP limit on members’ out-ofpocket cost sharing. While this 

proposed 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 

proposed change would by itself have a 

significant cost impact on RPPO plan 

participation or plan costs. 

We believe any impact on enrollee 

premiums will be very limited for 

several reasons. First, since 

implementation of the MMA, RPPOs 

have been required under section 

1858(b)(2) of the Act to establish a 

MOOP for in-network cost sharing and 

a catastrophic limit inclusive of both inand out-of-network cost sharing for 

Parts A and B services. The MOOP 

amounts are currently at the discretion 

of MA organizations offering RPPO 

plans. For FY 2011, we encouraged 

RPPO plans to adopt either the 

mandatory or voluntary MOOPs 

established in CMS guidance. For FY 

2011, the voluntary MOOP limits for 

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

MOOP limits for local PPO plans were 

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

and $10,000 catastrophic (in- and outof-network). In guidance following 

publication of our April 15, 2010 final 

rule, we stated that, to the extent an 

RPPO sets its MOOP and catastrophic 

limits above the mandatory amounts set 

by us for other plan types, it may be 

subject to additional CMS review of its 

proposed Parts A and B services costsharing amounts. Based on data for FY 

2011 submitted (but not yet approved) 

bids, we have found that of the 78 

regional PPO plans, 25 (32 percent) met 

or exceeded the voluntary MOOP limits 

set by us and 47 (60 percent) regional 

PPO plans met or exceeded the 

mandatory maximum limits. Therefore, 

only five (8 percent) RPPO plans did not 

submit an in-network or catastrophic 

maximum out-of-pocket limit did not 

meet either the voluntary or mandatory 

limits for FY 2010. Based on this 

information, it is our expectation that 

the impact on RPPO plans would be 

very small. 

Second, as we described in our April 

15, 2010 final rule, 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 estimate that beneficiaries in 

regional PPO plans that currently offer 

the FY 2011 voluntary or mandatory 

MOOP limits (about 92 percent of RPPO 

plans) will experience no cost increases 

as a result of these provisions. In our 

April 15, 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 offer MOOP and 

catastrophic limits, so we believe any 

premium impact would be less than $5. 

Finally, we believe that the many 

advantages for beneficiaries as a result 

of the new MOOP and cost-sharing 

threshold requirements will outweigh 

any small premium increases that may 

result. All regional PPO plan enrollees 

will be protected against high out of 

pocket costs, and will be better able to 

compare plans by focusing on 

differences in premium and plan 

quality. As we have explained 

previously, our goal is to set costsharing limits at a level that should not 

result in significant new costs for MA 

plans or beneficiaries. 


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24. Translated Marketing Materials 

(§ 422.2264 and § 423.2264) 

Our proposed translated marketing 

materials requirements codify existing 

subregulatory guidance, so the impact to 

plan sponsors (MA organizations and 

PDP sponsors) depends upon whether 

they are currently translating marketing 

materials, and if so, to what extent. For 

2010, there are 307 sponsors that need 

to provide translated marketing 

materials. Our translated marketing 

material monitoring study, which only 

has preliminary findings, revealed that 

some sponsors have produced a few 

materials, but we do not know the 

numbers of sponsors that are and are not 

providing all translated materials. In the 

event sponsors are not translating 

materials, our research that indicates the 

average translation cost is 20 cents per 

word. We estimate that for a sponsor to 

produce all of the required plan 

materials in one language for the first 

year would cost approximately $18,325 

because there are approximately 17 

documents containing 91,623 words for 

translation. In subsequent years, 

sponsors would 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 would 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 need to translate for the first year 

and what proportion would only need 

to update existing documents. Not all 

required translated marketing materials 

are plan benefit package (PBP) specific. 

Therefore, 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 assumed that all 307 sponsors would 

have to translate all materials for the 

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

subsequent years, sponsors would only 

need to edit existing translated 

documents, which would be a total cost 

of $281,212 annually for all sponsors. 

BILLING CODE 4120–01–P 


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BILLING CODE 4120–01–C 

C. Expected Benefits 

1. Cost Sharing for Specified Services at 

Original Medicare Levels (§ 417.101 and 

422.100) 

We believe that the addition of home 

health services to the list of service 

categories for which MA plan cost 

sharing may not exceed that required 

under Original Medicare will provide 

additional transparency and 

predictability for beneficiaries as they 

evaluate their health plan options, and 

also will strengthen the beneficiary 

protections against discriminatory cost 

sharing and benefit designs. Even with 

the additional restriction on cost sharing 

for home health services, 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. 

2. Determination of Part D Low-Income 

Benchmark Premium (§ 423.780) 

This proposed rule would 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 

proposed rule would 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 lowincome benchmark and, as a result, will 

be fully covered by the premium 

subsidy. Low-income subsidy 

beneficiaries would be able to remain in 

these PDPs and would not be reassigned 

to other lower-premium PDPs. Under 

the current framework we would expect 

1.9 million reassignments. Under the 

proposed formula for calculating 

benchmarks we would expect 900,000 

reassignments, or approximately one 

million fewer reassignments. We expect 

the proposed 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. This 

proposed rule supports pharmacy and 

formulary consistency for the 

beneficiary. Particularly in regions with 

high MA–PD penetration, this proposed 

rule would 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. 

3. Voluntary De Minimis Policy for 

Subsidy Eligible Individuals (§ 423.34 

and § 423.780) 

The proposed voluntary de minimis 

provisions would 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 reassignments will be 

reduced by the de minimis provisions in 

the regulation. 

4. Increase in Part D Premiums Due to 

the Income Related Monthly 

Adjustment Amount (D—IRMAA) 

(§ 423.44, § 423.286, § 423.293) 

Beginning in CY 2011, we estimate 

that approximately 1.05 million of the 

29.2 million Medicare beneficiaries 

enrolled in the Part D program will 

exceed the minimum income threshold 

amount and will be assessed an income 

related monthly adjustment amount. 

During coverage year 2011, we expect 

that implementation of the Part D— 

IRMAA provisions, as proposed at 

§ 423.286(d)(4) and § 423.293(d), will 

increase the Medicare Trust Fund by 

$270 million, with a net increase to the 

Medicare Trust Fund over a 5-year 

period from FY 2011 through FY 2016 

of $4.77 billion. 

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

and Community-Based Services 

(§ 423.772 and § 423.782) 

The expected benefit of the 

elimination of the Medicare Part D costsharing for individuals receiving home 

and community based services 

provision is greater access to 

prescription drug coverage for a 

population that traditionally has high 

medical needs. These individuals are 

already eligible for the full low income 

subsidy, and likely qualify for the $1.10/ 

$3.30 copayment level now. The 

elimination of the copayment will 

provide financial relief for those who 

are able to pay at that level and greater 

access for those who are not. 

6. Appropriate Dispensing of 

Prescription Drugs in Long-Term Care 

Facilities Under PDPs and MA–PD 

Plans (§ 423.154) and Dispensing Fees 

(§ 423.100) 

This provision is expected to lead to 

a reduction in Part D program expense, 

pharmaceutical waste, environmental 

disposal costs impact, and the risk of 

pharmaceutical diversion associated 

with unused drugs in 30-day fills. 

7. Complaint System for Medicare 

Advantage Organizations and PDPs 

(§ 422.504(a) and § 423.505(b)) 

This provision is expected 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 

prescription benefit plan. 

8. Uniform Exceptions and Appeals 

Process for Prescription Drug Plans and 

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

We expect that as a result of 

implementation of this provision, 

beneficiaries and the healthcare 

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. Furthermore, a standard 

appeals form will be utilized by all Part 

D sponsors. 

9. Including Costs Incurred by the AIDS 

Drug Assistance Program (ADAP) and 

the Indian Health Services (IHS) Toward 

the Annual Part D Out-of-Pocket 

Threshold (§ 423.100 and § 423.464) 

This provision is expected to reduce 

the costs to ADAPs and IHS, since 

beneficiaries will be able to reach the 

catastrophic limit and relieve the 

ADAPs and IHS from incurring 

excessive prescription costs because 

beneficiaries in both programs had 

difficulty reaching the catastrophic 

phase of the Part D benefit. 

10. Cost Sharing for Medicare Covered 

Preventive Service (§ 417.101 and 

§ 422.100) 

We believe that our proposal to 

require 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 wellbeing and subsequently decrease their 


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need for, and utilization of, more costly 

medical and surgical interventions, and 

possibly in decreased overall program 

costs. 

11. Elimination of the Stabilization 

Fund (§ 422.458) 

As discussed elsewhere in this RIA, 

the elimination of the stabilization fund 

is expected to result in savings to the 

Federal government. 

12. Improvements to Medication 

Therapy Management Programs 

(§ 423.153) 

Under this proposed provision, 

beneficiaries receiving the standardized 

Comprehensive Medication Review 

documents would have a better 

understanding of the review findings 

and recommendations. The opportunity 

for sponsors to use telehealth 

technology would improve access to 

MTM services for beneficiaries, 

particularly those in remote locations or 

unable to travel. The proposed change 

requiring coordination of MTM services 

with LTC consultant pharmacist 

services would enable beneficiaries to 

receive the full benefits of the sponsor’s 

MTM program and the coordinated 

assessments would more likely uncover 

evidence of adverse side effects and 

medication overuse. 

13. Changes To Close the Part D 

Coverage Gap (§ 423.104 and § 423.884) 

Under these proposed 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 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. 

14. Medicare Advantage Benchmark, 

Quality Bonus Payments, and Rebate 

and Application of Coding Adjustment 

(§ 422.252, § 422.258 and § 422.266, and 

§ 422.308) 

Our proposed revisions will result in 

government savings and will bring MA 

payments in line with FFS payments. 

The MA benchmarks, which are the 

ceiling for per member per month MA 

payment to a plan before risk 

adjustment, will now be linked to FFS 

costs. These provisions also provide 

incentives for MA organizations to 

maintain or increase the quality of their 

plans, as organizations with 4 stars or 

more will receive a quality bonus. 

15. Quality Bonus Appeals (§ 422.260) 

Our intent in implementing 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. 

16. Timely Transfer of Data and Files 

When CMS Terminates a Contract With 

a Part D Sponsor (§ 423.509) 

Our intent in implementing this 

provision is to ensure that terminated 

Part D plan sponsors transfer to CMS the 

necessary data to provide a smooth 

transition for beneficiaries into a new 

Part D plan similar to when the Part D 

sponsor terminates the contract or CMS 

and the Part D plan sponsor mutually 

terminate the contract. We do not 

anticipate a financial benefit to the 

terminated Part D sponsor. 

17. Review of Medical Necessity 

Decisions by a Physician or Other 

Health Care Professional and the 

Employment of a Medical Director 

(§ 422.562, § 422.566, § 423.562, and 

§ 423.566) 

By requiring that all organization 

determinations, coverage 

determinations, and plan 

reconsiderations and redeterminations 

involving medical necessity be reviewed 

by a medical professional with expertise 

in the field of medicine appropriate for 

the services at issue, enrolled 

beneficiaries would be assured of 

consistent and medically accurate 

decisions by Part C organizations and 

Part D sponsors. We believe that the 

proposal to require plans to employ a 

medical director to ensure the clinical 

accuracy of such decisions strikes the 

appropriate balance between our 

interest in ensuring that plans are 

properly administering the Part C and 

Part D benefit, and the plans’ interest in 

minimizing their administrative burden. 

18. Compliance Officer Training 

(§ 422.503 and § 423.503) 

The benefit to requiring annual 

compliance officer training is that 

beneficiaries will be more likely to 

receive benefits consistent with plan 

sponsors’ bids and CMS requirements. 

Compliance officers will be more 

knowledgeable about the MA and Part D 

programs which should translate into 

more efficient internal plan oversight. 

As internal plan oversight increases, 

CMS anticipates a decrease in the 

volume and severity of compliance 

issues because compliance officers will 

be able to identify small problems 

before they become large problems with 

significant beneficiary impact. 

19. Agent and Broker Training 

Requirements (§ 422.2274 and 

§ 423.2274) 

Requiring all agents and brokers to 

receive training and testing via a CMS 

endorsed or approved training program 

will further ensure that beneficiaries are 

educated about Medicare health plan 

options by plan agents and brokers who 

are thoroughly and consistently trained 

on the fundamentals of Medicare 

regulations. Furthermore, this proposal 

would reduce or eliminate the 

duplication of training and testing 

requirements for agents and brokers 

who contract with multiple plans with 

different training and testing 

requirements. 

20. Call Center Interpreter Requirements 

(§ 422.111 and § 423.128) 

The expected benefit of our proposed 

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. 

21. Customized Enrollee Data (§ 422.111 

and § 423.128) 

We believe that our proposed 

requirement that plans provide 

customized enrollee data to plan 

enrollees at least annually after initial 

enrollment in conjunction with the 

annual renewal materials (currently the 

annual notice of change and evidence of 

coverage documents) would enable plan 

members to better understand their 

utilization and out-of-pocket costs 

during a period of time, as well as how 

the costs of their plan are changing in 

the upcoming contract year and what 

that means for them if they remain in 

the plan and use similar services. We 

intend for any EOB or customized outof-pocket cost statement to provide 

personal information to beneficiaries 

that would help them consider using 

other tools and resources, including 

MOC and the MPDPF, to determine 

whether to select a new plan. 

22. Extending the Mandatory Maximum 

Out-of-Pocket (MOOP) Amount 

Requirements to Regional PPOs 

(§ 422.100 and § 422.101) 

We believe extending the mandatory 

MOOP requirement to RPPOs will 

provide significant protection for MA 

enrollees from out of pocket costs so 


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that beneficiaries will better understand 

and anticipate their out-of-pocket 

expenditures. We set the parameters for 

the annual mandatory MOOP limit, and 

this should make it easier for plans to 

compete on a level playing field, as well 

as increase transparency for 

beneficiaries. This proposed 

requirement would ensure all regional 

PPO 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. 

23. Translated Marketing Materials 

(§ 422.2264 and § 423.2264) 

The expected benefit of our proposed 

requirement to codify existing 

subregulatory guidance with respect to 

translated marketing materials is that all 

beneficiaries, regardless of language 

spoken and national origin, will have 

access to all the information they need 

to make appropriate decisions about 

their health care to utilize their 

Medicare benefits most effectively. 

D. Alternatives Considered 

We did not consider alternatives for 

the following provisions, as their 

implementation was mandated by the 

ACA: 

• Approval of SNPs by NCQA (§ 422.4, 

§ 422.101, and § 422.152) 

• Determination of Part D Low-Income 

Benchmark Premium (§ 423.780) 

• Voluntary De Minimis Policy for 

Subsidy Eligible Individuals (§ 423.34 

and § 423.780) 

• Increase in Part D Premiums Due to 

the Income Related Monthly 

Adjustment Amount (D—IRMAA) 

(§ 423.44, § 423.286, and § 423.293) 

• Elimination of Medicare Part D CostSharing for Individuals Receiving 

Home and Community-Based Services 

(§ 423.772 and § 423.782) 

• Appropriate Dispensing of 

Prescription Drugs in Long-Term Care 

Facilities Under PDPs and MA–PD 

plans (§ 423.154) and Dispensing Fees 

(§ 423.100) 

• Complaint System for MA 

Organizations and PDPs (§ 422.504(a) 

and § 423.505(b)) 

• Uniform Exceptions and Appeals 

Process for Prescription Drug Plans 

and MA–PD Plans (§ 423.128(b)(7)(i), 

§ 423.128(d), and § 423.562(a)(3)) 

• Including Costs Incurred by the AIDS 

Drug Assistance Program (ADAP) and 

the IHS Toward the Annual Part D 

Out-of-Pocket Threshold (§ 423.100, 

and § 423.464) 

• Elimination of the Stabilization Fund 

(§ 422.458) 

• Improvements to Medication Therapy 

Management Programs (153) 

• Changes To Close the Part D Coverage 

Gap (§ 423.104 and § 423.884) 

• MA Benchmark, Quality Bonus 

Payments, and Rebate and 

Application of Coding Adjustment 

(§ 422.252, § 422.258, § 422.266, and 

§ 422.308) 

Alternatives considered for other 

proposals are summarized below. 

1. Cost Sharing for Specified Services at 

Original Medicare Levels (§ 417.101 and 

§ 422.100) 

We considered implementing the 

provisions of section 3202 to limit cost 

sharing under MA plans to that required 

under Original Medicare without using 

our authority, granted by this same 

section of the ACA, to also limit cost 

sharing for any additional service 

categories. We believe it is preferable to 

restrict our implementation of section 

3202 to the specified service categories, 

allowing ourselves time to evaluate the 

effects of those provisions, as well as 

other recently-established policy 

changes before adopting the cost sharing 

limits on an expanded list of service 

categories. 

We believe that the addition of home 

health services to the list of service 

categories subject to cost sharing levels 

that may not exceed those required 

under Original Medicare was an 

appropriate additional service category 

as described in the ACA for the reasons 

specified elsewhere in this preamble 

and that adding those services would 

enhance beneficiary protections and 

would not impose a significant cost 

burden on the MA program. 

2. Cost Sharing for Medicare-Covered 

Preventive Services (§ 417.101 and 

§ 422.100) 

We are proposing to implement 

regulations to require MA organizations 

and 1876 cost plans to provide innetwork Medicare-covered preventive 

benefits at zero cost sharing, consistent 

with the new regulations for Original 

Medicare-covered preventive benefits. 

More specifically, we propose 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 Medicarecovered preventive services or to 

voluntarily adopt zero cost sharing for 

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 enrollees of Medicare health plans as 

required under Original Medicare 

would be the more appropriate policy. 

3. Quality Bonus Appeals (§ 422.260) 

We considered not affording bonus 

payment appeal rights to MA 

organizations. We rejected this option 

partly in recognition of the obligation 

the law generally imposes on us to 

afford entities affected by CMS 

determinations concerning contract 

performance or payment to have an 

opportunity to challenge such 

determinations. We also believe, as 

noted above, that the appeals process 

promotes fairness in and enhances the 

credibility of the bonus payment 

determination process. 

4. Timely Transfer of Data and Files 

When CMS Terminates a Contract With 

a Part D Sponsor (§ 423.509) 

We did not consider alternatives to 

our proposal regarding the timely 

transfer of data and files following the 

CMS termination of a Part D sponsor’s 

contract. These data are necessary for 

the proper adjudication of all Part D 

benefits when a beneficiary changes 

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

the beneficiary has any outstanding 

claims for which the terminating 

contract is responsible. Because of these 

important beneficiary protections we 

did not consider alternatives to these 

proposed requirements. 

5. Review of Medical Necessity 

Decisions by a Physician or Other 

Health Care Professional and the 

Employment of a Medical Director 

(§ 422.562, § 422.566, § 423.562, and 

§ 423.566) 

We did not consider alternatives to 

our proposals 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 

overseeing decisions of medical 

necessity. 

6. Compliance Officer Training 

(§ 422.503 and § 423.504) 

We considered requiring compliance 

officers to become certified through an 

existing or CMS-developed certification 

process. However, because training 

opportunities, especially the possibility 


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of free training opportunities offered by 

CMS, are available outside of a 

certification process, we chose only to 

propose requiring training. In the event 

that requiring annual compliance officer 

training does not result in the expected 

increase in knowledge and decrease in 

compliance issues, we will reevaluate 

whether compliance officer certification 

may be necessary. In contrast to 

training, requiring compliance officer 

certification would likely cost more; 

therefore, we chose to test the less costly 

option first. 

7. Agent and Broker Training 

Requirements (§ 422.2274 and 

§ 423.2274) 

Proposed § 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. The 

alternative we considered to this 

proposal 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. 

8. Call Center Interpreter Requirements 

(§ 422.111 and § 423.128) 

Compliance with Title VI of the Civil 

Rights Act of 1964 to serve all 

individuals regardless of national origin 

is a contractual requirement for MA and 

Part D sponsors; therefore, we did not 

consider any other alternatives to our 

proposed call center interpreter 

requirements. 

9. Customized Enrollee Data (§ 422.111 

and § 423.128) 

The alternative considered to our 

proposed provision to require provision 

of customized enrollee data was for MA 

organizations and Part D sponsors to 

continue to provide beneficiaries with 

the information already required by 

regulation through the ANOC and EOC 

documents, which must be furnished to 

all plan enrollees at least 15 days before 

the annual open election period. 

Beneficiaries would also continue to 

have access to information through tools 

such as Medicare Options Compare 

(MOC) and the Medicare Prescription 

Drug Plan Finder (MPDPF), which 

provide more general information about 

plan costs. We did not choose this 

option because we are concerned that 

the current available options alone may 

not be enough to prompt enrollees to 

actively evaluate their plans annually 

with respect to plan costs, benefits, and 

overall value. Therefore, we expect that 

this customized enrollee data will be 

another more specific tool for 

beneficiaries to use, in addition to the 

general tools already in place, for 

enrollees to understand their utilization 

and out-of-pocket costs during a period 

of time, as well as how they may be 

affected by specific plan changes, and to 

assist them in evaluating their options 

for the future. 

10. Extending the Mandatory Maximum 

Out-of-Pocket (MOOP) Amount 

Requirements to Regional PPOs 

(§ 422.100 and § 422.101) 

The alternative we considered to this 

proposal 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 15, 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. 

11. Translated Marketing Materials 

(§ 422.2264 and § 423.2264) 

Compliance with Title VI of the Civil 

Rights Act of 1964 to serve all 

individuals regardless of national origin 

is a contractual requirement for MA and 

Part D sponsors. Therefore, we did not 

consider any other alternatives to our 

proposed translated marketing materials 

requirements. 

12. Increases to the Applicable 

Percentage for Quality (§ 422.258(d)) 

The legislation 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. 

E. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in Table 20, we have 

prepared an accounting statement 

showing the classification of the costs 

and benefits associated with the 

provisions of this proposed rule. The 

accounting statement is based on 

estimates provided in Tables 16, 17, 18, 

and 19 (our best estimate of the costs 

and savings as a result of the changes) 

and discounted at 7 percent and 3 

percent for the time period of FY 2011 

through FY 2016. 

TABLE 20—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED COSTS AND SAVINGS, FROM FY 2011 TO FY 2016 

[$ in Millions] 

Category Year dollar 

Units discount rate 

Period covered 

7% 3% 

Transfers 

Annualized Monetized Tranfers ................................................... 2010 ¥$12,544.46 ¥$12,858.60 FYs 2011–2016 

From Whom To Whom? .............................................................. Federal Government to MA organizations and Part D Sponsors. 


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TABLE 20—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED COSTS AND SAVINGS, FROM FY 2011 TO FY 

2016—Continued 

[$ in Millions] 

Category Year dollar 

Units discount rate 

Period covered 

7% 3% 

Costs (All other provisions) 

Annualized Costs to MA organizations and Part D Sponsors .... 2010 $72.88 $72.24 FYs 2011–2016 

Annualized Costs to States ......................................................... 2010 $0.02 $0.02 FYs 2011–2016 

In accordance with the provisions of 

Executive Order 12866, this regulation 

was reviewed by the Office of 

Management and Budget. 

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 proposes to amend 

42 CFR chapter IV as set forth below: 

PART 417—HEALTH MAINTENANCE 

ORGANIZATIONS, COMPETITIVE 

MEDICAL PLANS, AND HEALTH CARE 

PREPAYMENT PLANS 

1. The authority citation for part 417 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

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

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

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

Subpart B—Qualified Health 

Maintenance Organizations; Services 

2. Section 417.101 is amended by 

adding new paragraphs (f) and (g) to 

read as follows: 

§ 417.101 Health benefits plan: Basic 

health services. 

* * * * * 

(f) An HMO may not charge 

deductibles, copayments, or 

coinsurance for in-network Medicarecovered preventive services as specified 

by CMS annually. 

(g) 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 plan’s 

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. 

(4) Home health services provided in 

accordance with § 424.22. 

Subpart J—Qualifying Conditions for 

Medicare Contracts 

3. Section 417.402 is amended by 

revising paragraph (c) introductory text 

to read as follows: 

§ 417.402 Effective date of initial 

regulations. 

* * * * * 

(c) Mandatory HMO or CMP and 

contract non-renewal or service area 

reduction. CMS will non-renew all or a 

portion of an HMO’s or CMP’s 

contracted service area using procedures 

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

period beginning on or after January 1, 

2013, where— 

* * * * * 

Subpart K—Enrollment, Entitlement, 

and Disenrollment Under Medicare 

Contract 

4. Section 417.430 is amended as 

follows: 

A. Revising the paragraph heading for 

paragraph (a). 

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

and (b)(4). 

§ 417.430 Application procedures. 

(a) Application forms and other 

enrollment mechanisms. (1) The 

application form must comply with 

CMS instructions regarding content and 

format and be approved by CMS. The 

application must be completed by an 

HMO or CMP eligible (or soon to 

become eligible) individual and include 

authorization for disclosure between the 

HHS and its designees and the HMO or 

CMP. 

* * * * * 

(b) * * * 

(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. 

* * * * * 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

5. The authority citation for part 422 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

Subpart A—General Provisions 

6. Section 422.2 is amended by 

adding in alphabetical order the 

definitions of ‘‘fiscally sound operation,’’ 

‘‘fully integrated dual-eligible special 

needs plan,’’ and ‘‘senior housing facility 

plan’’ in alphabetical order to read as 

follows: 

§ 422.2 Definitions. 

* * * * * 

Fiscally sound operation means an 

operation which at least maintains a 


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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) Provides dual-eligible beneficiaries 

access to Medicare and Medicaid 

benefits under a single managed care 

organization; 

(2) 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; 

(3) 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 

(4) Employs policies and procedures 

approved by CMS and the State to 

coordinate or integrate member 

materials, including enrollment, 

communications, grievance and appeals, 

and quality assurance. 

* * * * * 

Senior housing facility plan means an 

MA coordinated care plan that— 

(1) Restricts enrollment to individuals 

who reside in a continuing care 

retirement community as defined in 

§ 422.133(b)(2); 

(2) Provides primary care services 

onsite and has a ratio of accessible 

physicians to beneficiaries that CMS 

determines is adequate consistent with 

prevailing patterns of community health 

care referenced at § 422.112(a)(10); 

(3) Provides transportation services 

for beneficiaries to specialty providers 

outside of the facility; and 

(4) Was participating as of December 

31, 2009 in a demonstration established 

by CMS for not less than 1 year. 

* * * * * 

7. Section 422.4 is amended by: 

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

(a)(1)(iv). 

B. Adding paragraph (a)(1)(vi). 

The revisions and additions read as 

follows: 

§ 422.4 Types of MA plans. 

* * * * * 

(a) * * * 

(1) * * * 

(iii) Coordinated care plans include 

plans offered by any of the following: 

(A) Health maintenance organizations 

(HMOs); 

(B) Provider-sponsored organizations 

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

this section. 

(C) Regional or local preferred 

provider organizations (PPOs) as 

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

section. 

(D) Other network plans (except PFFS 

plans). 

(iv) A specialized MA plan for special 

needs individuals (SNP) includes any 

type of coordinated care plan that meets 

CMS’s SNP requirements and 

exclusively enrolls special needs 

individuals as defined by § 422.2 of this 

subpart. All MA plans wishing to offer 

a SNP will be required to be approved 

by the National Commission on Quality 

Assurance (NCQA) effective January 1, 

2012. This approval process applies to 

existing SNPs as well as new SNPs 

joining the program. All SNPs must 

submit their overall quality 

improvement (QI) program and the 

model of care (MOC) to CMS for NCQA 

evaluation and approval as per CMS 

guidance. 

* * * * * 

(vi) In accordance with § 422.370, 

CMS does not waive the State licensure 

requirement for organizations seeking to 

offer a PSO. 

* * * * * 

Subpart B—Eligibility, Election, and 

Enrollment 

8. Add § 422.53 to read as follows: 

§ 422.53 Eligibility to elect an MA plan for 

senior housing facility residents. 

(a) Basic eligibility requirements. To 

be eligible to elect an MA senior 

housing facility plan, the individual 

must meet both of the following: 

(1) Be a resident of an MA senior 

housing facility defined in § 422.2; and 

(2) Be eligible to elect an MA plan 

under § 422.50. 

(b) Restricting enrollment. An MA 

senior housing facility plan must restrict 

enrollment to only those individuals 

who reside in a continuing care 

retirement community as defined at 

§ 422.133(b)(2). 

(c) Establishing eligibility for 

enrollment. An MA senior housing 

facility plan must verify the eligibility of 

each individual enrolling in its plan 

using a CMS approved process. 

9. Section 422.62 is amended by: 

A. Revising paragraphs (a)(2)(i), (iii), 

and (iv), and (a)(5). 

B. Add new paragraph (a)(7). 

The revisions and addition read as 

follows: 

§ 422.62 Election of coverage under an MA 

plan. 

(a) * * * 

(2) Annual coordinated election 

period. (i) For 2002 through 2010, 

except for 2006, the annual coordinated 

election period for the following 

calendar year is November 15 through 

December 31. 

(ii) * * * 

(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), (a)(5)(iii), and (a)(6) 

of this section, an individual who is not 

enrolled in an MA plan but is eligible 

to elect an MA plan may make an 

election into an MA plan once during 

the first 3 months of the year. 

(ii) Newly eligible MA individual. An 

individual who becomes MA eligible in 

2007 through 2010 may elect an MA 

plan or change his or her election once 

during the period that begins the month 

the individual is entitled to both Part A 

and Part B and ends on the last day of 

the third month of the entitlement, or on 

December 31, whichever is earlier, 

subject to the limitations in paragraphs 

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

section. 

(iii) Single election limitation. The 

limitation to one election or change in 

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

section does not apply to elections or 

changes made during the annual 

coordinated election period specified in 

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

during a special election period 

specified in paragraph (b) of this 

section. 

* * * * * 

(7) Annual 45-day period for 

disenrollment from MA plans to 

Original Medicare. For 2011 and 

subsequent years, at any time from 

January 1 through February 14, an 

individual who is enrolled in an MA 

plan may elect Original Medicare once 

during this 45-day period. An 

individual who chooses to exercise this 

election may also make a coordinating 

election to enroll in a PDP as specified 

in § 423.38(d). 

* * * * * 

10. Section 422.68 is amended by 

adding paragraph (f) to read as follows: 

§ 422.68 Effective dates of coverage and 

change from coverage. 

* * * * * 


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(f) Annual 45-day period for 

disenrollment from MA plans to 

Original Medicare. Beginning in 2011, 

an election made from January 1 

through February 14 to disenroll from 

an MA plan to Original Medicare, as 

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

the first day of the first month following 

the month in which the election is 

made. 

11. Section 422.74 is amended by 

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

read as follows: 

§ 422.74 Disenrollment by the MA 

organization. 

* * * * * 

(d) * * * 

(1) * * * 

(v) Extension of grace period for good 

cause and reinstatement. When an 

individual is disenrolled for failure to 

pay the plan premium, CMS may 

reinstate enrollment in the MA plan, 

without interruption of coverage, if the 

individual shows good cause for failure 

to pay within the initial grace period, 

and pays all overdue premiums within 

3 calendar months after the 

disenrollment date. The individual must 

establish by a credible statement that 

failure to pay premiums within the 

initial grace period was due to 

circumstances for which the individual 

had no control, or which the individual 

could not reasonably have been 

expected to foresee. 

(vi) No extension of grace period. A 

beneficiary’s enrollment in the MA plan 

may not be reinstated if the only basis 

for such reinstatement is a change in the 

individual’s circumstances subsequent 

to the involuntary disenrollment for 

non-payment of premiums. 

* * * * * 

Subpart C—Benefits and Beneficiary 

Protections 

12. Section 422.100 is amended by: 

A. Revising paragraph (d)(2). 

B. Adding new paragraphs (j) and (k). 

The revision and additions read as 

follows. 

§ 422.100 General requirements. 

* * * * * 

(d) * * * 

(2) At a uniform premium, with 

uniform benefits and level of in-network 

cost-sharing throughout the plan’s 

service area, or segment of service area 

as provided in § 422.262(c)(2). 

* * * * * 

(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’ 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. 

(4) Home health services provided in 

accordance with § 424.22. 

(k) Cost sharing for in-network 

preventive services. MA organizations 

may not charge deductibles, 

copayments, or coinsurance for innetwork Medicare-covered preventive 

services, as specified by CMS annually. 

13. Section 422.101 is amended by: 

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

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

The revisions and addition read as 

follows. 

§ 422.101 Requirements relating to basic 

benefits. 

* * * * * 

(d) * * * 

(2) Catastrophic limit. MA regional 

plans are required to provide for a 

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

benefits under the Original Medicare 

fee-for-service program (Part A and Part 

B benefits) that is no greater than the 

annual limit set by CMS. 

(3) Total catastrophic limit. MA 

regional plans are required to provide a 

total catastrophic limit on beneficiary 

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

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

catastrophic limit, which would apply 

to both in-network and out-of-network 

benefits under Original Medicare, may 

be higher than the in-network 

catastrophic limit in paragraph (d)(2) of 

this section, but may not increase the 

limit described in paragraph (d)(2) of 

this section and may be no greater than 

the annual limit set by CMS. 

* * * * * 

(f) * * * 

(2) * * * 

(vi) All MAOs wishing to offer or 

continue to offer a SNP will be required 

to be approved by the National 

Committee for Quality Assurance 

(NCQA) effective January 1, 2012 and 

subsequent years. All SNPs must submit 

their overall quality improvement (QI) 

program and the model of care (MOC) 

to CMS for NCQA evaluation and 

approval in accordance with CMS 

guidance. 

14. Section 422.106 is amended by: 

A. Revising paragraph (d)(1). 

B. Adding paragraphs (d)(4) through 

(6). 

The revision and additions read as 

follows. 

§ 422.106 Coordination of benefits with 

employer or union group health plans and 

Medicaid. 

* * * * * 

(d) * * * 

(1) CMS may waive or modify any 

requirement in this part or Part D that 

hinders the design of, the offering of, or 

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

MA–PD plan) offered by one or more 

employers, labor organizations, or the 

trustees of a fund established by one or 

more employers or labor organizations 

(or combination thereof), or that is 

offered, sponsored or administered by 

an entity on behalf of one or more 

employers or labor organizations, to 

furnish benefits to the employers’ 

employees, former employees (or 

combination thereof) or members or 

former members (or combination 

thereof) of the labor organizations. Any 

entity seeking to offer, sponsor, or 

administer such an MA plan described 

in this paragraph may request, in 

writing, from CMS, a waiver or 

modification of requirements in this 

part that hinder the design of, the 

offering of, or the enrollment in, such 

MA plan. 

* * * * * 

(4) An employer-sponsored group MA 

plan means MA coverage offered to 

retirees who are Medicare eligible 

individuals under employment-based 

retiree health coverage, as defined in 

paragraph (d)(5) of this section, 

approved by CMS as an MA plan. 

(5) Employment-based retiree 

coverage means coverage of health care 

costs under a group health plan, as 

defined in paragraph (d)(6) of this 

section, based on an individual’s status 

as a retired participant in the plan, or as 

the spouse or dependent of a retired 

participant. The term includes coverage 

provided by voluntary insurance 

coverage, or coverage as a result of a 

statutory or contractual obligation. 

(6) Group health plans include plans 

as defined in section 607(1) of ERISA, 

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

the following plans: 

(i) A Federal or State governmental 

plan, which is a plan providing medical 

care that is established or maintained 

for its employees by the Government of 


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the United States, by the government of 

any State or political subdivision of a 

State (including a county or local 

government), or by any agency or 

instrumentality or any of the foregoing, 

including a health benefits plan offered 

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

Employee Health Benefit Plan (FEHBP)). 

(ii) A collectively bargained plan, 

which is a plan providing medical care 

that is established or maintained under 

or by one or more collective bargaining 

agreements. 

(iii) A church plan, which is a plan 

providing medical care that is 

established and maintained for its 

employees or their beneficiaries by a 

church or by a convention or association 

of churches that is exempt from tax 

under section 501 of the Internal 

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

(iv) Any of the following plans: 

(A) An account-based medical plan 

such as a Health Reimbursement 

Arrangement (HRA) as defined in 

Internal Revenue Service Notice 2002– 

45, 2002–28 I.R.B. 93. 

(B) A health Flexible Spending 

Arrangement (FSA) as defined in 

Internal Revenue Code (Code) section 

106(c)(2). 

(C) A health savings account (HSA) as 

defined in Code section 223. 

(D) An Archer MSA as defined in 

Code section 220, to the extent they are 

subject to ERISA as employee welfare 

benefit plans providing medical care (or 

would be subject to ERISA but for the 

exclusion in ERISA section 4(b), 29 

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

or church plans). 

15. Section 422.107 is amended by 

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

follows: 

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

Agency. 

* * * * * 

(d) * * * 

(1) * * * 

(ii) Existing dual-eligible SNPs that do 

not have a State Medicaid agency 

contract— 

(A) May continue to operate through 

the 2012 contract year provided they 

meet all other statutory and regulatory 

requirements. 

(B) May not expand their service areas 

during contract years 2010 through 

2012. 

* * * * * 

16. Amend § 422.111 by: 

A. Adding a new paragraph (b)(12). 

B. Removing paragraph (f)(12). 

C. Adding paragraph (h). 

The additions read as follows. 

§ 422.111 Disclosure requirements. 

* * * * * 

(b) * * * 

(12) Customized out-of-pocket cost 

statement. CMS may require an MA 

organization to annually disclose to 

each enrollee a customized statement of 

the beneficiary’s potential future out-ofpocket costs. This notice will be 

provided in each year, in which a 

minimum enrollment period has been 

met, in conjunction with the annual 

plan description described in 

paragraphs (b)(1) through (11) of this 

section. 

* * * * * 

(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 all nonEnglish speaking and limited English 

proficient (LEP) individuals. 

(2) An Internet Web site that includes, 

at a minimum the following: 

(i) The information required in 

paragraph (b) of this section. 

(ii) Copies of its evidence of coverage, 

summary of benefits, and information 

(names, addresses, phone numbers, and 

specialty) on the network of contracted 

providers. Such posting does not relieve 

the MA organization of its responsibility 

under § 422.111(a) to provide hard 

copies to enrollees. 

(3) The provision of information in 

writing, upon request. 

17. Section 422.112 is amended by 

revising paragraph (a)(10) introductory 

text to read as follows: 

§ 422.112 Access to services. 

(a) * * * 

(10) Prevailing patterns of community 

health care delivery. MA plans that meet 

Medicare access and availability 

requirements through direct contracting 

network providers must do so consistent 

with the prevailing community pattern 

of health care delivery in the areas 

where the network is being offered. 

Factors making up community patterns 

of health care delivery that CMS will 

use as a benchmark in evaluating a 

proposed MA plan health care delivery 

network include, but are not limited to 

the following: 

* * * * * 

18. Amend § 422.113 by revising 

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

§ 422.113 Special rules for ambulance 

services, emergency and urgently needed 

services, and maintenance and poststabilization care services. 

* * * * * 

(b) * * * 

(2) * * * 

(v) With a limit on charges to 

enrollees for emergency department 

services that CMS will determine 

annually, or what it would charge the 

enrollee if he or she obtained the 

services through the MA organization, 

whichever is less. 

* * * * * 

Subpart D—Quality Improvement 

19. Amend § 422.152 by revising 

paragraph (g) introductory text to read 

as follows: 

§ 422.152 Quality improvement program. 

* * * * * 

(g) Special requirements for 

specialized MA plans for special needs 

individuals. All special needs plans 

(SNPs) must be approved by the 

National Committee for Quality 

Assurance (NCQA) effective January 1, 

2012 and subsequent years. SNPs must 

submit their overall quality 

improvement (QI) program and model of 

care (MOC) to CMS for NCQA 

evaluation and approval, in accordance 

with CMS guidance. A SNP must 

conduct a quality improvement program 

that— 

* * * * * 

20. Amend § 422.156 by revising 

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

§ 422.156 Compliance deemed on the 

basis of accreditation. 

* * * * * 

(b) * * * 

(1) Quality improvement. The 

deeming process should focus on 

evaluating and assessing the overall 

quality improvement (QI) program. 

However, the quality improvement 

projects (QIPs) and the chronic care 

improvement programs (CCIPs) will be 

excluded from the deeming process. 

* * * * * 

Subpart E—Relationships With 

Providers 

21. Amend § 422.214 by adding 

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

§ 422.214 Special rules for services 

furnished by noncontract providers. 

* * * * * 

(c) Deemed request for Medicare 

payment rate. A noncontract section 

1861(u) of the Act provider of services 

that furnishes services to MA enrollees 

and submits the same information that 


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it would submit for payment under 

Original Medicare is deemed to be 

seeking to be paid the amount it would 

be paid under Original Medicare unless 

the provider expressly notifies the MA 

organization in writing that it is billing 

an amount less than such amount. 

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

must pay non-contract providers the 

Original Medicare payment rate in those 

portions of its service area where it is 

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

of this part. 

Subpart F—Submission of Bids, 

Premiums, and Related Information 

and Plan Approval 

22. Section 422.252 is amended by: 

A. Adding in alphabetical order the 

definitions ‘‘low enrollment contract’’ 

and ‘‘new MA plan.’’ 

B. Revising the definition of 

‘‘unadjusted MA area-specific non-drug 

monthly benchmark amount.’’ 

The additions and revision read as 

follows: 

§ 422.252 Terminology. 

* * * * * 

Low enrollment contract means a 

contract that could not undertake 

Healthcare Effectiveness Data and 

Information Set (HEDIS) and Health 

Outcome Survey (HOS) data collections 

because of a lack of a sufficient number 

of enrollees to reliably measure the 

performance of the health plan. 

* * * * * 

New MA plan means a MA contract 

offered by a parent organization that has 

not had another MA contract in the 

previous 3 years. 

* * * * * 

Unadjusted MA area-specific nondrug monthly benchmark amount 

means, for local MA plans serving one 

county, the county capitation rate CMS 

publishes annually that reflects the 

nationally average risk profile for the 

risk factors CMS applies to payment 

calculations as set forth at § 422.308(c) 

of this part, (that is, a standardized 

benchmark). For local MA plans serving 

multiple counties it is the weighted 

average of county rates in a plan’s 

service area, weighted by the plan’s 

projected enrollment per county. The 

rules for determining county capitation 

rates are specific to a time period, as set 

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

MA area-specific non-drug monthly 

benchmark amount is called the 

blended benchmark amount, and is 

determined according to the rules set 

forth under § 422.258(d) of this part. 

* * * * * 

23. Section 422.254 is amended by 

adding paragraph (a)(5) to read as 

follows: 

§ 422.254 Submission of bids. 

(a) * * * 

(5) CMS may decline to accept any or 

every otherwise qualified bid submitted 

by an MA organization or potential MA 

organization. 

* * * * * 

24. Section 422.256 is amended by 

revising paragraph (a) to read as follows: 

§ 422.256 Review, negotiation, and 

approval of bids. 

(a) Authority. Subject to paragraphs 

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

has the authority to review the aggregate 

bid amounts submitted under § 422.252 

and conduct negotiations with MA 

organizations regarding these bids 

(including the supplemental benefits) 

and the proportions of the aggregate bid 

attributable to basic benefits, 

supplemental benefits, and prescription 

drug benefits and may decline to 

approve a bid if the plan sponsor 

proposes significant increases in cost 

sharing or decreases in benefits offered 

under the plan. 

* * * * * 

25. Section 422.258 is amended by: 

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

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

phrase ‘‘county capitation rate’’ and 

adding in its place the phrase ‘‘amount 

determined under paragraph (a) of this 

section for the year’’. 

C. Adding a new paragraph (d). 

The revisions and additions read as 

follows: 

§ 422.258 Calculation of benchmarks. 

(a) * * * 

(1) For MA local plans with service 

areas entirely within a single MA local 

area: 

(i) For years before 2007, one-twelfth 

of the annual MA capitation rate 

(described at § 422.306) for the area, 

adjusted as appropriate for the purpose 

of risk adjustment. 

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

determined under section 1853(k)(1) of 

the Act for the area for the year, 

adjusted as appropriate for the purpose 

of risk adjustment. 

(iii) For 2011, one-twelfth of the 

applicable amount determined under 

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

(iv) Beginning with 2012, one-twelfth 

of the blended benchmark amount 

described in paragraph (d) of this 

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

this section and adjusted as appropriate 

for the purpose of risk adjustment. 

(2) For MA local plans with service 

areas including more than one MA local 

area, an amount equal to the weighted 

average of amounts described in 

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

year for each local area (county) in the 

plan’s service area, using as weights the 

projected number of enrollees in each 

MA local area that the plan used to 

calculate the bid amount, and adjusted 

as appropriate for the purpose of risk 

adjustment. 

* * * * * 

(d) Determination of the blended 

benchmark amount. (1) 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. However, 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) For the purpose of paragraphs (a) 

and (b) of this section, the applicable 

amount determined under section 

1853(k)(1) of the Act for a year is— 

(i) In a rebasing year (described at 

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

greater of the average FFS expenditure 

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

and the minimum percentage increase 

rate at § 422.306(a) for an area. 

(ii) In a year when the amounts at 

§ 422.306(b)(2) are not rebased, the 

minimum percentage increase rate at 

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

(iii) In no case the blended benchmark 

amount for an area for a year, 

determined taking into account 

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

greater than the applicable amount at 

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

area for a year. 

(iv) Paragraph (d) of this section does 

not apply to the PACE program under 

section 1894 of Act. 

(3) For the purpose of paragraphs (a) 

and (b) of this section, the specified 

amount under section 1853(n)(2) of the 

Act is the product of the base payment 

amount for an area for a year (adjusted 

as required under § 422.306(c) 

multiplied by the applicable percentage 


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described in paragraph (d)(5) of this 

section for an area for a year. 

(4) The base payment amount is as 

follows: 

(i) For 2012, the average FFS 

expenditure amount specified in 

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

(ii) For subsequent years, the average 

FFS expenditure amount specified in 

§ 422.306(b)(2). 

(5) Applicable percentage. Subject to 

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

applicable percentage is one of four 

values assigned to an area based on 

Secretary’s determination of the quartile 

ranking of the area’s average FFS 

expenditure amount (described at 

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

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

for all areas. 

(i) For the 50 States or the District of 

Columbia, a county with an average FFS 

expenditure amount adjusted under 

§ 422.306(c) that falls in the— 

(A) Highest quartile of such rates for 

all areas for the previous year receives 

an applicable percentage of 95 percent. 

(B) Second highest quartile of such 

rates for all areas for the previous year 

receives an applicable percentage of 100 

percent. 

(C) Third highest quartile of such 

rates for all areas for the previous year 

receives an applicable percentage of 

107.5 percent. 

(D) Lowest quartile of such rates for 

all areas for the previous year receives 

an applicable percentage of 115 percent. 

(ii) To determine the applicable 

percentages for a territory, the Secretary 

ranks such areas for a year based on the 

level of the area’s § 422.306(b)(2) 

amount adjusted under § 422.306(c), 

relative to the quartile rankings 

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

this section. 

(6) Additional rules for determining 

the applicable percentage. (i) In a 

contract year when the average FFS 

expenditure amounts from the previous 

year were rebased (according to the 

periodic rebasing requirement at 

§ 422.306(b)(2)), the Secretary must 

determine an area’s applicable 

percentage based on a quartile ranking 

of the previous year’s rebased FFS 

amounts adjusted under § 422.306(c). 

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

change in the quartile in which an area 

is ranked compared to the previous 

year’s ranking, the applicable 

percentage for the area in the year must 

be the average of the applicable 

percentage for the previous year and the 

applicable percentage that would 

otherwise apply for the area for the year 

in the absence of this transitional 

provision. 

(7) Increases to the applicable 

percentage for quality. Beginning with 

2012, the blended benchmark under 

paragraphs (a) and (b) of this section 

will reflect the level of quality rating at 

the plan or contract level, as determined 

by the Secretary. The quality rating for 

a plan is determined by the Secretary 

according to a 5-star rating system 

(based on the data collected under 

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

the applicable percentage under 

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

increased according to criteria in 

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

section if the plan or contract is 

determined to be a qualifying plan or a 

qualifying plan in a qualifying county 

for the year. 

(i) Qualifying plan. Beginning with 

2012, a qualifying plan means a plan 

that had a quality rating of 4 stars or 

higher based on the most recent data 

available for such year. For a qualifying 

plan, the applicable percentage at 

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

increased as follows: 

(A) For 2012, by 1.5 percentage 

points. 

(B) For 2013, by 3.0 percentage points. 

(C) For 2014 and subsequent years, by 

5.0 percentage points. 

(ii) Qualifying county. (A) A 

qualifying county means a county that 

meets the following three criteria: 

(1) Has an MA capitation rate that, in 

2004, was based on the amount 

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

Act for a Metropolitan Statistical Area 

with a population of more than 250,000. 

(2) Of the MA-eligible individuals 

residing in the county, at least 25 

percent of such individuals were 

enrolled in MA plans as of December 

2009. 

(3) Has per capita fee-for-service 

spending that is lower than the national 

monthly per capita cost for expenditures 

for individuals enrolled under the 

Original Medicare fee-for-service 

program for the year. 

(B) Beginning with 2012, for a 

qualifying plan serving a qualifying 

county, the increase to the applicable 

percentage described at paragraph 

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

for the qualifying county. 

(iii) MA organizations that fail to 

report data as required by the Secretary 

must be counted as having a rating of 

fewer than 3.5 stars at the plan or 

contract level, as determined by the 

Secretary. 

(iv) Application of applicable 

percentage increases to low enrollment 

plans. (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 

(as defined by the Secretary) to 

determine whether a low enrollment 

plan is a qualifying plan. 

(v) Application of increases in 

applicable percentage to new MA plans. 

A new MA plan (as defined at 

§ 422.252) that meets criteria specified 

by the Secretary must be treated as a 

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

of this section, except that the 

applicable percentage must be increased 

as follows: 

(A) For 2012, by 1.5 percentage 

points. 

(B) For 2013, by 2.5 percentage points. 

(C) For 2014 and subsequent years, by 

3.5 percentage points. 

(8) Determination of phase-in period 

for the blended benchmark amount. For 

2012 through 2016, the blended 

benchmark amount for an area for a year 

depends on the phase-in period 

assigned to that area. The Secretary 

assigns one of three phase-in periods to 

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

phase-in period assigned to an area is 

based on the size of the difference 

between the 2010 applicable amount at 

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

projected 2010 benchmark amount 

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

section. 

(i) The projected 2010 benchmark 

amount is calculated once for the 

purpose of determining the phase-in 

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

of the 2010 applicable amount at 

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

paragraph (d)(3) modified to apply to 

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

section). 

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

area, the specified amount is modified 

as if it applies to 2010, and is the 

product of— 

(A) The 2010 base payment amount 

adjusted as required under § 422.306(c) 

of this part; and 

(B) The applicable percentage 

determined as if the reference to the 

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

this section were deemed a reference to 

2010 and increased as follows: 

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

of this section for a qualifying plan in 

the area is applied as if the reference to 

a qualifying plan for 2012 were deemed 

a reference for 2010; and 

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

of this section is applied as if the 

determination of a qualifying county 

were made for 2010. 


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(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 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 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 year. 

(F) For 2017 and subsequent years, 

the blended benchmark equals the 

specified amount for the area and year. 

25. Add § 422.260 to read as follows: 

§ 422.260 Appeals of quality bonus 

payment determinations. 

(a) Scope. The provisions of this 

section pertain to appeals of 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 an 

QBP. 

Quality bonus payment (QBP) status 

means an 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) Technical report on QBP status. 

An MA organization may request a 

technical report from CMS which 

details the performance data and 

performance measures that CMS relied 

on in applying the quality bonus 

payment determination methodology 

and how CMS applied the methodology 

to such performance data. 

(1) The MA organization must request 

a technical report concerning its QBP 

status within 5 days of CMS’ issuance 

of notice of the QBP status 

determination. 

(2) The technical report must be 

prepared by an independent contractor 

engaged by CMS to review the 

application of CMS’ QBP payment 

determination methodology to the 

organization’s performance for the most 

recent evaluation period. 

(3) Within 30 days of CMS’ receipt of 

the MA organization request, the 

independent contractor must issue the 

technical report to the MA organization 

and CMS in writing and by electronic 

mail. 

(4) The independent contractor will 

not accept or consider materials 

submitted by the MA organization in 

advance of the technical report. 

(d) QBP status appeal process. (1) 

Hearing request. An MA organization 

may request an appeal of its QBP status. 

(i) The MA organization seeking an 

appeal of their QBP status must do so 

by providing written notice to CMS 

within 7 days of the issuance of the QBP 

technical report. The notice must 

specify the errors the MA organization 

asserts that CMS made in making the 

QBP determination and how correction 

of those errors would result in the 

organization’s qualification for a QBP. 

(ii) The MA organization may not 

request an appeal of its QBP status 

unless it has already requested and 

received a technical report in 

accordance with paragraph (c) of this 

section. 

(2) 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. 

(3) Hearing officer’s review. The 

hearing officer reviews the application 

of CMS’ QBP determination 

methodology to the determination of the 

MA organization’s QBP status. 

(i) The hearing officer must consider 

whether CMS correctly applied its QBP 

determination methodology to the MA 

organization’s performance, but may not 

consider the validity of the 

determination methodology itself. 

(ii) The hearing officer may also 

consider the accuracy of the data related 

to individual performance measures 

used to arrive at a QBP determination 

where those performance measures have 

not been subject to an independent 

audit. 

(iii) The hearing officer may not 

consider the accuracy of data related to 

individual performance measures which 

were subject to an independent audit 

prior to their use in arriving at the QBP 

determination. 

(iv) The hearing is conducted by a 

CMS hearing officer on the record, 

unless the parties requested, subject to 

the hearing officer’s discretion, a live or 

telephonic hearing. 

(v) The hearing officer receives no 

testimony, but may accept written 

statements with exhibits from each 

party in support of their position in the 

matter. 

(4) Hearing officer’s decision. The 

hearing officer issues a decision on or 


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before May 15 of the year preceding the 

year in which the plans for which the 

QBP is to be applied will be offered. The 

hearing officer issues the decision by 

electronic mail to the MA organization 

and to CMS. 

(5) Effect of the hearing officer’s 

decision. The hearing officer’s decision 

is final and binding. 

(e) 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 technical report issued in 

accordance with paragraph (c) of this 

section that demonstrates that the initial 

QBP determination was incorrect. 

26. Amend § 422.262 by revising 

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

§ 422.262 Beneficiary premiums. 

* * * * * 

(c) * * * 

(1) General rule. (i) Except as 

permitted for supplemental premiums 

under § 422.106(d), for MA contracts 

with employers and labor organizations, 

the MA monthly bid amount submitted 

under § 422.254, the MA monthly basic 

beneficiary premium, the MA monthly 

supplemental beneficiary premium, the 

MA monthly prescription drug 

premium, and the monthly MSA 

premium of an MA organization may 

not vary among individuals enrolled in 

an MA plan (or segment of the plan as 

provided for local MA plans under 

paragraph (c)(2) of this section). 

(ii) The MA organization cannot vary 

the level of cost-sharing charged for 

basic benefits or supplemental benefits 

(if any) among individuals enrolled in 

an MA plan (or segment of the plan). 

Cost sharing cannot vary across 

enrollees of a plan for any reason, 

including that based upon primary care 

provider group, specialist, hospital 

network or an enrollee’s utilization of 

health care services. 

* * * * * 

27. Amend § 422.266 by revising 

paragraph (a) to read as follows: 

§ 422.266 Beneficiary rebates. 

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

through 2011, an MA organization must 

provide to the enrollee a monthly rebate 

equal to 75 percent of the average per 

capita savings (if any) described in 

§ 422.264(b) for MA local plans and 

§ 422.264(d) for MA regional plans. 

(2) For 2012 and subsequent years, an 

MA organization must provide to the 

enrollee a monthly rebate equal to a 

specified percentage of the average per 

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

MA local plans and § 422.264(d) for MA 

regional plans. For 2012 and 2013, this 

percentage is based on a combination of 

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

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

based on the plan’s quality rating under 

a 5 star rating system, as determined by 

the Secretary under § 422.258(d)(6). For 

2014 and subsequent years, this 

percentage is determined based only on 

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

rules. 

(i) Applicable rebate percentage for 

2012 and 2013. Subject to paragraphs 

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

transitional applicable rebate percentage 

is, for a year, the sum of two amounts 

as follows: 

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

proportion of 75 percent of the average 

per capita savings; and one-third of the 

new proportion assigned the plan under 

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

on the quality rating specified in 

§ 422.258(d)(7). 

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

proportion of 75 percent of the average 

per capita savings; and two-thirds of the 

new proportion assigned the plan under 

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

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

(ii) Final applicable rebate 

percentage. For 2014 and subsequent 

years, and subject to paragraphs 

(d)(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 

plans. For 2012, in the case of a plan 

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

must be treated as having a rating of 4.5 

stars for the purpose of determining the 

beneficiary rebate amount. 

(iv) Treatment of new MA plans. For 

2012 or a subsequent year, a new MA 

plan defined at § 422.252 that meets the 

criteria specified by the Secretary for 

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

treated as a qualifying plan under 

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

be treated as having a rating of 3.5 stars 

for purposes of determining the 

beneficiary rebate amount. 

* * * * * 

Subpart G—Payments to Medicare 

Advantage Organizations 

28. Amend § 422.308 by adding 

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

follows: 

§ 422.308 Adjustments to capitation rates, 

benchmarks, bids, and payments. 

* * * * * 

(c) * * * 

(4) Authority to apply frailty 

adjustment under PACE payment rules 

for certain specialized MA plans for 

special needs individuals. (i) 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 such section) 

rather than the payment rules that 

would otherwise apply under this part, 

but only to the extent necessary to 

reflect the costs of treating high 

concentrations of frail individuals. 

(ii) Plan described. A plan described 

in this paragraph is a fully integrated 

dual-eligible special needs plan, as 

defined at § 422.2, and has a similar 

average level of frailty (as determined by 

the Secretary) as the PACE program. 

(5) Application of coding adjustment. 

(i) In applying the adjustment under 

paragraph (c)(1) of this section for 

health status to payment amounts, the 

Secretary ensures that such adjustment 

reflects changes in treatment and coding 

practices in the fee-for-service sector 

and reflects differences in coding 

patterns between MA plans and 

providers under Part A and B to the 

extent that the Secretary has identified 

such differences. 

(ii) In order to ensure payment 

accuracy, the Secretary annually 

conducts an analysis of the differences 

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

section. 

(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. 


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(C) For 2019 and each subsequent 

year, not less than 5.7 percent. 

(iv) Such adjustment is applied to risk 

scores until the Secretary implements 

risk adjustment using MA diagnostic, 

cost, and use data. 

(6) Improvements to risk adjustment 

for special needs individuals with 

chronic health conditions. (i) General 

rule. For 2011 and subsequent years, for 

purposes of the adjustment under 

paragraph (c)(1) of this section with 

respect to individuals described in 

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

Secretary uses a risk score that reflects 

the known underlying risk profile and 

chronic health status of similar 

individuals. Such risk score is used 

instead of the default risk score for new 

enrollees in MA plans that are not 

specialized MA plans for special needs 

individuals (as defined in section 

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

(ii) Individuals described. An 

individual described in this clause is a 

special needs individual described in 

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

enrolls in a specialized MA plan for 

special needs individuals on or after 

January 1, 2011. 

(iii) Evaluation. For 2011 and 

periodically thereafter, the Secretary 

evaluates and revises the risk 

adjustment system under this paragraph 

in order to, as accurately as possible, 

account for— 

(A) Higher medical and care 

coordination costs associated with 

frailty, individuals with multiple, 

comorbid chronic conditions, and 

individuals with a diagnosis of mental 

illness; and 

(B) Costs that may be associated with 

higher concentrations of beneficiaries 

with the conditions specified in 

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

(iv) Publication of evaluation and 

revisions. The Secretary publishes, as 

part of an announcement under section 

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

evaluation conducted under paragraph 

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

preceding year and any revisions made 

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

as a result of such evaluation. 

* * * * * 

Subpart J—Special Rules for MA 

Regional Plans 

§ 422.458 [Amended] 

29. In § 422.458, paragraph (f) is 

removed. 

Subpart K—Application Procedures 

and Contracts for Medicare Advantage 

Organizations 

30. Amend § 422.502 by: 

A. Redesignating paragraph (b) as 

paragraph (b)(1). 

B. Adding paragraph (b)(2). 

C. Revising paragraph (c)(2)(i). 

The revisions read as follows: 

§ 422.502 Evaluation and determination 

procedures. 

* * * * * 

(b) * * * 

(2) In the absence of 14 months of 

performance history, CMS may deny an 

application based on a lack of 

information available to determine an 

applicant’s capacity to comply with the 

requirements of the MA program. 

(c) * * * 

(2) * * * 

(i) If CMS finds that the applicant 

does not appear to be able to meet the 

requirements for an MA organization, 

CMS gives the applicant notice of intent 

to deny the application and a summary 

of the basis for this preliminary finding. 

* * * * * 

31. Amend § 422.503 by: 

A. Redesignating paragraph 

(b)(4)(vi)(B)(1) as paragraph 

(b)(4)(vi)(B)(1)(i). 

B. Adding paragraph 

(b)(4)(vi)(B)(1)(ii). 

The addition reads as follows. 

§ 422.503 General provisions. 

* * * * * 

(b) * * * 

(4) * * * 

(vi) * * * 

(B) * * * 

(ii) Beginning in 2013, the compliance 

officer will complete annual MA 

compliance training offered by an entity 

with expertise in MA. New applicants 

must complete training by the last 

Friday in August prior to the start of the 

contract year. 

* * * * * 

32. Amend § 422.504 by: 

A. Redesignating paragraph (a)(14) as 

paragraph (a)(16) and revising it. 

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

(a)(15). 

The additions and revision read as 

follows. 

§ 422.504 Contract provisions. 

(a) * * * 

(14) Maintain a fiscally sound 

operation by at least maintaining a 

positive net worth (total assets exceed 

total liabilities). 

(15) Address complaints received by 

CMS against the MAO by— 

(i) Addressing and resolving 

complaints in the CMS complaint 

tracking system. 

(ii) Displaying a link to the electronic 

complaint form on the Medicare.gov 

Internet Web site on the MA plan’s main 

Web page. 

(16) An MA organization’s 

compliance with paragraphs (a)(1) 

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

material to performance of the contract. 

* * * * * 

33. Amend § 422.506 by adding 

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

§ 422.506 Nonrenewal of contract. 

(a) * * * 

(5) During the same 2-year period as 

specified in paragraph (a)(4) of this 

section, CMS will not contract with an 

organization whose covered persons 

also served as covered persons for the 

non-renewing sponsor. A ‘‘covered 

person’’ as used in this paragraph means 

one of the following: 

(i) All owners of nonrenewed or 

terminated organizations who are 

natural persons, other than shareholders 

who— 

(A) Have an ownership interest of 

more than 5 percent; and 

(B) Acquired the ownership through 

public trading. 

(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 assists thereof, which whole or 

part interest is equal to or exceeds 5 

percent of the total property, and assets 

of the organization. 

(iii) An officer or member of the board 

of directors or board of trustees of the 

entity, if the organization is organized as 

a corporation. 

* * * * * 

34. Amend § 422.508 by adding 

paragraph (d) to read as follows: 

§ 422.508 Modification or termination of 

contract by mutual consent. 

* * * * * 

(d) Prohibition against Part C program 

participation by organizations whose 

owners, directors, or management 

employees served in a similar capacity 

with another organization that mutually 

terminated its Medicare contract within 

the previous 2 years. During the same 2- 

year period, CMS will not contract with 

an organization whose covered persons 

also served as covered persons for the 

mutually terminating sponsor. A 

‘‘covered person’’ as used in this 

paragraph means one of the following: 

(1) All owners of nonrenewal or 

terminated organizations who are 

natural persons, other than shareholders 

who— 

(i) Have an ownership interest of more 

than 5 percent; and 

(ii) Acquired the ownership through 

public trading. 

(2) An owner in whole or part interest 

in any mortgage, deed of trust, note or 

other obligation secured (in whole or in 


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part) by the organization, or any of the 

property assists thereof, which whole or 

part interest is equal to or exceeds 5 

percent of the total property, and assets 

of the organization. 

(3) An officer or member of the board 

of directors of the entity, if the 

organization is organized as a 

corporation. 

35. Amend § 422.512(e) by: 

A. Redesignating paragraph (e) as 

(e)(1). 

B. Adding paragraph (e)(2) to read as 

follows: 

§ 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— 

(A) Have an ownership interest of 

more than 5 percent; and 

(B) Acquired the ownership through 

public trading. 

(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 assists thereof, which whole or 

part interest is equal to or exceeds 5 

percent of the total property, and assets 

of the organization. 

(iii) An officer or member of the board 

of directors of the entity, if the 

organization is organized as a 

corporation. 

Subpart M—Grievances, Organization 

Determinations, and Appeals 

36. Amend § 422.562 by adding 

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

§ 422.562 General provisions. 

(a) * * * 

(4) An MA organization must employ 

a medical director who is responsible 

for ensuring the clinical accuracy of all 

organization determinations and 

reconsiderations involving medical 

necessity. The medical director must be 

a physician with a current and 

unrestricted license to practice 

medicine in a State, Territory, 

Commonwealth of the United States 

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

Columbia. 

* * * * * 

37. Amend § 422.566 by adding 

paragraph (d) to read as follows: 

§ 422.566 Organization determinations. 

* * * * * 

(d) Who must review organization 

determinations. When the issue 

involves medical necessity (or any 

substantively equivalent term used to 

describe the concept of medical 

necessity), the organization 

determination must be reviewed by a 

physician or other appropriate health 

care professional with sufficient 

medical and other expertise, including 

knowledge of the Medicare program. 

The physician or other health care 

professional must have a current and 

unrestricted license to practice within 

the scope of his or her profession in a 

State, Territory, Commonwealth of the 

United States (that is, Puerto Rico), or 

the District of Columbia. 

38. Amend § 422.626 by revising 

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

§ 422.626 Fast-track appeals of service 

terminations to independent review entities 

(IREs). 

* * * * * 

(g) * * * 

(3) If the IRE reaffirms its decision, in 

whole or in part, the enrollee may 

appeal the IRE’s reconsidered 

determination to an ALJ, the MAC, or a 

Federal court, as provided for under this 

subpart. 

* * * * * 

Subpart V—Medicare Advantage 

Marketing Requirements 

39. Amend § 422.2264 by revising 

paragraph (e) to read as follows: 

§ 422.2264 Guidelines for CMS review. 

* * * * * 

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

materials in the language of these 

individuals. Specifically, MA 

organizations must 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. 

40. Amend § 422.2272 by adding 

paragraph (e) to read as follows: 

§ 422.2272 Licensing of marketing 

representatives and confirmation of 

marketing resources. 

* * * * * 

(e) Terminate upon discovery any 

unlicensed agent or broker employed as 

a marketing representative and notify 

any beneficiaries enrolled by the 

unlicensed agent or broker of the agent’s 

or broker’s unlicensed status and of 

their options to confirm enrollment or 

make a plan change (including a special 

election period, as described in 

§ 422.62(b)(3)(ii)). 

41. Amend § 422.2274 by revising the 

introductory text and paragraphs (b) and 

(c) to read as follows: 

§ 422.2274 Broker and agent requirements. 

For purposes of this section 

‘‘compensation’’ includes pecuniary or 

nonpecuniary remuneration of any kind 

relating to the sale or renewal of a 

policy including, but not limited to, 

commissions, bonuses, gifts, prizes, 

awards, and finder’s fees. 

‘‘Compensation’’ does not include the 

payment of fees to comply with State 

appointment laws, training, 

certification, and testing costs; 

reimbursement for mileage to, and from, 

appointments with beneficiaries; or 

reimbursement for actual costs 

associated with beneficiary sales 

appointments such as venue rent, 

snacks, and materials. If a Medicare 

Advantage organization 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 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 

42. 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 

43. Amend § 423.4 by adding in 

alphabetical order the definitions of 

‘‘fiscally sound operation’’ and 

‘‘pharmacist’’ to read as follows: 

§ 423.4 Definitions. 

* * * * * 


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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 

44. Amend § 423.34 by: 

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

B. Adding paragraph (d)(4). 

The revisions and addition read as 

follows: 

§ 423.34 Enrollment of low income subsidy 

eligible individuals. 

* * * * * 

(c) Reassigning low income subsidy 

eligible individuals. (1) General rule. 

Notwithstanding § 423.32(e) of this 

subpart, during the annual coordinated 

election period, CMS may reassign 

certain low income subsidy eligible 

individuals in another PDP if CMS 

determines that the further enrollment 

is warranted, except as specified in 

paragraph (c)(2) of this section. 

(2) Part D prescription drug plans that 

waive a de minimis premium amount. If 

a Part D plan offering basic prescription 

drug coverage in the area where the 

beneficiary resides has a monthly 

beneficiary premium amount that 

exceeds the low-income subsidy amount 

by a de minimis amount, and the Part 

D plan volunteers to waive that de 

minimis amount in accordance with 

§ 423.780, then CMS does not reassign 

low income subsidy individuals who 

would otherwise be enrolled under 

paragraph (d)(1) of this section. A Part 

D plan that volunteers to waive such a 

de minimis amount agrees to do so for 

each month during the contract year for 

which a beneficiary qualifies for 100 

percent low-income premium subsidy 

as provided in § 423.780(f). 

(d) Automatic enrollment rules. 

(1) General rule. Except for low income 

subsidy eligible individuals who are 

qualifying covered retirees with a group 

health plan sponsor, as specified in 

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

enrolls those individuals who fail to 

enroll in a Part D plan into a PDP 

offering basic prescription drug 

coverage in the area where the 

beneficiary resides that has a monthly 

beneficiary premium amount that does 

not exceed the low income subsidy 

amount (as defined in § 423.780(b) of 

this part). In the event that there is more 

than one PDP in an area with a monthly 

beneficiary premium at or below the 

low income premium subsidy amount, 

individuals are enrolled in such PDPs 

on a random basis. 

* * * * * 

(4) Enrollment in PDP plans that 

voluntarily waive a de minimis 

premium amount. CMS may include in 

the process specified in paragraph (d)(1) 

MA–PDs and PDPs that voluntarily 

waive a de minimis amount as specified 

in § 423.780, if CMS determines that 

such inclusion is warranted. 

* * * * * 

45. Amend § 423.38 by: 

A. Revising paragraph (b). 

B. Adding a new paragraph (d). 

The revision and addition read as 

follows: 

§ 423.38 Enrollment periods. 

* * * * * 

(b) Annual coordinated election 

period. (1) For 2006. This period begins 

on November 15, 2005 and ends on May 

15, 2006. 

(2) For 2007 through 2010. The 

annual coordinated election period for 

the following calendar year is November 

15 through December 31. 

(3) For 2011 and subsequent years. 

Beginning with 2011, the annual 

coordinated election period for the 

following calendar year is October 15 

through December 7. 

* * * * * 

(d) Enrollment period to coordinate 

with MA annual 45-day disenrollment 

period. Beginning in 2011, an 

individual enrolled in an MA plan who 

elects Original Medicare from January 1 

through February 14, as described in 

§ 422.62(a)(7), may also elect a PDP 

during this time. 

46. Amend § 423.40 by adding 

paragraph (d) to read as follows: 

§ 423.40 Effective dates. 

* * * * * 

(d) PDP enrollment period to 

coordinate with the MA annual 

disenrollment period. Beginning in 

2011, an enrollment made from January 

1 through February 14 by an individual 

who has disenrolled from an MA plan 

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

effective the first day of the month 

following the month in which the 

enrollment in the PDP is made. 

47. Amend § 423.44 by revising the 

section heading and adding paragraphs 

(d)(1)(vi), (d)(1)(vii), and (e) to read as 

follows: 

§ 423.44 Involuntary disenrollment from 

Part D coverage. 

* * * * * 

(d) * * * 

(1) * * * 

(iv) 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. 

(v) 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. 

* * * * * 

(e) Involuntary disenrollment by CMS. 

(1) General rule. CMS will disenroll 

individuals who fail to pay the Part D 

income related monthly adjustment 

amount (Part D—IRMAA) specified in 

§ 423.286(d)(4) and § 423.293(d) of this 

part. 

(2) Initial grace period. For all Part 

D—IRMAA amounts directly billed to 

an enrollee in accordance with 

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

with the last day of the third month 

after the billing month. 

(3) Extension of grace period for good 

cause and reinstatement. When an 

individual is disenrolled for failing to 

pay the Part D—IRMAA within the 

initial grace period specified in 

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

an entity acting on behalf of CMS) may 

reinstate enrollment in the PDP, without 

interruption of coverage, if the 

individual shows good cause as 

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

Part D—income related monthly 

adjustment amount arrearages, and any 

overdue premiums due the Part D plan 

sponsor within three 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. 


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71286 Federal Register / Vol. 75, No. 224 / Monday, November 22, 2010 / Proposed Rules 

Subpart C—Benefits and Beneficiary 

Protections 

48. Amend § 423.100 by: 

A. Adding in alphabetical order the 

definitions of ‘‘Applicable beneficiary,’’ 

‘‘Applicable drug under the Medicare 

coverage gap discount program,’’ and 

‘‘Coverage gap.’’ 

B. Revising ‘‘paragraph (2) of the 

definition of Dispensing fees’’ and 

paragraph (2)(ii) of the definition of 

‘‘incurred costs.’’ 

The additions and revisions read as 

follows: 

§ 423.100 Definitions. 

* * * * * 

Applicable beneficiary means an 

individual who, on the date of 

dispensing a covered Part D drug— 

(1) Is enrolled in a prescription drug 

plan or an MA–PD plan; 

(2) Is not enrolled in a qualified 

retiree prescription drug plan; 

(3) Is not entitled to an income-related 

subsidy under section 1860D–14(a) of 

the Act; 

(4) Has reached or exceeded the initial 

coverage limit under section 1860D– 

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

(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. 

(6) Has a claim that— 

(i) Straddles the initial coverage 

period and the coverage gap; 

(ii) Straddles the coverage gap and the 

annual out-of-pocket threshold; or 

(iii) 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), including authorized generics 

(as defined in 100.5 of this guidance); 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 through an exception 

or appeal. 

* * * * * 

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 or 

actuarially equivalent Part D benefit 

designs. 

* * * * * 

Dispensing fees * * * 

(2) Include only pharmacy costs 

associated with ensuring that possession 

of the appropriate covered Part D drug 

is transferred to a Part D enrollee. 

Pharmacy costs include, but are not 

limited to, any reasonable costs 

associated with a pharmacist’s time in 

checking the computer for information 

about an individual’s coverage, 

performing quality assurance activities 

consistent with § 423.153(c)(2), 

measurement or mixing of the covered 

Part D drug, filling the container, 

physically providing the completed 

prescription to the Part D enrollee, 

delivery, special packaging, and salaries 

of pharmacists and other pharmacy 

workers as well as the costs associated 

with maintaining the pharmacy facility 

and acquiring and maintaining 

technology and equipment necessary to 

operate the pharmacy. Dispensing fees 

should take into consideration the 

number of dispensing events in a billing 

cycle, the incremental costs associated 

with the type of dispensing 

methodology, and with respect to Part D 

drugs dispensed in LTC facilities, the 

techniques to minimize the dispensing 

of unused drugs. Dispensing fees may 

also take into account 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 

§ 423.464); by the Indian Health Service 

(as defined in section 4 of the Indian 

Health Care Improvement Act), an 

Indian tribe or tribal organization, or an 

urban Indian organization (referred to as 

I/T/U pharmacy in § 423.464) or under 

an AIDS Drug Assistance Program (as 

defined in part B of title XXVI of the 

Public Health Service); or 

* * * * * 

49. Amend § 423.104 by: 

A. Revising paragraphs (d)(2)(i) 

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

introductory text, and (d)(4). 

B. Redesignating paragraph 

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

C. Adding new paragraphs (d) 

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

D. Revising newly redesignated 

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

E. Adding a new paragraph (d)(5)(v). 

The additions and revisions read as 

follows: 

§ 423.104 Requirements related to 

qualified prescription drug coverage. 

* * * * * 

(d) * * * 

(2) * * * 

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

section, coinsurance for actual costs for 

covered Part D drugs covered under the 

Part D plan above the annual deductible 

specified in paragraph (d)(1) of this 

section, and up to the initial coverage 

limit under paragraph (d)(3) of this 

section, that is— 

* * * * * 

(ii) Tiered copayments. A Part D plan 

providing actuarially equivalent 

standard coverage may apply tiered 

copayments, provided that any tiered 

copayments are consistent with 

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

section and are approved as described 

in § 423.272(b)(2). 

(3) Initial coverage limit. Except as 

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

of this section, the initial coverage limit 

is equal to— 

* * * * * 

(4) Cost-sharing in the coverage gap. 

(i) Coinsurance in the coverage gap (as 

defined in § 423.100) for costs for 

covered Part D drugs that are not 

applicable drugs (as defined in 

§ 423.100) under the Medicare coverage 

gap discount program that is— 

(A) Equal to the generic gap 

coinsurance percentage described in 

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

(B) Actuarially equivalent to an 

average expected coinsurance for 

covered Part D drugs that are not 

applicable drugs under the Medicare 

coverage gap discount program, as 

determined through processes and 

methods established under § 423.265(c) 

and (d). 

(ii) Coinsurance in the coverage gap 

for the actual cost minus dispensing 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 


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the Medicare coverage gap discount 

program; or 

(B) Actuarially equivalent to an 

average expected coinsurance for 

covered Part D drugs that are applicable 

drugs under the Medicare coverage gap 

discount program, as determined 

through processes and methods 

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

(iii) Generic gap coinsurance 

percentage. The generic gap coinsurance 

percentage is equal to— 

(A) For 2011, 93 percent. 

(B) For years 2012 through 2019, the 

amount specified in this paragraph for 

the previous year, decreased by 7 

percentage points. 

(C) For 2020 and each subsequent 

year, 25 percent. 

(iv) Applicable gap coinsurance 

percentage. The applicable gap 

coinsurance percentage is equal to— 

(A) For 2013 and 2014, 97.5 percent. 

(B) For 2015 and 2016, 95 percent. 

(C) For 2017, 90 percent. 

(D) For 2018, 85 percent. 

(E) For 2019, 80 percent. 

(F) For 2020 and subsequent years, 75 

percent. 

(5) * * * 

(iii) * * * 

(B) For each year 2007 through 2013. 

The amount specified in this paragraph 

for the previous year, increased by the 

annual percentage increase specified in 

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

rounded to the nearest multiple of $50. 

(C) For years 2014 and 2015. The 

amount specified in this paragraph for 

the previous year, increased by the 

annual percentage increase specified in 

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

minus 0.25 percentage point. 

(D) For each year 2016 through 2019. 

The amount specified in this paragraph 

for the previous year, increased by the 

lesser of— 

(1) The annual percentage increase 

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

2 percentage points; or 

(2) The annual percentage increase 

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

(E) For 2020. The amount specified in 

this paragraph for 2013 increased by the 

annual percentage increases specified in 

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

2014 through 2020, and rounded to the 

nearest $50. 

(F) For 2021 and subsequent years. 

The amount specified in this paragraph 

for the previous year, increased by the 

annual percentage increase specified in 

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

rounded to the nearest $50. 

* * * * * 

(v) Additional annual percentage 

increase. The annual percentage 

increase for each year is equal to the 

annual percentage increase in the 

consumer price index for all urban 

consumers (United States city average) 

for the 12-month period ending in July 

of the previous year. 

* * * * * 

50. Section 423.120 is amended by: 

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

and (b)(3)(iv). 

B. Adding paragraph (d). 

The revisions and addition read as 

follows. 

§ 423.120 Access to covered Part D drugs. 

* * * * * 

(b) * * * 

(3) * * * 

(iii) * * * 

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

temporary supply of nonformulary 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 91 

days in 7-day-or-less supply increments 

whenever § 423.154(a) applies and up to 

93 days in 31 day supply increments 

whenever § 423.154(a) does not apply, 

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 LTC residents 

dispensed multiple supplies of a Part D 

drug, in increments of 7 days or less, 

consistent with the requirements under 

§ 423.154, the written notice must be 

provided within 3 business days after 

adjudication of the first temporary fill. 

* * * * * 

(d) Treatment of compounded drug 

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

must— 

(1) Make a determination as to 

whether the compound is covered under 

Part D. 

(i) A compound that contains at least 

one ingredient covered under Part B is 

considered a Part B compound, 

regardless of whether other ingredients 

in the compound are covered under Part 

B. 

(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 section these compounds are 

referred to as Part D compounds. 

(iii) For a Part D compound that is 

considered to be 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 non-formulary if it were 

provided separately—that is, not as part 

of the Part D compound). 

(iv) For a compound that is 

considered off-formulary— 

(A) Transition rules apply such that 

all ingredients in the Part D compound 

that independently meet the definition 

of a Part D drug must become payable 

in the event of a transition fill under 

§ 423.120(b)(3); and 

(B) All ingredients that independently 

meet the definition of a Part D drug 

must be covered if an exception under 

§ 423.578(b) is approved for coverage of 

the compound. 

(2) Establish consistent rules for 

beneficiary payment liabilities for both 

ingredients of the Part D compound that 

independently meet the definition of a 

Part D drug and non-Part D ingredients. 

(i) For ingredients of the Part D 

compound that independently meet the 

definition of a Part D drug, the 

copayment amount submitted and 

approved under § 423.104(d) must equal 

the copayment for the tier of the most 

expensive of such ingredients, except in 

the case of low income subsidy 

beneficiaries where 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 drug (as described under 

§ 423.782). 

(ii) For ingredients of the Part D 

compound that independently meet the 

definition of a Part D drug, the 

coinsurance submitted and approved 

under § 423.104(d) must be applied to 

the cost of all such ingredients, except 

in the case of full subsidy eligible 

individuals (as defined in § 423.783(b)) 

where 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 drug 

(as described under § 423.782). 

(iii) For any non-Part D ingredient of 

the Part D compound (including drugs 

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

the Part D sponsor may either contract 

with the pharmacy to— 

(A) Make payment without charging 

the beneficiary for these amounts or 

reporting these costs to CMS; 

(B) Deny payment, but allow the 

pharmacy to balance bill the beneficiary 

for the cost of these ingredients; or 

(C) Deny payment and prohibit the 

pharmacy to balance bill the beneficiary 

for the cost of these ingredients. 

51. Amend § 423.128 by: 

A. Revising paragraph (b)(7). 


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B. Adding new paragraphs (b)(11), 

(d)(1)(iii), and (d)(1)(iv). 

The revision and additions read as 

follows: 

§ 423.128 Dissemination of Part D plan 

information. 

* * * * * 

(b) * * * 

(7) Grievance, coverage 

determination, and appeal procedures. 

All grievance, coverage determination, 

and appeal rights and procedures 

required under § 423.562 et seq., 

including— 

(i) Access to a standard form used to 

request a coverage determination under 

§ 423.568 or § 423.570, and a standard 

form used to request a redetermination 

under § 423.582 or § 423.584, to the 

extent such standard coverage 

determination and redetermination 

request forms have been approved for 

use by CMS; 

(ii) Immediate access to the coverage 

determination and redetermination 

processes via an Internet Web site; and 

(iii) A system that transmits codes to 

network pharmacies so that the network 

pharmacy is notified to populate and/or 

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

enrollee can request a coverage 

determination by contacting the plan 

sponsor’s toll free customer service line 

or by accessing the plan sponsor’s 

internet Web site. 

* * * * * 

(11) Customized out-of-pocket cost 

statement. CMS may require a Part D 

sponsor to annually disclose to each 

enrollee a customized statement of the 

beneficiary’s potential future out-ofpocket costs. This notice will be 

provided in each year in which a 

minimum enrollment period has been 

met, in conjunction with the annual 

plan description described in 

paragraphs (b)(1) through (10) of this 

section. 

* * * * * 

(d) * * * 

(1) * * * 

(iii) Provides interpreters for all nonEnglish speaking and limited English 

proficient (LEP) individuals. 

(iv) Provides immediate access to the 

coverage determination and 

redetermination processes. 

* * * * * 

Subpart D—Cost Control and Quality 

Improvement Requirements 

52. Amend § 423.150 by: 

A. Redesignating paragraphs (b) 

through (g) as paragraphs (c) through 

(h). 

B. Adding a new paragraph (b) to read 

as follows: 

§ 423.150 Scope. 

* * * * * 

(b) Appropriate dispensing of 

outpatient prescription drugs in longterm care facilities under PDPs and 

MA–PD plans. 

* * * * * 

53. Amending § 423.153 by: 

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

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

C. Redesignating paragraph (d)(5) as 

(d)(7). 

D. Adding a new paragraph (d)(5). 

The revision and additions read as 

follows: 

§ 423.153 Drug utilization management, 

quality assurance, and medication therapy 

management programs (MTMPs). 

* * * * * 

(d) * * * 

(1) * * * 

(vii) * * * 

(B) Annual comprehensive 

medication reviews 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. 

* * * * * 

(5) Coordination with long term care 

consultant pharmacist monitoring. Part 

D sponsors must contract with all long 

term care facilities in which their Part 

D enrollees reside to provide 

appropriate MTM services in 

coordination with consultant 

pharmacist evaluation and monitoring. 

* * * * * 

54. Add § 423.154 to read as follows: 

§ 423.154 Appropriate dispensing of 

prescription drugs in long-term care 

facilities under PDPs and MA–PD plans. 

(a) In general. Except as provided in 

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

when dispensing covered Part D drugs 

to enrollees who reside in long-term 

care facilities, a Part D sponsor must— 

(1) Require all pharmacies servicing 

long-term care facilities as defined in 

§ 423.100 to— 

(i) Dispense brand-name medications, 

as defined in § 423.4, to enrollees in 

such facilities in no greater than 7-day 

increments at a time; 

(ii) Permit the use of uniform 

dispensing techniques for Part D drugs 

dispensed to enrollees in long-term care 

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

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

enrollees reside; and 

(2) Collect and report information, in 

a form and manner specified by CMS, 

on the dispensing methodology used for 

each dispensing event described by 

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

the nature and quantity of unused drugs 

returned to the pharmacy as required 

under paragraph (f) of this section. 

(b) Exclusions. CMS excludes from 

the requirements under paragraph (a) of 

this section: 

(1) Drugs difficult to dispense in 

supply increments of 7-day or less, such 

as drugs that must be dispensed in the 

original packaging including, but not 

limited to eye drops, nasal sprays, 

inhalational products, ear drops, 

reconstituted antibiotics and, in general, 

drugs with a parenteral route of 

administration, and topical 

preparations; or 

(2) Drugs dispensed for acute illnesses 

including, but not limited to a 10- or 

14-day course of antibiotics. 

(c) Waivers. CMS waives the 

requirements under paragraph (a) of this 

section for pharmacies when they 

service intermediate care facilities for 

the mental retarded and 

developmentally disabled (ICFMRDD) 

and institutes for mental disease (IMDs) 

as defined in § 435.1010. 

(d) Effective date. Except as provided 

in paragraph (e) of this section, the 

effective date for this section is January 

1, 2012. Nothing precludes a Part D 

sponsor and network long-term care 

pharmacy from mutually agreeing to an 

earlier implementation date. 

(e) Extension. A Part D sponsor may 

allow an independent community 

pharmacy that also contracts as a longterm care pharmacy to dispense up to a 

14-day supply through December 31, 

2012 if the following conditions are met: 

(1) The independent community 

pharmacy is the primary provider of 

Part D drugs to one or more long-term 

care facilities with less than 80 beds; 

and 

(2) The independent community 

pharmacy in its capacity as a long-term 

care pharmacy primarily services longterm care facilities in rural areas as 

defined by the Bureau of the Census. 

(f) Unused drugs returned to the 

pharmacy. A Part D sponsor must 

include terms in its long-term care 

pharmacy contracts that— 

(1) Require any unused drugs 

originally dispensed to its enrollees to 

be returned to the pharmacy and 

reported to the sponsor. 

(2) Address contractual obligations for 

disposal in accordance with Federal and 

State regulations, as well as whether 


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return for credit and reuse is authorized 

where permitted under State law. 

Subpart F—Submission of Bids and 

Monthly Beneficiary Premiums; Plan 

Approval 

55. Amend § 423.265 by adding 

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

§ 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. 

* * * * * 

56. Amend § 423.272 by adding 

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

§ 423.272 Review and negotiation of bid 

and approval of plans submitted by 

potential Part D sponsors. 

* * * * * 

(b) * * * 

(4) CMS may decline to approve a bid 

if the Part D sponsor proposes 

significant increases in cost sharing or 

decreases in benefits offered under the 

plan. 

* * * * * 

57. Amend § 423.286 by: 

A. Revising paragraph (a). 

B. Adding paragraph (d)(4). 

The revision and addition read as 

follows: 

§ 423.286 Rules regarding premiums. 

(a) General rule. Except as provided in 

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

section, and with regard to employer 

group waivers, the monthly beneficiary 

premium for a Part D plan in a PDP 

region is the same for all Part D eligible 

individuals enrolled in the plan. The 

monthly beneficiary premium for a Part 

D plan is the base beneficiary premium, 

as determined in paragraph (c) of this 

section, adjusted as described in 

paragraph (d) of this section for the 

difference between the bid and the 

national average monthly bid amount, 

any supplemental benefits and for any 

late enrollment penalties. 

* * * * * 

(d) * * * 

(4) Increase for income-related 

monthly adjustment amount (Part D— 

IRMAA). Beginning January 1, 2011, 

Medicare beneficiaries enrolled in a 

Medicare prescription drug 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 

418.1115. 

(i) Social Security Administration 

determination. (A) SSA determines 

which Part D enrollees are subject to the 

Part D—IRMAA and the amount each 

enrollee will have to pay. 

(B) If an individual disagrees with 

SSA’s determination that such 

individual is subject to the Part D— 

IRMAA, or about the amount the 

individual must pay, an individual may 

file an appeal or request a new initial 

determination consistent with 20 CFR 

part 418. 

(ii) Calculating the income-related 

monthly adjustment amount. The 

income related monthly adjustment is 

equal to the product of the quotient 

obtained by dividing the applicable 

premium percentage specified in 

§ 418.1120 (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; by 25.5 percent; and the 

base beneficiary premium as determined 

under paragraph (c) of this section. 

* * * * * 

58. Amend § 423.293 by: 

A. Redesignating paragraphs (d) and 

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

B. Adding new paragraph (d). 

§ 423.293 Collection of monthly 

beneficiary premium. 

* * * * * 

(d) Collection of the income related 

monthly adjustment amount (Part D— 

IRMAA). (1) Collection through 

withholding. Where the Social Security 

Administration has determined the 

income-related monthly adjustment 

amount for an individual whose income 

exceeds the income threshold amounts 

specified at 20 CFR 418.1115, the Part 

D—IRMAA must be paid through 

withholding from the enrollee’s Social 

Security benefit payments, or benefit 

payments by the Railroad Retirement 

Board (RRB) or the Office of Personnel 

Management (OPM) in the manner that 

the Part B premium is withheld. 

(2) Collection through direct billing. In 

cases where an enrollee’s benefit 

payment check is not sufficient to have 

the Part D—IRMAA withheld, or if an 

enrollee is not receiving such benefits, 

the beneficiary must be billed directly 

for the Part D—IRMAA. The beneficiary 

will have the option of paying the 

amount through an electronic funds 

transfer mechanism (such as automatic 

charges of an account at a financial 

institution or a credit or debit card 

account) or according to other means 

that CMS may specify. 

(3) Failure to pay the income-related 

monthly adjustment amount: General 

rule. CMS will terminate Part D 

coverage for any individual who fails to 

pay the Part D—IRMAA as determined 

by the Social Security Administration. 

CMS will terminate an enrollee’s Part D 

coverage as specified in § 423.44(e). 

* * * * * 

Subpart J—Coordination Under Part D 

Plan With Other Prescription Drug 

Coverage 

59. Amend § 423.464 by revising 

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

§ 423.464 Coordination of benefits with 

other providers of prescription drug 

coverage. 

* * * * * 

(f) * * * 

(2) Treatment under out-of-pocket 

rule. (i) For purposes of determining 

whether a Part D plan enrollee has 

satisfied the out-of-pocket threshold 

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

Part D plan must— 

(A) Include the enrollee’s incurred 

costs (as defined in § 423.100); and 

(B) Exclude expenditures for covered 

Part D drugs made by insurance or 

otherwise, a group health plan, or other 

third party payment arrangements, 

including expenditures by plans 

offering other prescription drug 

coverage. Excluded expenditures do not 

include payments made by the Indian 

Health Service (as defined in section 4 

of the Indian Health Care Improvement 

Act), an Indian tribe or tribal 

organization, or an urban Indian 

organization (referred to as I/T/U 

pharmacy in § 423.464) or an AIDS Drug 

Assistance Program (as defined in part 

B of title XXVI of the Public Health 

Service). 

(ii) A Part D enrollee must disclose all 

these expenditures to a Part D plan in 

accordance with requirements under 

§ 423.32(b)(ii). 

* * * * * 

Subpart K—Application Procedures 

and Contracts With PDP Sponsors 

60. Amend § 423.503 by: 

A. Redesignating paragraph (b) as 

paragraph (b)(1). 

B. Adding paragraph (b)(2). 

C. Revising paragraph (c)(2)(i). 

The revisions and addition read as 

follows: 

§ 423.503 Evaluation and determination 

procedures for applications to be 

determined qualified to act as a sponsor. 

* * * * * 

(b) * * * 

(2) In the absence of 14 months of 

performance history, CMS may deny an 

application based on a lack of 


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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. 

* * * * * 

61. Amend § 423.504 as follows: 

A. Redesignating paragraph 

(b)(4)(vi)(B)(1) as paragraph 

(b)(4)(vi)(B)(1)(i). 

B. Adding paragraph 

(b)(4)(vi)(B)(1)(ii). 

The revisions read as follows. 

§ 423.504 General provisions. 

(b) * * * 

(4) * * * 

(vi) * * * 

(B) * * * 

(ii) Beginning in 2013, the compliance 

officer will complete annual Part D 

compliance training offered by an entity 

with expertise in Part D. New applicants 

must complete training by the last 

Friday in August prior to the start of the 

contract year. 

* * * * * 

62. Amend § 423.505 by adding 

paragraphs (b)(22) and (23) to read as 

follows: 

§ 423.505 Contract provisions. 

* * * * * 

(b) * * * 

(22) Address complaints received by 

CMS against the Part D sponsor by— 

(i) Addressing and resolving 

complaints in the CMS complaint 

tracking system. 

(ii) Displaying a link to the electronic 

complaint form on the Medicare.gov 

Internet Web site on the Part D plan’s 

main Web page. 

(23) Maintain a fiscally sound 

operation by at least maintaining a 

positive net worth (total assets exceed 

total liabilities). 

* * * * * 

63. Amend § 423.507(a) by: 

A. Redesignating paragraph (a)(4) as 

paragraph (a)(5). 

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

read as follows: 

§ 423.507 Nonrenewal of contract. 

(a) * * * 

(4) During the same 2-year period 

specified under paragraph (a)(3) of this 

section, CMS will not contract with an 

organization whose covered persons 

also served as covered persons for the 

non-renewing sponsor. A ‘‘covered 

person’’ as used in this paragraph means 

one of the following: 

(i) All owners of nonrenewed or 

terminated organizations who are 

natural persons, other than shareholders 

who— 

(A) Have an ownership interest of less 

than 5 percent; and 

(B) Acquired the ownership through 

public trading. 

(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) An officer or member of the board 

of directors or board of trustees of the 

entity, if the organization is organized as 

a corporation; 

* * * * * 

64. Amend § 423.508 by adding 

paragraph (f) to read as follows: 

§ 423.508 Modification or termination of 

contract by mutual consent. 

* * * * * 

(f) Prohibition against Part D program 

participation by organizations whose 

owners, directors, or management 

employees served in a similar capacity 

with another organization that mutually 

terminated its Medicare contract within 

the previous 2 years. During the 2-year 

period specified in paragraph (e) of this 

section, CMS will not contract with an 

organization whose covered persons 

also served as covered persons for the 

mutually terminating sponsor. A 

‘‘covered person’’ as used in this 

paragraph means one of the following: 

(1) All owners of nonrenewed or 

terminated organizations who are 

natural persons, other than shareholders 

who— 

(i) Have an ownership interest of less 

than 5 percent; and 

(ii) Acquired the ownership through 

public trading. 

(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) An officer or member of the board 

of directors or board of trustees of the 

entity, if the organization is organized as 

a corporation; 

65. Amend § 423.509 by adding 

paragraph (e) to read as follows: 

§ 423.509 Termination of contract by CMS. 

* * * * * 

(e) Timely transfer of data and files. 

If a contract is terminated under 

paragraph (a) of this section, the Part D 

plan sponsor must ensure the timely 

transfer of any data or files. 

66. Amend § 423.510 by: 

A. Redesignating paragraph (e) as 

(e)(1). 

B. Adding paragraph (e)(2). 

The addition reads as follows: 

§ 423.510 Termination of contract by Part 

D sponsor. 

* * * * * 

(e) * * * 

(2) During the same 2-year period 

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

will not contract with an organization 

whose covered persons also served as 

covered persons for the terminating 

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

this paragraph means one of the 

following: 

(i) All owners of nonrenewed or 

terminated organizations who are 

natural persons, other than shareholders 

who— 

(A) Have an ownership interest of less 

than 5 percent; and 

(B) Acquired the ownership through 

public trading. 

(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) An officer or member of the board 

of directors or board of trustees of the 

entity, if the organization is organized as 

a corporation. 

* * * * * 

Subpart M—Grievances, Coverage 

Determinations, and Appeals 

67. Amend § 423.562 by: 

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

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

respectively. 

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

C. Revising paragraph (a)(3). 

D. Adding a new paragraph (a)(5). 

The revision and additions read as 

follows: 

§ 423.562 General provisions. 

(a) * * * 

(1) * * * 

(ii) Use a single, uniform exceptions 

and appeals process which includes, 

procedures for accepting oral and 

written requests for coverage 

determinations and redeterminations 

that are in accordance with § 423.128 

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

* * * * * 

(3) A Part D plan sponsor must 

arrange with its network pharmacies to 

distribute notices instructing enrollees 


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how to contact their plans to obtain a 

coverage determination or request an 

exception if they disagree with the 

information provided by the pharmacist. 

These notices must comply with the 

standards established in 

§ 423.128(b)(7)(iii). 

* * * * * 

(5) A Part D plan sponsor must 

employ a Medical Director who is 

responsible for ensuring the clinical 

accuracy of all coverage determinations 

and redeterminations involving medical 

necessity. The Medical Director must be 

a physician with a current and 

unrestricted license to practice 

medicine in a State, Territory, 

Commonwealth of the United States 

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

Columbia. 

* * * * * 

68. Amend § 423.566 by adding 

paragraph (d) to read as follows: 

§ 423.566 Coverage determinations. 

* * * * * 

(d) Who must review coverage 

determinations. When the issue 

involves medical necessity (or any 

substantively equivalent term used to 

describe the concept of medical 

necessity), the coverage determination 

must be reviewed by a physician or 

other appropriate health care 

professional with sufficient medical and 

other expertise, including knowledge of 

the Medicare program. The physician or 

other health care professional must have 

a current and unrestricted license to 

practice within the scope of his or her 

profession in a State, Territory, 

Commonwealth of the United States 

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

Columbia. 

69. Amend § 423.568 by revising 

paragraph (f) to read as follows: 

§ 423.568 Standard timeframe and notice 

requirements for coverage determinations. 

* * * * * 

(f) Written notice for denials by a Part 

D plan sponsor. If a Part D plan sponsor 

decides to deny a drug benefit, in whole 

or in part, it must give the enrollee 

written notice of the determination. The 

initial notice may be provided orally, so 

long as a written follow-up notice is 

mailed to the enrollee within 3 calendar 

days of the oral notification. 

* * * * * 

Subpart P—Premium and Cost-Sharing 

Subsidies for Low-Income Individuals 

70. Section 423.772 is amended by 

adding in alphabetical order the 

definition of ‘‘Individual receiving home 

and community-based services’’ to read 

as follows: 

§ 423.772 Definitions. 

* * * * * 

Individual receiving home and 

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

receiving services under a home and 

community-based program authorized 

for a State in accordance with one of the 

following: 

(1) Section 1115 of the Act. 

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

(3) State plan amendment under 

section 1915(i) of the Act. 

(4) Services are provided through 

enrollment in a Medicaid managed care 

organization with a contract under 

section 1903(m) of the Act or section 

1932 of the Act. 

* * * * * 

71. Amend § 423.780 by: 

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

B. Adding paragraph (f). 

The revision and addition read as 

follows: 

§ 423.780 Premium subsidy. 

* * * * * 

(b) * * * 

(2) * * * 

(ii) * * * 

(C) The MA monthly prescription 

drug beneficiary premium (as defined 

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

for a MA–PD plan and determined 

before the application of the monthly 

rebate computed under section 

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

and year involved. 

* * * * * 

(f) Waiver of de minimis premium 

amounts. CMS will permit a Part D plan 

to waive a de minimis amount that is 

above the monthly beneficiary premium 

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

for full subsidy individuals as defined 

in § 423.780(a) or § 423.780(d)(1), 

provided waiving the de minimis 

amount results in a monthly beneficiary 

premium that is equal to the established 

low income benchmark as defined in 

§ 423.780(b)(2). 

72. Amend § 423.782 by revising 

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

§ 423.782 Cost-sharing subsidy. 

(a) * * * 

(2) * * * 

(ii) Full-benefit dual-eligible 

individuals who are institutionalized or 

who are receiving home and 

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

their PDP or MA–PD plans. 

* * * * * 

Subpart R—Payments to Sponsors of 

Retiree Prescription Drug Plans 

73. Amend § 423.884 by revising 

paragraphs (d)(1)(i), (d)(1)(ii), and 

(d)(5)(iii)(C) to read as follows: 

§ 423.884 Requirements for qualified 

retiree prescription drug plans. 

* * * * * 

(d) Actuarial attestation-general. The 

sponsor of the plan must provide to 

CMS an attestation in a form and 

manner specified by CMS that the 

actuarial value of the retiree 

prescription drug coverage under the 

plan is at least equal to the actuarial 

value of the defined standard 

prescription coverage (as defined at 

§ 423.100), not taking into account the 

value of any discount or coverage 

provided during the coverage gap (as 

defined at § 423.100). The attestation 

must meet all of the following 

standards: 

(1) * * * 

(i) The actuarial gross value of the 

retiree prescription drug coverage under 

the plan for the plan year is at least 

equal to the actuarial gross value of the 

defined standard prescription drug 

coverage under Part D for the plan year 

in question, not taking into account the 

value of any discount or coverage 

provided during the coverage gap. 

(ii) The actuarial net value of the 

retiree prescription drug coverage under 

the plan for that plan year is at least 

equal to the actuarial net value of the 

defined standard prescription drug 

coverage under Part D for that plan year 

in question, not taking into account the 

value of any discount or coverage 

provided during the coverage gap. 

* * * * * 

(5) * * * 

(iii) * * * 

(C) The valuation of defined standard 

prescription drug coverage for a given 

plan year is based on the initial 

coverage limit cost-sharing and out-ofpocket threshold for defined standard 

prescription drug coverage under Part D 

in effect at the start of such plan year, 

not taking into account the value of any 

discount or coverage provided during 

the coverage gap. 

* * * * * 

Subpart V—Part D Marketing 

Requirements 

74. Amend § 423.2264 by revising 

paragraph (e) to read as follows: 

§ 423.2264 Guidelines for CMS review. 

* * * * * 

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

materials in the language of these 


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individuals. Specifically, Part D 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. 

75. Amend § 423.2272 by adding 

paragraph (e) to read as follows: 

§ 423.2272 Licensing of marketing 

representatives and confirmation of 

marketing resources. 

* * * * * 

(e) Terminate upon discovery any 

unlicensed agent or broker employed as 

a marketing representative and notify 

any beneficiaries enrolled by the 

unlicensed agent or broker of the agent’s 

or broker’s unlicensed status and of 

their options to confirm enrollment or 

make a plan change (including a special 

election period, as described in 

§ 423.38(c)(8)(i)(C)). 

76. Amend § 423.2274 by revising the 

introductory text and paragraphs (b) and 

(c) to read as follows: 

§ 423.2274 Broker and agent requirements. 

For purposes of this section 

‘‘compensation’’ includes pecuniary or 

nonpecuniary remuneration of any kind 

relating to the sale or renewal of a 

policy including, but not limited to, 

commissions, bonuses, gifts, prizes, 

awards, and finder’s fees. 

‘‘Compensation’’ does not include the 

payment of fees to comply with State 

appointment laws, training, 

certification, and testing costs; 

reimbursement for mileage to, and from, 

appointments with beneficiaries; or 

reimbursement for actual costs 

associated with beneficiary sales 

appointments such as venue rent, 

snacks, and materials. If a Part D 

sponsor markets through independent 

(that is, non-employee) brokers or 

agents, the requirements in paragraph 

(a) of this section must be met. The 

requirements in paragraphs (b) through 

(e) of this section must be met if a Part 

D sponsor markets through any broker 

or agent, whether independent (that is, 

non-employee) or employed. 

* * * * * 

(b) It must ensure that all agents 

selling Medicare products are trained 

annually, through a CMS endorsed or 

approved training program or as 

specified by CMS, on Medicare rules 

and regulations specific to the plan 

products they intend to sell. 

(c) It must ensure agents selling 

Medicare products are tested annually 

by CMS endorsed or approved training 

program or as specified by CMS. 

* * * * * 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.773, Medicare— 

Hospital Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program). 

Dated: July 29, 2010. 

Donald M. Berwick, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: November 9, 2010. 

Kathleen Sebelius, 

Secretary. 

[FR Doc. 2010–28774 Filed 11–10–10; 4:45 pm] 

BILLING CODE 4120–01–P 


jlentini on DSKJ8SOYB1PROD with PROPOSALS2