54634 Federal Register / Vol. 74, No. 203 / Thursday, October 22, 2009 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Parts 417, 422, 423, and 480 

[CMS–4085–P] 

RIN 0938–AP77 

Medicare Program; Policy and 

Technical Changes to the Medicare 

Advantage and the Medicare 

Prescription Drug Benefit Programs 

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) based on our 

continued experience in the 

administration of the Part C and D 

programs. The proposed revisions 

clarify various program participation 

requirements; specify changes to 

strengthen beneficiary protections; 

ensure that plan offerings to 

beneficiaries include meaningful 

differences; improve plan payment rules 

and processes; and implement new 

policy such as a Part D formulary 

policy. 

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 December 8, 2009. 

ADDRESSES: In commenting, please refer 

to file code CMS–4085–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the instructions under the ‘‘More Search 

Options’’ tab. 

2. By regular mail. You may mail 

written comments to the following 

address ONLY: Centers for Medicare & 

Medicaid Services, Department of 

Health and Human Services, Attention: 

CMS–4085–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 to the 

following address ONLY: Centers for 

Medicare & Medicaid Services, 

Department of Health and Human 

Services, Attention: CMS–4085–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 before the close 

of the comment period to either of the 

following addresses: a. For delivery in 

Washington, DC—Centers for Medicare 

& Medicaid Services, Department of 

Health and Human Services, Room 445– 

G, Hubert H. Humphrey Building, 200 

Independence Avenue, SW., 

Washington, DC 20201. 

(Because access to the interior of the 

Hubert H. Humphrey 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.) 

b. For delivery in Baltimore, MD— 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

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. 

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 following 

the instructions 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: 

Alissa Deboy, (410) 786–6041, 

General information and Part D issues. 

Sabrina Ahmed, (410) 786–7499, Part 

C issues. 

Chris Eisenberg, (410) 786–5509, Risk 

adjustment data validation issues. 

Terry Lied, (410) 786–8973, 

Collection of information requirements 

and regulatory impact analysis issues. 

Kristy Nishimoto, (410) 786–8517, 

Part C and D enrollment and appeals 

issues. 

Christine Reinhard, (410) 786–2987, 

Part C and D compliance and sanction 

issues. 

Frank Szeflinski, (303) 844–7119, Part 

C payment issues. 

SUPPLEMENTARY INFORMATION: 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: http:// 

www.regulations.gov. Follow the search 

instructions 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. Changes To Strengthen Our Ability To 

Distinguish for Approval Stronger 

Applicants for Part C and D Program 

Participation and To Remove 

Consistently Poor Performers 

1. Require Notice of Intent To Apply Under 

Part C and D Within the Application 

Requirements (§ 422.501 and § 423.502) 

2. Application Requirements (§ 422.501(c) 

and § 423.502(c)) and Evaluation and 

Determination Procedures for 

Determining Whether Applicants Are 

Qualified for a Contract Under Parts C 

and D (§ 422.502 and § 423.503) 

3. Deny Contract Qualification 

Applications Based on Past Contract 

Performance (§ 423.750 and § 422.750) 

4. Use of Data To Evaluate Continued 

Ability To Act as a Qualified Sponsoring 

Organization Under Parts C and D 

(§ 422.504, and § 423.505) 

5. Compliance Programs Under Part C and 

D (§ 422.503(b)(4)(vi) and 

§ 423.504(b)(4)(vi)) 

6. Network Adequacy of Coordinated Care 

and Network-Based Private Fee-forService Plans Under Part C (§ 422.112) 

7. Deemable Program Requirements Under 

Parts C and D (§ 422.156(b)(7), 

§ 422.156(f), § 423.165(b), and 

§ 423.165(f)) 

8. Modify the Corrective Action Plan (CAP) 

Process as It Relates to Procedures for 

Termination and Nonrenewal of a Part C 

or D Contract by CMS (§ 422.506(b)(3), 

§ 422.510(c)(1), § 423.507(b)(3), and 

§ 423.509(c)(1)) 


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9. Procedures for Imposing Intermediate 

Sanctions and Civil Money Penalties 

Under Part C and D (§ 422.756 and 

423.756) 

10. Termination of Contracts Under Parts C 

and D (§ 422.510(a) and § 423.509(a)) 

11. Request for Hearing Under Parts C and 

D (§ 422.662 and § 423.651) 

12. Burden of Proof, Standard of Proof, 

Standard of Review and Conduct of 

Hearing (§ 422.660, § 423.650, § 422.676 

and § 423.658) 

13. Expedited Contract Terminations 

Procedures (§ 422.510, § 423.509, 

§ 422.664, § 423.652, § 422.644, and 

§ 423.642) Under Parts C and D 

14. Time and Place of Hearing Under Parts 

C and D (§ 422.670 and § 423.655) 

15. Discovery Under Parts C and D 

(§ 422.682 and § 423.661) 

16. Review by the Administrator Under 

Parts C and D § 422.692(a) and 

§ 423.666(a)) 

17. Reopening of an Initial Contract 

Determination or Decision of a Hearing 

Officer or the Administrator Under Parts 

C and D (§ 422.696 and § 423.668) 

18. Prohibition of MA and Part D 

Applications for 2 Years After a Mutual 

Termination § 422.503(b)(6) and 

§ 423.504(b)(5)) 

B. Changes To Strengthen Beneficiary 

Protections 

1. Broker and Agent Requirements Under 

Parts C and D 

2. Beneficiary Communications Materials 

Under Parts C and D (§ 422.2260, 

§ 423.2262, § 423.2260, and § 423.2262) 

3. Required Use of Standardized Model 

Materials Under Parts C and D 

(§ 422.2262, and § 423.2262) 

4. Involuntary Disenrollment for Failure To 

Pay Plan Premiums Under Parts C and D 

(§ 422.74 and § 423.44) 

5. Maximum Allowable Out-of-Pocket Cost 

Amount for Medicare Parts A and B 

Services (§ 422.100) 

6. Maximum Allowable Cost Sharing 

Amount for Medicare Parts A and B 

Services and Prescription Drugs 

(§ 422.100 and § 423.104) 

7. Prohibition on Prior Notification by 

PPO, PFFS, and MSA Plans Under Part 

C (§ 422.2, § 422.4, and § 422.105) 

8. Requirements for LIS Eligibility Under 

Part D (§ 423.773) 

9. Enrollment of Full Subsidy Eligible 

Individuals and Other Subsidy Eligible 

Individuals Under Part D (§ 423.34) 

10. Special Enrollment Periods Under Part 

D (§ 423.380) 

11. Transition Process Under Part D 

(§ 423.120(b)(3)) 

12. Part D Sponsor Responsibility for 

Retroactive Claims Adjustment 

Reimbursements and Recoveries Under 

Part D (§ 423.464) 

13. Time Limits for Coordination of 

Benefits (§ 423.466) 

14. Use of Standardized Technology Under 

Part D (§ 423.120) 

15. Absence From Service Area for More 

Than 12 Months Under Part D (§ 423.44) 

16. Prohibition of Mid Year Mass 

Enrollment Changes by SPAPS Under 

Part D (§ 423.464(e)) 

17. Non-renewal Beneficiary Notification 

Requirement Under Parts C and D 

(§ 422.506 and § 423.507) 

18. Notice of Alternative Medicare Plans 

Available To Replace Non-renewing 

Plans Under Parts C and D 

(§ 422.506(a)(2)(ii) and 

§ 423.507(a)(2)(ii)) 

19. Timeframes and Responsibilities for 

Making Redeterminations Under Part D 

(§ 423.590) 

20. Requirements for Requesting 

Organization Determinations Under Part 

C (§ 422.568) 

21. Organization Determinations Under 

Part C (§ 422.566 and § 422.568) 

22. Representatives (§ 422.561, § 422.574 

and § 422.624) 

23. Disclosure Requirements Under Parts C 

and D (§ 422.111(g) and § 423.128(f)) 

24. Definition of MA Plan Service Area 

(§ 422.2) 

C. Changes To Provide Plan Offerings With 

Meaningful Differences 

1. Bid Submissions—Ensuring Significant 

Differences (§ 422.254 and § 423.265) 

2. Bid Review Process (§ 422.256 and 

§ 423.272) 

3. Transition Process in Cases of 

Acquisitions and Mergers (§ 422.256 and 

§ 423.272) 

4. Non-renewing Low-enrollment Plans 

(§ 422.506(b)(1)(iv) and 

§ 423.507(b)(1)(iii)) 

D. Changes To Improve Payment Rules and 

Processes 

1. Risk Adjustment Data Validation 

Appeals (§ 422.310) 

a. Background 

b. Risk Adjustment Data Validation 

Initiatives 

c. RADV Error Rate Calculation Disputes 

and Reconsiderations 

d. Proposed Addition of Medicare 

Advantage Organization Risk 

Adjustment Data Validation-Dispute and 

Appeals Procedures 

2. Payments to Medicare Advantage 

Organizations—Actuarial Valuation 

(§ 422.254) 

3. Determination of Acceptable 

Administrative Cost by Cost Contract 

and Health Care Prepayment Plans 

(§ 417.564) 

4. Calculation of the Minimum Percentage 

Increase Under Part C (§ 422.306) 

E. Changes To Improve Data Collection for 

Oversight and Quality Assessment 

1. Requirements for Quality Improvement 

Programs Under Part C (§ 422.152, 

§ 422.153, and § 480.140) 

a. Quality Improvement Programs 

b. New Quality Measures 

c. Use of Quality Improvement 

Organization Review Information 

2. CAHPS Survey Administration Under 

Parts C and D (§ 417.472, § 422.152 and 

§ 423.156) 

3. Validation of Part C and Part D 

Reporting Requirements (§ 422.516 and 

§ 423.514) 

4. Collection of Additional Part D Claims’ 

Elements for Nonpayment-Related 

Purposes (§ 423.505) 

F. Changes To Implement New Policy 

1. Protected Classes of Concern Under Part 

D (§ 423.120(b)(2)(v)) 

2. Pro-rating the Plan Deductible for Part C 

MSA Enrollments Occurring During an 

Initial Coverage Election Period 

(§ 422.103) 

G. Changes To Clarify Various Program 

Participation Requirements 

1. Uniform Benefits Under Parts C and D 

(§ 422.100(d) and § 423.104)) 

2. Ensuring the Security of Personal Health 

Information and Other Personally 

Identifiable Information (§ 422.504 and 

§ 423.505) 

3. Requirement for Sponsoring 

Organizations Under Parts C and D To 

Report Other Payer Information to the 

Coordination of Benefits Contractor 

(§ 422.108 and § 423.464) 

4. Visitor/Traveler Benefit Under Part C for 

the Purpose of Extending Enrollment Up 

to 12 Months (§ 422.74) 

5. Medication Therapy Management 

Programs Under Part D (§ 423.153(d)) 

6. Formulary Requirements-Development 

and Revision by a Pharmacy and 

Therapeutics Committee (§ 423.120) 

7. Generic Equivalent Disclosure Under 

Part D (§ 423.132) 

8. Access to Covered Part D Drugs 

(§ 423.120) 

9. Standard Timeframe and Notice 

Requirements for Coverage 

Determinations Under Part D (§ 423.568) 

10. Expediting Certain Coverage 

Determinations (§ 423.570) 

11. Timeframes and Notice Requirements 

for Expedited Coverage Determinations 

(§ 423.572) 

12. Clarify Novation Agreements Under 

Part D (§ 423.551) 

13. Cost Contract Program Revisions: 

Appeals and Marketing Requirements 

(§ 417.428, § 417.494, § 417.500, and 

§ 417.640) 

14. Appeals Processes for Contract 

Determinations, Intermediate Sanctions, 

and Civil Money Penalties 

a. Contract Determinations (§ 417.492 and 

417.494) 

b. Civil Money Penalties (§ 417.500) 

c. Intermediate Sanctions (§ 417.500) 

15. Extending MA Marketing Requirements 

to Cost Program Plans (§ 417.428) 

a. Definitions Concerning Marketing 

Materials (§ 422.2260) 

b. Review and Distribution of Marketing 

Materials (§ 422.2262) 

c. Guidelines for CMS Review (§ 422.2264) 

d. Deemed Approval (§ 422.2266) 

e. Standards for MA Organization 

Marketing (§ 422.2268) 

f. Licensing of Marketing Representatives 

and Confirmation of Marketing 

Resources (§ 422.2272) 

g. Broker and Agent Requirements 

(§ 422.2274) 

H. Changes To Implement Corrections and 

Other Technical Changes 

1. Application of Subpart M to Health Care 

Prepayment Plans (§ 417.840) 

2. Generic Notice Delivery Requirements 

(§ 422.622 and 422.626) 

3. Revision to Definition of Gross Covered 

Prescription Drug Costs (§ 423.308) 

4. Application Evaluation Procedures 

(§ 422.502(c and d) and § 423.503(c and 

d)) 


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5. Intermediate Sanctions (§ 422.750(a) and 

§ 423.750(a)) 

6. Basis for Imposing Intermediate 

Sanctions and Civil Money Penalties 

(§ 422.752 and § 423.752) 

III. Collection of Information Requirements 

A. ICRs Regarding Basic Contract 

Requirements (§ 417.472) 

B. ICRs Regarding Apportionment and 

Allocation of Administrative and 

General Costs (§ 417.564) 

C. ICRs Regarding Medicare Secondary 

Payer (MSP) Procedure (§ 422.108 and 

§ 423.462) 

D. ICRs Regarding Disclosure Requirements 

(§ 422.111) 

E. ICRs Regarding Quality Improvement 

Program (§ 422.152) 

F. ICRs Regarding RADV Audit Dispute 

and Appeal Processes (§ 422.311) 

G. ICRs Regarding Application 

Requirements (§ 422.501 and § 423.502) 

H. ICRs Regarding General Provisions 

(§ 422.503 and § 423.504) 

I. ICRs Regarding Contract Provisions 

(§ 422.504 and 423.505) 

J. ICRs Regarding Nonrenewal of Contract 

(§ 422.506 and § 423.507) 

K. ICRs Regarding Request for Hearing 

(§ 422.662 and § 423.651) 

L. ICRs Regarding Time and Place of 

Hearing (§ 422.670 and § 423.655) 

M. ICRs Regarding Review by the 

Administrator (§ 422.692 and § 423.666) 

N. ICRs Regarding Procedures for Imposing 

Intermediate Sanctions and Civil 

Monetary Penalties (§ 422.756 and 

§ 423.756) 

O. ICRs Regarding Disclosure of Part D 

Plan Information (§ 423.128) 

P. ICRs Regarding Consumer Satisfaction 

Surveys (§ 423.156) 

Q. ICRs Regarding Validation of Part C and 

Part D Reporting Requirements 

(§ 422.516 and § 423.514) 

R. ICRs Regarding Drug Utilization 

Management, Quality Assurance, and 

Medication Therapy Management 

Programs (MTMPs) (§ 423.153) 

S. ICRs Regarding Timeframes and Notice 

Requirements for Standard Coverage 

Determinations (§ 423.568) 

T. ICRs Regarding Timeframes and Notice 

Requirements for Expedited Coverage 

Determinations (§ 423.572) 

U. ICRs Regarding Access to Covered Part 

D Drugs (§ 423.120) 

V. ICRs Regarding Timeframes and 

Responsibility for Making 

Redeterminations (§ 423.590) 

W. Annual Information Collection Burden 

IV. Response to Public Comments 

V. Regulatory Impact Analysis 

A. Overall Impact 

B. Increase in Costs to MA Organizations 

and Part D Sponsors 

C. Expected Benefits 

D. Analysis by Provision 

E. Anticipated Effects 

1. Effects of Cap on Out-of-Pocket Costs 

and Cost Sharing Amounts 

2. Alternatives Considered 

a. Strengthening CMS’ Ability To Take 

Timely, Effective Contract 

Determinations or Intermediate 

Sanctions (Part C & D) 

b. Changing the Standards of Review, 

Clarifying the Standard of Proof and 

Burden of Proof for Appeals, and 

Modifying the Conduct of Hearing for 

Contract Decisions (Including Denials of 

Initial Applications to Contract, Service 

Area Expansions for Existing Contracts, 

Contract Non-Renewals and 

Terminations, and Intermediate 

Sanctions) 

c. Clarify That CMS May Require a ‘‘Test 

Period’’ During an Enrollment/Marketing 

Sanction 

d. Right for CMS To Require an 

Independent Audit of Sponsoring 

Organizations Under Intermediate 

Sanction 

e. The Ability for CMS To Require 

Sponsors To Disclose to Current and 

Potential Enrollees Compliance and 

Performance Deficiencies 

f. Section 176 of MIPPA—Formulary and 

Protected Classes Requirements (Part D) 

g. Reducing Duplicative and Low 

Enrollment Plans (Parts C & D) 

h. Validation of Part C and Part D 

Reporting Requirements 

F. Accounting Statement 

G. Conclusion 

Regulations Text 

Acronyms 

AO Accrediting Organization 

ADS Automatic Dispensing System 

AEP Annual Enrollment Period 

AHFS–DI American Hospital Formulary 

Service 

AHFS–DI American Hospital Formulary 

Service-Drug Information 

AHRQ Agency for Health Care Research 

and Quality 

ALJ Administrative Law Judge 

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 

CMR Comprehensive Medical Review 

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 

CY Calendar year 

DOL U.S. Department of Labor 

DRA Deficit Reduction Act of 2005 (Pub. L. 

109–171) 

EGWP Employer Group/Union-Sponsored 

Waiver Plan 

EOB Explanation of Benefits 

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 

LEP Late Enrollment Penalty 

LIS Low Income Subsidy 

LTC Long Term Care 

LTCF Long Term Care Facility 

MA Medicare Advantage 

MAAA American Academy of Actuaries 

MAO Medicare Advantage Operations 

MA–PD Medicare Advantage-Prescription 

Drug Plans 

M+C Medicare+Choice program 

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 

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 

RAPS Risk Adjustment Payment System 

RADV Risk Adjustment Data Validation 

SCHIP State Children’s Health Insurance 

Programs 


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SEP Special Enrollment Periods 

SHIP State Health Insurance Assistance 

Programs 

SNF Skilled Nursing Facility 

SNP Special Needs Plan 

SPAP State Pharmaceutical Assistance 

Programs 

SSI Supplemental Security Income 

TrOOP True Out Of Pocket 

U&C Usual and Customary 

USP U.S. Pharmacopoeia 

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) was 

enacted on December 8, 2003. The 

MMA established the Part D program 

and made revisions to the provisions in 

Part C of the Medicare statute governing 

the Medicare Advantage (MA) program. 

The MMA directed that important 

aspects of the new Medicare 

prescription drug benefit program under 

Part D be similar to and coordinated 

with regulations for the MA program. 

The MMA also directed 

implementation of the prescription drug 

benefit and revised MA program 

provisions effective January 1, 2006. 

The final rules for the MA and Part D 

prescription drug programs appeared in 

the Federal Register on January 28, 

2005 (70 FR 4588–4741 and 70 FR 

4194–4585, respectively). Many of the 

provisions relating to applications, 

marketing, contracts, and the new 

bidding process for the MA program 

became effective on March 22, 2005, 60 

days after publication of the rule, so that 

the requirements for both programs 

could be implemented by January 1, 

2006. All of the provisions regarding the 

new Part D prescription drug program 

became effective on March 22, 2005. 

As we have gained more experience 

with the MA program and the 

prescription drug benefit program, we 

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 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 

impacting both the Medicare Part C and 

D programs, and make other policy 

clarifications based on experience with 

both programs (73 FR 54208, 73 FR 

54226, and 74 FR 2881). 

Under this proposed rule, we have 

identified additional programmatic and 

operational changes (outlined below) 

that we believe are needed in order to 

further improve our oversight and 

management of the Part C and D 

programs and to further improve 

beneficiary experience under MA or 

Part D plans. 

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 

provided for what was then called the 

Medicare+Choice (M+C) program. 

Under section 1851(a)(1) of the Act, 

every individual entitled to Medicare 

Part A and enrolled under Medicare Part 

B, except for most individuals with endstage renal disease (ESRD), could elect 

to receive benefits either through the 

original Medicare program or an M+C 

plan, if one was offered where he or she 

lived. The primary goal of the M+C 

program was to provide Medicare 

beneficiaries with a wider range of 

health plan choices. The M+C 

provisions in Part C were amended by 

the Medicare, Medicaid, and SCHIP 

Balanced Budget Refinement Act of 

1999 (BBRA) (Pub. L. 106–111), and 

further amended by the Medicare, 

Medicaid, and State Children’s Health 

Insurance Program (SCHIP) Benefits 

Improvement Act of 2000 (BIPA) (Pub. 

L. 106–554). 

As noted previously, the MMA was 

enacted on December 8, 2003. Title I of 

the MMA added a new ‘‘Part D’’ to the 

Medicare statute (sections 1860D–1 

through 42 of the Act) creating the 

Medicare Prescription Drug Benefit 

Program, one of the most significant 

changes to the Medicare program since 

its inception in 1965. Sections 201 

through 241 of Title II of the MMA 

made significant changes to the M+C 

program. Title II of the MMA renamed 

the M+C program as the MA program 

and included new payment and bidding 

provisions, new regional MA plans and 

special needs plans, reestablished 

authority for medical savings account 

(MSA) plans that had been provided in 

the BBA on a temporary basis, 

addressed private fee-for-service plans, 

and made other changes. Title I of the 

MMA created prescription drug benefits 

under Medicare Part D, and a new 

retiree drug subsidy program. 

Both the MA and prescription drug 

benefit regulations were published 

separately, as proposed and final rules, 

though their development and 

publication were closely coordinated. 

On August 3, 2004, we published in the 

Federal Register proposed rules for the 

MA program (69 FR 46866 through 

46977) and the prescription drug benefit 

program (69 FR 46632 through 46863). 

In response to public comments on the 

proposed rules, we made several 

revisions to the proposed policies for 

both programs. For further discussion of 

these revisions, see the respective final 

rules (70 FR 4588 through 4741) and (70 

FR 4194 through 4585). 

Also as noted above, MIPPA was 

enacted on July 15, 2008, which 

addressed a number of provisions 

impacting the Part C and D programs, 

including provisions impacting 

marketing under both programs. In the 

September 18, 2008 Federal Register (73 

FR 54208), we published a final rule 

that finalized certain marketing 

provisions, effective October 1, 2008, 

that paralleled provisions in MIPPA. 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). 

Now, with almost four years’ 

experience behind us, we are proposing 

further revisions to these programs 

affecting both beneficiaries and 

sponsoring organizations. 

When the MMA required that the Part 

D benefit afford each enrollee a 

minimum of two choices in each plan 

region, few if any envisioned the 

overwhelming response from the 

healthcare industry would result in 

most beneficiaries choosing among 

dozens of plans with various benefit 

packages. In the first few years of the 

Part D benefit, we believed this was on 

the whole a great success. More plans 

means more variation, competition and 

lower prices for Medicare beneficiaries 

choosing to enroll in a stand-alone 

prescription drug plan (PDP), or 

Medicare Advantage prescription drug 

plan (MA–PD). However, with so many 

plans to choose from many beneficiaries 

reportedly find the annual task of 

selecting one plan from so many 

overwhelming, and confusing. 

Moreover, we have found that, as 


dcolon on DSK2BSOYB1PROD with PROPOSALS2
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1McFadden D (2006). Free Markets and Fettered 

Consumers. The American Economic Review 96(1), 

5–29 

2Hanock Y, Rice T, Cummings J, Wood S (2009). 

How Much Choice is Too Much? The Case of the 

Medicare Prescription Drug Benefit. Health Services 

Research 44:4; 1157–1168. 

3See, for example, Wrobel MV, Kling J, 

Mullainathan S, Shafir E, Vermeulen L (2009). A 

Shot in the Arm for Medicare Part D: Four Ways 

for the Government to Boost its Customer 

Communications. http://www.brookings.edu/ 

papers/2008//media/Files/rc/papers/2008/ 

1120_medicare_kling/1120_medicare_kling.pdf. 

4Hargrave E, Piya B, Hoadley J, Summer L, 

Thompson J (2008). Experiences Obtaining Drugs 

under Part D: Focus Groups with Beneficiaries, 

Physicians, and Pharmacists. Final Report 

Submitted to the Medicare Payment Advisory 

Commission. National Opinion Research Center. 

overseers of the Part C and D programs, 

organizations submitting bids to offer 

multiple plans have not consistently 

submitted plan benefit designs that were 

significantly different from each other, 

which can add to beneficiary confusion. 

Since its inception in 2006, the 

Medicare Part D program has improved 

access to drug coverage for elderly and 

offered beneficiaries a wide range of 

plans from which to choose. At the 

same time, some have suggested that 

significant numbers of beneficiaries are 

confused by the array of choices and 

find it difficult to make enrollment 

decisions that are best for them. Many 

do not enroll in necessarily the lowest 

cost plan and many eligible individuals 

are not enrolled in the low-income 

subsidy program. Finally, once 

beneficiaries have chosen a plan and 

enrolled in it, they tend to remain in 

those plans, despite changes in 

medication use or premium increases. 

We remain committed to considering 

changes in the way we administer the 

Part C and D programs to enable 

Medicare beneficiaries to choose the 

plan that best suits their needs. Among 

other proposals, we making following 

three specific proposals to simplify the 

program for beneficiaries: 

• First, we propose to require 

sponsors to ensure that when they 

provide multiple plan offerings, those 

offerings sufficiently differ and thereby 

provide beneficiaries meaningful 

options (see section II. of this proposed 

rule); 

• Second, we propose to eliminate 

plans with persistently low enrollments, 

since these can add complexity to 

choices without adding value (see 

section II.D. of this proposed rule); 

• Third, we propose to require 

sponsors to use standardized 

‘‘templates’’ in their beneficiary 

communication materials (for example, 

the Annual Notice of Changes (ANOC) 

and the Evidence of Coverage (EOC) 

notices), so that seniors can better 

understand how their current benefits 

and cost-sharing requirements will be 

changing and more easily compare their 

current plan with other plan options 

(see section II.B.3 of this proposed rule). 

We believe that more can be done to 

structure choices for seniors to aid them 

in making better plan choices.1 2 For 

example, studies have suggested that 

providing personalized drug utilization 

and cost information to beneficiaries 

can encourage seniors to switch to plans 

that better meet their medication needs 

while reducing their overall costs.3

Some have urged that the agency can do 

more to provide improved individual 

drug utilization and cost information to 

beneficiaries to encourage seniors to 

switch to lower-cost plans. Other 

studies have found that some 

beneficiaries are not fully aware of the 

financial implications of deferring 

enrollment in drug plans,4 a finding that 

suggests that we could do more to make 

those implications more salient to 

beneficiaries. We invite comments on 

these possibilities and other 

improvements the agency can make, to 

help beneficiaries choose the plans that 

best suit their needs. We also invite 

comment on the type of research that 

might be undertaken to help inform 

future regulatory and programmatic 

improvements and how we can best 

support our partners, such as states, to 

assist them in helping beneficiaries 

enroll in the best possible plans. For 

example, we are interested in assessing 

the impacts of random auto-assignments 

on low-income beneficiaries. To the 

extent that States are interested in 

exploring non-random assignment 

methods, we invite comment on what 

type of information States would find 

most beneficial, including the types of 

data analyses we could potentially 

undertake with the data we already have 

from States who utilize non-random 

assignment methods. 

We also have found that in certain 

cases, we have been limited by existing 

program rules and regulations to 

implement actions that would improve 

sponsoring organization performance. 

Toward this end, we propose provisions 

that would limit the number of plan 

offerings by eliminating duplicative 

bids, and strengthen our program 

participation requirements. 

We are proposing a number of 

additional provisions aimed at 

strengthening existing beneficiary 

protections. For example, we propose to 

strengthen plan transition process 

requirements to ensure maximum 

transparency regarding our expectations 

of Part D plans with respect to enrollees 

transitioning to the plan from other drug 

coverage and to ensure that current 

subregulatory practices are codified in 

regulation. 

We are also proposing another set of 

provisions that are aimed at improving 

payment rules and processes, and 

improving data collection for oversight 

and quality assessment. For example, 

we are proposing to expand the 

collection of prescription drug event 

data that we currently collect for 

research and other non-payment related 

purposes. Collecting these additional 

data, which are currently collected for 

payment purposes, would provide us 

additional information to conduct 

analyses that may be used to improve 

policies and assist in monitoring of Part 

D plan sponsors. 

In addition, we are proposing 

significant new Part D policy in this 

rule. For example, in the area of Part D 

formulary policy, we propose a 

regulatory interpretation of MIPPA 

protected drug categories and classes 

provision in section 176 of MIPPA (Pub. 

L. 110–275) that we previously 

addressed in a January 19, 2009 interim 

final rule with comment period (IFC). 

Based on comments received in 

response to that IFC, we believe that 

interpretation of statutory terms is 

needed. In addition, we believe that 

additional clarification is needed 

relative to the process that we intend to 

utilize to identify the protected 

categories and classes of drugs that must 

be listed on all Part D plan formularies. 

Finally, we propose other provisions 

that are aimed at further clarifying 

existing policy and we make technical 

corrections where needed. For example, 

in some cases, we are addressing topic 

areas that were included in our 2010 

call letter to Part C and D plans, the 

document that outlines policy 

clarifications and reminders for plans 

bidding on plan offerings in the coming 

contract cycle. In the spirit of 

transparency, we have outlined some of 

these clarifications within this rule so to 

ensure the public has a full opportunity 

to comment on our policies. 

II. Provisions of the Proposed 

Regulations 

In the sections that follow, we discuss 

the proposed changes to the regulations 

in 42 CFR parts 417, 422, 423, and 480 

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 by subpart order. 

Accordingly, our proposals address the 

following eight specific goals as 

foreshadowed in the preceding 

introduction: 


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• Strengthening our ability to 

distinguish for approval strong 

applicants for MMA participation and 

remove consistently poor performers. 

• Strengthening beneficiary 

protections. 

• Providing plan offerings with 

sufficient enrollment and meaningful 

differences. 

• Improving payment rules and 

processes. 

• Improving data collection for 

oversight and quality assessment. 

• Implementing other new policies. 

• Clarifying various sponsor program 

participation requirements. 

• Implementing corrections and other 

technical changes. 

Several of the proposed revisions and 

clarifications affect both programs. 

Within each section, we have provided 

a chart listing all subject areas that 

contain provisions affecting the Part C 

and D programs and the associated 

regulatory citations that would be 

revised. Please note that in our 

discussion of these provisions, we often 

refer to ‘‘sponsoring organizations’’ to 

refer to both Medicare Advantage 

organizations (MAOs) and Part D 

sponsors. 

A. Changes To Strengthen Our Ability 

To Distinguish for Approval Strong 

Applicants for Part C and 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, we have steadily enhanced our 

ability to measure MAO 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 MAOs 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 over 

the past 4 years, 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. As set forth below, 

we are proposing changes and 

clarifications to our regulations to make 

certain that all current and potential 

MAOs and PDP sponsors clearly 

understand and can reasonably 

anticipate how we measure sponsor 

performance, determine when there is 

noncompliance, and when enforcement 

actions are warranted. While we are 

pleased that so many organizations have 

elected to participate in the Part C and 

D programs, we have an obligation to 

ensure that only appropriate 

organizations are given the 

responsibility for providing quality 

medical care and drug coverage to 

Medicare beneficiaries. 

Each year, since contract year 2006, 

we have solicited applications from 

organizations seeking to become 

qualified to enter into Part C or D 

sponsor contracts. We received 

hundreds of applications in each of 

those years. To properly manage a 

workload of that size, and to ensure that 

we conduct a fair review of every 

application, we have adopted an 

increasingly standardized, computerbased application submission process. 

At the same time, we have also become 

increasingly strict in the application of 

our regulatory authority to limit the 

number and timing of opportunities for 

applicants to resubmit materials to cure 

applications that do not initially 

demonstrate that the applicant meets 

Part C or D requirements. 

Until 2 years ago, applicants may 

have found that we would accept as 

many corrected submissions as the 

applicants needed to make their 

materials (usually documents 

concerning provider/pharmacy 

networks, subcontracting arrangements, 

or risk-bearing licenses) consistent with 

Part C or D requirements. We recognized 

that this was an inefficient process that 

afforded some applicants the 

opportunity to make more resubmissions than others and arguably 

enabled less well-prepared and 

qualified applicants to enter the 

program. To improve the fairness of the 

application process, and to reduce the 

burden it imposes on applicants and 

CMS alike, we have, through our 

application instructions issued over the 

last 3 years, clarified to all applicants 

that we will only provide three 

opportunities to submit an approvable 

contract qualification application to 

CMS: The initial solicitation response, 

one courtesy opportunity to correct any 

identified deficiencies, and a final 

opportunity during the 10-day cure 

period provided for specifically in the 

regulations. 

Some organizations have expressed 

surprise during the last 2 years at our 

use of our authority to impose strict 

deadlines and standards of review on 

applications for qualification as an 

MAO or PDP sponsor. To reduce the 

opportunity for confusion about the 

application process, we are proposing 

some regulatory clarifications in 

furtherance of our goal of using a fair 

and efficient process for ensuring that 

only truly qualified organizations are 

offered Part C or D organization 

contracts. These provisions, described 

in greater detail below, include 

requiring applicants to demonstrate that 

they meet all (not a substantial number) 

of the Part C and D program 

requirements, prohibiting applicants 

from submitting additional curing 

materials after the expiration of the tenday period following their receipt of a 

notice of intent to deny their 

application, and requiring applicants to 

submit a nonbinding notice of intent to 

apply for a Part C or D contract. 

Organizations should be aware that 

we will continue to exercise our 

authority to consider an organization’s 

past Part C or D contract performance in 

evaluating whether it should be afforded 

the opportunity to obtain additional 

contracts or to serve a larger portion of 

the Medicare beneficiary population. 

Additionally, sponsoring organizations 

should be aware that we rely on data to 

evaluate compliance with program 

requirements in a number of ways. For 

example, we use data to evaluate 

adherence to requirements in the MMA 

statute or the Part C and D regulations 

(for example, retail pharmacy access). 

We also use data to evaluate adherence 

to the requirements outlined in our 

manual chapters and other guidance (for 

example, customer and provider call 

center performance standards). Finally, 

we conduct outlier analysis by 

comparing the performance across all 

organizations on a particular Part C or 

D requirement to identify organizations 

that appear to be poor performers. The 

most notable example of this kind of 

analysis is reflected in our performance 

metrics (that is, the Medicare Part D 

Plan Ratings). These ratings represent an 

effort to make additional information 

available to the public regarding the 

price and quality of services for which 

Medicare makes payments. The Plan 


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Ratings are located on the Medicare 

Prescription Drug Plan Finder (MPDPF) 

Tool at (http://www.Medicare.gov) and 

are designed to provide a clear 

differentiation of the various Plan 

offerings to beneficiaries. Organizations 

receiving less than ‘‘good’’ ratings in 

any category should anticipate 

communication from us. Another 

example is our review of data in the 

Complaints Tracking Module (CTM), 

which can be a particularly strong 

indicator of a sponsor’s inability to 

perform a required Part C or D function. 

An abnormally high complaint rate for 

a particular sponsor will likely prompt 

us to investigate other sources of 

information to determine whether the 

organization is complying with specific 

Part C or D requirements. 

Our efforts are aimed at making 

certain that we have well-functioning 

MAOs and PDP sponsors administering 

Part C and D benefits on our behalf. Just 

as we have become more sophisticated 

in our analysis of sponsor applications 

and compliance, we also continue to 

review our sanction and contract 

termination authority to ensure that we 

pursue actions when there is sufficient 

basis to support them. For example, we 

have developed an annual process for 

analyzing sponsor performance during 

the preceding contract year. We review 

each sponsor’s compliance history, 

including CMS-issued compliance 

notices, audit results, and performance 

ratings (for example, star ratings) to 

develop a full picture of that sponsor’s 

ability to deliver Part C and D services 

to its members. If that picture indicates 

that a particular sponsor has a 

significant pattern of poor performance 

or even isolated incidences of 

noncompliance with crucial operational 

requirements (for example, enrollment 

processing), we will consider 

termination or nonrenewal of the 

contract of that sponsor. 

With the clarifications we are 

proposing to the Part C and D 

regulations through this proposed rule 

and the background provided in this 

preamble section, MAOs and PDP 

sponsors should now be fully aware that 

we will continue to apply stricter 

scrutiny to sponsor qualifications and 

contract performance as our analytical 

capabilities and understanding of 

industry best practices improves. As the 

Part C and D programs have now 

reached a certain level of maturity and 

organizations’ strong interest in 

participating in the programs has been 

established, it is appropriate for us to 

use the authority and evidence at our 

disposal to make certain that beneficiary 

plan choices are characterized more by 

their quality than their quantity. These 

provisions are described in detail in 

Table 1. 

TABLE 1—PROVISIONS STRENGTHENING OUR ABILITY TO DISTINGUISH FOR APPROVAL STRONG APPLICANTS AND TO

REMOVE CONSISTENTLY POOR PERFORMERS

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Notice of Intent to Apply ......................................... Subpart K .. § 422.501 ................................... Subpart K .. § 423.502. 

Application Standards ............................................. Subpart K .. § 422.502 ................................... Subpart K .. § 423.503. 

Compliance Measures/Analysis .............................. Subpart K .. § 422.502 ................................... Subpart K .. § 423.503. 

Compliance Programs ............................................ Subpart K .. § 422.503(b)(4)(vi) ..................... Subpart K .. § 423.504(b)(4)(vi). 

Network Adequacy of Coordinated Care and Network-Based Private-Fee-For-Service plans 

under Part C.

Subpart C .. § 422.112 ................................... N/A ............. N/A. 

Clarify programmatic elements that are 

‘‘deemable’’.

Subpart D .. § 422.156(b)(7), § 422.156(f) ..... Subpart D .. § 423.165(b), § 423.165(f). 

Procedures for termination and Nonrenewals: Part 

C and D.

Subpart K .. § 422.510(c)(1), § 422.506(b)(3) Subpart K .. § 423.509(c)(1), 

§ 423.507(b)(3). 

Intermediate Sanctions: Procedures for imposing 

civil and money penalties.

Subpart O .. § 422.756 ................................... Subpart O .. § 423.756. 

Contract Termination .............................................. Subpart K .. § 422.510(a) ............................... Subpart K .. § 423.509(a). 

Proper request for hearings .................................... Subpart N .. § 422.662 ................................... Subpart N .. § 423.651. 

Burden of Proof, Standard of Proof, Standard of 

Review and Conduct of Hearing.

Subpart N .. § 422.660, § 422.676(d) ............. Subpart N .. § 423.650, § 423.658(d). 

Postponement of effective date of determination 

when a request is being filed.

Subpart N .. § 422.664 ................................... Subpart N .. § 423.652. 

Extending timeframe for contract determination 

hearings.

Subpart N .. § 422.670 ................................... Subpart N .. § 423.655. 

Appeal times: Require each party provide witness 

list and documents 5 calendar days before 

hearing.

Subpart N .. § 422.682 ................................... Subpart N .. § 423.661. 

Appeal times: Require request for a review by the 

administrator must be received with 15 days 

after receipt of hearing decision.

Subpart N .. § 422.692(a) ............................... Subpart N .. § 423.666(a). 

Contract redeterminations and reopening .............. Subpart N .. § 422.696 ................................... Subpart N .. § 423.668.

Mutual termination of contract ................................ Subpart K .. § 422.503(b)(6) .......................... Subpart K .. § 423.504(b)(5). 

1. Require Notice of Intent To Apply 

Under Part C and D Within the 

Application Requirements (§ 422.501 

and § 423.502) 

Subpart K of part 422 and subpart K 

of part 423 set forth the requirements for 

contracts with MA Organizations and 

Part D sponsors including application 

procedures. Section 1871(a)(1) of the 

Act authorizes us to prescribe such 

regulations as may be necessary to carry 

out the administration of the Medicare 

program. We propose using that 

authority to establish an administrative 

requirement for both the Part C and D 

programs related to the submission to us 

of applications to qualify as MA and 

PDP sponsor contractors. 

Beginning with the applications for 

the 2009 contract year, the Medicare 

Advantage, Part D Prescription Drug 

benefit, and Employer/Union-Only 

Group Waiver Plan (Direct Contract or 

‘‘800 Series’’) sponsor applications are 


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submitted via a paperless process. Each 

application is completed through the 

CMS Health Plan Management System 

(HPMS). As a result of the fully 

electronic submission process and 

restrictions on access to HPMS, every 

applicant must complete a Notice of 

Intent to Apply as described in the 

HPMS memo dated October 10, 2008. 

This includes current contractors 

seeking to expand their organization’s 

service area, and current contractors 

adding a Special Needs Plan (SNP) or an 

Employer Group/Union-Sponsored 

Waiver Plan (EGWP) to their existing 

contract. 

The Notice of Intent to Apply 

provides us with critical information for 

generating a pending contract number 

and providing User ID connectivity. 

Submitting a Notice of Intent to Apply 

does not bind that organization to 

submit an application for the following 

year. However, without a pending 

contract number and completed CMS 

User ID connectivity, an organization 

will not be able to access the 

appropriate modules in HPMS to 

complete the application materials. We 

propose codifying in § 422.501 and 

§ 423.502 our existing guidance that 

initial applicants and existing 

contractors seeking to expand complete 

a nonbinding Notice of Intent to Apply. 

2. Application Requirements 

(§ 422.501(c) and § 423.502(c)) and 

Evaluation and Determination 

Procedures for Determining Whether 

Applicants Are Qualified for a Contract 

Under Parts C and D (§ 422.502 and 

§ 423.503) 

Subpart K of Part 422 and subpart K 

of Part 423 set forth the requirements for 

contracts with MA organizations and 

Part D sponsors, respectively, including 

application procedures. Section 1860D– 

12(b)(3) of the Act states that we must 

apply certain specified provisions of 

section 1857 of the Act including the 

procedures for termination in section 

1857(h) of the Act in the same manner 

as they apply to contracts under section 

1857(a) of the Act. Therefore, we are 

making a single proposal that applies to 

both MA organizations and Part D 

sponsors related to our application 

evaluation procedures and appeals of 

our determinations regarding 

applications. 

During the first four years of the 

Medicare Advantage and Part D 

programs, several unsuccessful 

applicants contested our denial of their 

applications for MA organization or Part 

D sponsor contracts. At hearings, some 

of those applicants were successful in 

arguing that the regulations were not 

clear in stating that an applicant needed 

to demonstrate that it met all program 

requirements to qualify for a contract. 

Accordingly, we are proposing to revise 

§ 422.502 and § 423.503 to make it 

explicit that we will approve only those 

applications that demonstrate that they 

meet all (not substantially all) Part C 

and D program requirements. 

The application requirements and 

evaluation and determination 

procedures for MA organizations and 

Part D sponsors are set forth in subpart 

K of Parts 422 and 423, respectively. 

The application process in each 

instance requires an applicant to submit 

for CMS review a combination of 

attestations that it will comply with 

stated program requirements, as well as 

contracts with organizations the 

applicant has contracted with to 

perform key Part C or D functions, 

evidence of the applicant’s risk-bearing 

licenses, and data documenting that the 

applicant can provide its members 

access to Part C and D services 

consistent with the programs’ 

requirements. As we have proposed to 

clarify at § 422.501(c)(1) and (2), 

§ 422.502(a)(2), § 423.502(c)(1) and (2), 

and § 423.503(a)(2), we require that 

applicants demonstrate that they meet 

all requirements outlined in the MA 

organization and Part D sponsor 

applications. 

Under the current regulations at 

§ 422.502(a)(1) and § 423.503 (a)(1), we 

evaluate an entity’s application on the 

basis of information contained in the 

application itself and any additional 

information that we obtain through 

onsite visits, publicly available 

information, and any other appropriate 

procedures. We propose to simplify and 

clarify the process by modifying 

§ 422.502(a)(1) and § 423.503(a)(1) and 

limiting the evaluation of an entity’s 

application to information contained in 

the application and any additional 

information that we obtain through 

onsite visits. Limiting our review to this 

information ensures that we will afford 

all applicants (numbering in the 

hundreds each of the last four years) a 

fair and consistent review of their 

qualifications. Organizations can be 

assured that we will not consider 

additional sources of information 

regarding one applicant’s qualifications 

that we do not consider for others. 

We are also proposing a clarification 

of our authority to decline to consider 

application materials submitted after the 

expiration of the 10-day period 

following our issuance of a notice of 

intent to deny an organization’s contract 

qualification application. Under 

§ 422.502(c) and § 423.503(c), we notify 

applicants of our determination on the 

application and the basis for the 

determination. If the applicant does not 

appear qualified to contract as an MA 

organization or Part D sponsor and has 

not provided enough information to 

permit us to evaluate the application, 

the applicant receives a notice of intent 

to deny the application and a summary 

for the basis for the finding. As provided 

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

within 10 days from the date of the 

notice, the applicant can respond in 

writing to the issues or other matters 

that were the basis for our findings and 

revise its application to correct any 

deficiencies. 

The purpose of the proposed 

regulatory change is to clarify that 

information submitted after 10 days 

from the notice will under no 

circumstances be reviewed for the 

purpose of approving an application. 

Further, consistent with the proposed 

revisions to § 422.650(b)(2) and 

§ 423.660(b)(2), which are discussed 

elsewhere in this proposed rule, the 

applicant would not be permitted to 

submit additional revised application 

material to the Hearing Officer for 

review should the applicant elect to 

appeal the denial of its application. To 

allow for the submission and review of 

such information as part of the hearing 

would, in effect, extend the deadline for 

submitting an approvable application. 

Moreover, the proposed change would 

further clarify the standard for the 

disposition of applications for which 

either revisions are not provided within 

the 10 days or are inadequate. 

Specifically, we propose to clarify 

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

adding a new paragraph (iii) to establish 

that if we do not receive a revised 

application within 10 days from the 

date of the intent to deny notice, or if 

after timely submission of a revised 

application the applicant still appears 

unqualified to contract as an MA 

organization or Part D sponsor and/or 

has not provided enough information to 

allow us to evaluate the application, we 

will deny the application. 

3. Deny Contract Qualification 

Applications Based on Past Contract 

Performance (§ 422.750 and § 423.750) 

As described in § 422.502(b) and 

§ 423.503(b), we may deny an 

application based on the applicant’s 

failure to comply with the terms of a 

prior contract with CMS even if the 

applicant currently meets all of the 

application requirements. However, we 

propose to modify § 422.502(b) and 

§ 423.503(b) to state that we will review 

past performance across all of the 

contracts held by the applicant. The 

provision as currently drafted mentions 

a ‘‘prior contract’’ with CMS. Today, 


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contracts are ‘‘evergreen’’ and some 

organizations hold multiple MA and/or 

PDP sponsor contracts; therefore the 

concept of ‘‘prior contract’’ is outdated, 

as the prior performance issues could 

have occurred in any other contract 

currently or formerly held by an 

applicant. Therefore, we propose to 

revise the language in § 423.503(b) and 

§ 422.502(b) to refer to ‘‘any current or 

prior contract’’ held by the organization, 

instead of the current language referring 

to a ‘‘previous year’s contract.’’ We also 

propose to clarify that the period that 

will be examined for past performance 

problems 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. Fourteen months 

covers the time period from the start of 

the previous contract year through the 

time that applications are received for 

the next contract year. 

Indicia of performance deficiencies 

that might lead us to conclude that an 

organization has failed to comply with 

a current or prior contract include, but 

are not limited to, poor performance 

ratings as displayed on the Medicare 

Options Compare and MPDPF web sites; 

receipt of requests for corrective action 

plans (CAPs) unrelated to an audit (as 

these types of CAPs generally involve 

direct beneficiary harm); and receipt of 

one or more other types of 

noncompliance notices from CMS (for 

example, notices of noncompliance or 

warning letters). 

Additionally, as indicated by the 

changes to § 422.503(b), § 422.508(c), 

§ 423.504(b), and § 423.508(e), we 

consider withdrawal of Part C or D 

operations from some or all of an 

organization’s newly contracted service 

area prior to the start of a benefit year 

(through mutual termination or 

otherwise) an indication of poor 

performance. Such a situation can arise 

when, for example, an organization, 

after it has signed its Medicare contract 

for the upcoming program year, loses a 

contract with a significant number or 

type of providers, jeopardizing its 

ability to provide its members adequate 

access to services. Also, an organization 

may suddenly face financial difficulties 

that threaten its ability to offer the 

benefit packages approved by CMS 

throughout the upcoming contract year. 

In such instances, we could simply 

leave the contract in place and take 

enforcement actions against the 

organization. Under such an approach, 

we would knowingly be permitting 

beneficiaries to remain enrolled with an 

organization that cannot effectively 

deliver the benefit. Instead, we act(s) in 

the best interests of the beneficiaries by 

agreeing with the organization to 

terminate its contract and work(s) with 

the organization to make certain that 

beneficiaries receive uninterrupted 

access to Medicare services through 

another MA organization, PDP sponsor, 

or original Medicare. But for our acting 

to protect beneficiaries by agreeing to 

the contact termination, the 

organization would have faced 

significant compliance and enforcement 

actions once its failure to comply with 

program requirements became apparent. 

Also, the organization’s failure to 

conduct the proper due diligence on its 

contracted provider network or its 

finances represents itself a significant 

failure to have in place the 

administrative capability to operate a 

Medicare benefit plan worthy of 

compliance and enforcement actions. 

Accordingly, we believe(s) it is 

appropriate to consider an 

organization’s withdrawal from its 

contract prior to the start of the benefit 

year to be a strong indication of poor 

performance worthy of our 

consideration under § 422.750 and 

§ 423.750. 

We will review performance in 

accordance with these examples and 

other evidence of noncompliance, and 

will deny applications for initial 

contracts and service area expansions 

on the basis of noncompliant past 

performance. By specifically providing 

these examples and clarifying that we 

intend to exercise this authority, we 

believe that organizations will be 

motivated to enhance their compliance 

operations in order to avoid being out of 

compliance with program requirements, 

and this will significantly deter 

noncompliance leading to improved 

overall performance of organizations in 

the Part C and D programs. 

4. Use of Data To Evaluate Continued 

Ability To Act as a Qualified 

Sponsoring Organization Under Parts C 

and D (§ 422.504, and § 423.505) 

Sections 1857(e)(1) and 1860D– 

12(b)(3)(D) of the Act provide broad 

authority for the Secretary to add terms 

to the contracts with MA and Part D 

sponsors including terms that require 

the sponsor to provide the Secretary 

‘‘with such information * * * as the 

Secretary may find necessary and 

appropriate.’’ Under that authority, we 

established § 422.516 and § 423.514, 

Reporting Requirements. Consistent 

with sections 1857(a) and 1860D– 

12(b)(1) of the Act, we established that 

we will oversee an MA organization’s 

and Part D sponsor’s continued 

compliance with Part C and Part D 

requirements under § 422.502(d)(1) and 

§ 423.503(d)(1). 

Some of the data acquired through 

§ 422.516 and § 423.514 are used for the 

purpose of monitoring an organization’s 

or sponsor’s continued compliance with 

MA and/or Part D requirements. For 

example, under § 423.514(a)(5), Part D 

sponsors must have an effective 

procedure to develop, compile, 

evaluate, and report to CMS particular 

matters, such as low income subsidy 

(LIS) contract data, that we require. At 

the contract level, the sponsor’s LIS data 

is compared to our LIS data and a match 

rate is calculated. Under our guidance, 

the match rate between our data and the 

sponsor’s should exceed 95 percent. 

Sponsors who fail to exceed the 95 

percent match rate are notified of their 

noncompliance and are expected to 

come into compliance with Part D 

instructions. In some instances, we may 

use an outlier analysis to determine a 

MA organization’s or Part D sponsor’s 

performance relative to industry 

standards established by the 

performance of all the other 

organizations and sponsors as described 

earlier in the preamble in our discussion 

of the development of our policies 

concerning the awarding, monitoring, 

and enforcement of Medicare contracts. 

For example, Part D plans report 

grievance data to CMS. We conduct 

outlier analysis to identify plans with 

the highest numbers of reported 

grievances for the purpose of identifying 

plans needing some type of compliance 

action. To conduct these types of outlier 

analysis, we usually perform the 

following steps: 

• Develop a data distribution—data 

values ordered from low to high. 

• Determine the maximum and 

minimum data values. 

• Determine the range (maximum– 

minimum). 

• Determine the outlier threshold— 

When conducting an outlier analysis, 

we typically identify sponsors typically 

in the highest (or lowest) 5 percent of 

comparable sponsors (for example, 

compare PDPs to PDPs). 

We also use the Performance Metrics 

(Plan Star Ratings), some of which are 

determined by relative ranking, for 

oversight and monitoring purposes to 

ensure plan quality. As stated in the 

2009 Call Letter, organizations and 

sponsors with less than ‘‘good’’ ratings 

should expect to be the subject of our 

monitoring and compliance actions. 

Likewise, if after an analysis of data 

submitted under § 422.516 or § 423.514 

an organization’s or sponsor’s 

performance is found to be an outlier 

based on relative ranking, the 

organization or sponsor may be 

considered out of compliance with MA 

and Part D requirements. 


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We propose to add paragraphs 

§ 422.504(m)(1) and (2) and 

§ 423.505(n)(1) and (2) to make explicit 

our existing authority to find 

organizations or sponsors out of 

compliance with MA and/or Part D 

requirements when the organization’s or 

sponsor’s performance fails to meet 

performance standards articulated in 

statutes, regulations, and guidance or 

when an organization’s or sponsor’s 

performance represents an outlier 

relative to the performance of other 

organizations or sponsors. 

5. Compliance Programs Under Parts C 

and D (§ 422.503(b)(4)(vi) and 

§ 423.504(b)(4)(vi)) 

Section 1857(a) of the Act provides 

the Secretary with the authority to enter 

into contracts with MA organizations 

and section 1860D–12(b)(1) of the Act 

provides the Secretary with the 

authority to enter into contracts with 

PDP sponsors. The current regulatory 

provisions provide that any entity 

seeking to contract as an MA 

organization or PDPsponsor must have 

administrative and management 

arrangements satisfactory to us as 

demonstrated by (among other 

requirements) having a compliance plan 

that consists of seven basic elements. 

These seven elements of the compliance 

plan outline fundamental requirements 

such as written policies and procedures, 

a compliance officer and committee that 

is accountable to senior management, 

effective compliance training and 

communication, enforcement of 

disciplinary standards, and procedures 

for internal monitoring and auditing and 

ensuring prompt responses to detected 

offenses. In addition, a compliance plan 

must include measures to detect, 

correct, and prevent fraud, waste, and 

abuse. 

Compliance programs have long been 

recognized as key to achieving 

adherence with contract requirements 

and to protecting against fraud, waste, 

and abuse. The recent focus on the 

importance of these programs has been 

heightened not only by CMS through 

our ongoing audit and oversight efforts 

but also by several of our oversight 

bodies. For example, over the last 

several years, the U.S. Department of 

Health and Human Services Office of 

Inspector General (OIG) and the 

Government Accountability Office 

(GAO) have each focused specific 

oversight efforts on MA organizations’ 

and PDP sponsors’ compliance 

programs and have requested that we 

take actions to evaluate and oversee 

these programs to ensure entities have 

effective programs in place. Similarly, 

like the Medicare Part C and D 

programs, other state programs, 

including the State of New York 

Medicaid program, now require 

effective compliance programs as a 

condition of participation. 

Our recent experience is that some 

sponsoring organizations have instituted 

a compliance plan that appears to meet 

the minimum requirements of our 

regulations, but may not have an 

effective compliance program. Other 

sponsoring organizations seem to 

legitimately grapple with how best to 

implement the regulatory requirements 

within their organization and which 

particular actions on their part will meet 

our requirements. 

We propose to stress the importance 

of sponsoring organization’s 

implementing and maintaining robust 

compliance programs by modifying the 

language at § 422.503(b)(4)(vi) and 

§ 423.504(b)(4)(vi) to explicitly provide 

clarification as to what will constitute 

an ‘‘effective’’ compliance program prior 

to contracting with CMS. We are also 

proposing to further clarify existing 

policy by modifying current language 

and/or adding language in support of 

each of the elements of an effective 

compliance plan in order to assist 

sponsoring organizations with 

implementing more effective 

compliance programs. 

In the first element concerning the 

overall requirement to have written 

policies and procedures, we are 

proposing to further clarify existing 

policy by adding language at 

§ 422.503(b)(4)(vi)(A) and 

§ 423.504(b)(4)(vi)(A) that these policies 

must describe compliance expectations 

as embodied in the standards of 

conduct, implement the operations of 

the compliance program, provide 

guidance to others, identify how to 

communicate compliance issues to 

compliance personnel, describe how 

compliance issues are investigated and 

resolved and include a policy of nonintimidation and non-retaliation. 

In the second element concerning the 

requirement to have a compliance 

officer and committee accountable to 

senior management, we are proposing to 

further clarify existing policy by adding 

language at § 422.503(b)(4)(vi)(B) and 

§ 423.504(b)(4)(vi)(B) that the 

compliance officer and committee must 

periodically report directly to the 

governing body (for example, Board of 

Directors) and that body must be 

knowledgeable about the compliance 

program and exercise reasonable 

oversight over the implementation and 

effectiveness of the program. The 

governing body’s direct involvement 

with and oversight of the compliance 

program is instrumental in fulfilling this 

requirement and achieving an effective 

compliance program. Our recent 

experience with some sponsoring 

organizations has indicated that Boards 

of Directors may not be sufficiently 

aware or may have limited information 

about their organization’s compliance 

programs or compliance issues. In 

deciding how often the compliance 

officer and committee must directly 

report to the Board of Directors, 

sponsoring organizations must consider 

many factors, including but not limited 

to: the size of the organization, the 

number of compliance problems, 

whether there is an emergency that calls 

for the Board’s attention, and whether 

the sponsoring organization is under an 

intermediate sanction. Our proposed 

language further clarifies existing policy 

related to this requirement for senior 

management to be sufficiently engaged, 

informed, and to exercise appropriate 

governance over the organization’s 

compliance program. 

In the third element concerning the 

requirement to have effective training 

and education, we are proposing to 

further clarify existing policy by adding 

language at § 422.503(b)(4)(vi)(C) and 

§ 423.504(b)(4)(vi)(C) that includes 

several key groups and individuals (the 

chief executive or other senior 

administrator, managers, and governing 

body members) among the sponsoring 

organization’s employees that are 

required to have compliance training 

and education. Because these employees 

have specific governing and oversight 

responsibilities, we believe it is 

important to clarify these requirements. 

We are proposing to further clarify 

existing policy by adding language that 

also clarifies that this training must 

occur at a minimum annually and must 

be made a part of the orientation for a 

new employee, new first tier, 

downstream and related entities, and 

new appointment to a chief executive, 

manager or governing body member. 

In the December 5, 2007 Federal 

Register, we published the ‘‘Medicare 

Program; Revisions to the Medicare 

Advantage and Part D Prescription Drug 

Contract Determinations, Appeals and 

Intermediate Sanctions Process’’ final 

rule (72 FR 68700). In the December 5, 

2007 final rule, we established that 

compliance plans for sponsoring 

organizations must include training and 

education and effective lines of 

communication between the compliance 

officer and the sponsoring 

organization’s employees, managers, 

and directors as well as their first tier, 

downstream, and related entities. 

Since publication of the December 5, 

2007 final rule, it has become apparent 

that application of training about fraud, 


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waste, and abuse to the MA 

organizations’ first tier, downstream, 

and related entities may be redundant of 

the certification made when these 

entities submit enrollment applications 

to become Medicare physician and nonphysician practitioners, institutional 

providers, and suppliers. Medicare 

practitioner enrollment applications 

require that applicants certify to having 

read and understood the Penalties for 

Falsifying Information contained in the 

application and that the applicant will 

not present or cause to present a false 

claim to Medicare. Section 422.204(b)(3) 

requires that basic benefits offered by 

MA organizations be offered through 

providers and suppliers who meet 

applicable requirements of Title XVIII 

and Part A of Title XI of the Act. 

Providers of services must have a 

provider agreement with us that permits 

them to provide services under original 

Medicare. Requiring an additional 

fraud, waste, and abuse certification as 

was clarified in the response to 

comments in the December 5, 2007 final 

rule imposes an additional unnecessary 

burden on these Medicare providers. 

Therefore, we are proposing to modify 

this paragraph to state that providers 

who have met this requirement through 

enrollment into the Medicare program 

are deemed to have met this training 

and education requirement. More 

specifically, we are proposing to clarify 

existing policy by adding language at 

§ 422.503(b)(4)(vi)(C) specifying that 

MA organizations whose first tier, 

downstream, and related entities have 

met the fraud, waste and abuse 

certification requirements are deemed to 

have met the training and educational 

requirements for fraud, waste, and 

abuse. We are not proposing similar 

deeming language at 

§ 423.504(b)(4)(vi)(C) because these 

certification requirements do not 

currently apply to Part D first tier, 

downstream, or related entities. 

The current requirement for training 

in fraud, waste, and abuse of first tier, 

downstream, and related entities creates 

another potential problem. A particular 

pharmacy or other provider may 

contract with dozens of MA or PDP 

plans, each of which is required by the 

existing language, read literally, to 

provide the required training to the 

pharmacy, or other provider, and its 

staff. Clearly, we do not intend to 

require duplicative training. We 

therefore seek comment on whether or 

how best to rephrase the existing 

language to clarify this point, while still 

ensuring that our requirement is met 

with respect to each first tier, 

downstream, and related entity. One 

option might be that the plan sponsor 

‘‘assures’’ or ‘‘obtain an assurance’’ that 

the first tier, downstream, and related 

entity has received such training, but 

this leaves open the issue of who would 

then actually provide the needed 

training. We understand that some plans 

are arranging fraud, waste, and abuse 

collaborative training efforts and we 

welcome this. Another option might be 

to leave existing language unchanged, 

but issue interpretive guidance on this 

point. We request workable suggestions 

to assure that our objective is met, while 

eliminating unnecessary duplication. 

In the fourth element concerning the 

requirement to have effective lines of 

communication, we are proposing to 

further clarify existing policy by adding 

language at § 422.503(b)(4)(vi)(D) and 

§ 423.504(b)(4)(vi)(D) that requires that 

these lines of communication are 

confidential and accessible to all and 

allow for compliance issues to be 

reported anonymously and in good faith 

as issues are identified. 

In the fifth element concerning the 

requirement to have enforcement of 

standards through well-publicized 

disciplinary guidelines, we are 

proposing to further clarify existing 

policy by adding language at 

§ 422.503(b)(4)(vi)(E) and 

§ 423.504(b)(4)(vi)(E) that more 

specifically describes that these 

guidelines must be implemented to 

include policies that articulate 

expectations for reporting issues and 

their resolution, identify noncompliance 

or unethical behavior, and provide for 

timely, consistent and effective 

enforcement of the standards when 

noncompliance or unethical behavior is 

detected. 

In the sixth element concerning the 

requirement to have procedures for 

internal monitoring and auditing, we are 

proposing to further clarify existing 

policy by modifying the current 

language at § 422.503(b)(4)(vi)(F) and 

§ 423.504(b)(4)(vi)(F) to more 

specifically describe that an effective 

system for routine monitoring and 

identification of compliance risks 

includes internal monitoring and audits 

and, as appropriate, external audits, in 

order to evaluate the organization’s 

compliance with our requirements and 

overall effectiveness of the compliance 

program. These audits should include 

the sponsoring organization’s first tier 

entities. 

In the seventh element concerning the 

requirement to have procedures for 

ensuring prompt response to detected 

offenses and development of CAPs, we 

are proposing to further clarify existing 

policy by modifying the current 

language at § 422.503(b)(4)(vi)(G) and 

§ 423.504(b)(4)(vi)(G) to more 

specifically describe the 

implementation of a system for 

promptly responding to compliance 

issues as they are raised, investigating 

potential compliance problems 

identified in the course of selfevaluations and audits, correcting such 

problems promptly and thoroughly to 

reduce the potential for recurrence and 

ensuring ongoing compliance with our 

requirements. 

6. Network Adequacy of Coordinated 

Care and Network-Based Private Fee-forService Plans Under Part C (§ 422.112) 

Section 1852(d)(1)(A) of the Act 

establishes that an organization offering 

an MA plan may select the providers 

from whom the benefits under the plan 

are provided so long as the organization 

makes such benefits available and 

accessible to each individual electing 

the plan within the plan service area 

with reasonable promptness and in a 

manner which ensures continuity in the 

provision of benefits. The requirements 

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

implemented at § 422.112(a)(1), which 

provides that a coordinated care plan 

must maintain a network of appropriate 

providers that is sufficient to provide 

adequate access to covered services to 

meet the needs of the population served. 

To determine if a proposed health 

care delivery network of an MA plan 

adequately makes health care services 

available and accessible, it has been our 

practice when initially approving and 

when reviewing to compare the 

proposed network with the prevailing 

community patterns of health care 

delivery in the service area of the plan. 

We have also used as a rough 

benchmark a maximum access to 

providers of 30 minutes/30 miles. We 

would be interested in comments 

regarding our proposed criteria for 

developing standards for the network 

adequacy of MA plans. We are in the 

process of developing an automated 

system for reviewing network adequacy 

on a continuing basis based on the 

elements that we determine define 

community patterns of health care 

delivery. In this system, MAOs offering 

MA plans would submit data to us 

through the HPMS system specifying 

the access and availability of its 

proposed provider networks. This 

information would be analyzed and 

compared through electronic mapping 

software against our access standards for 

a given geographical area to confirm 

whether the proposed provider network 

meets our access and availability 

standards. 

Given that we are developing this 

automated system, we believe it is 


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appropriate to more explicitly define 

how we determine network adequacy. 

To that end, we propose using our 

authority under section 1852(d)(1)(A) of 

the Act to include more specific criteria 

that we will apply in defining 

community patterns of care in order to 

determine if a network offered by an 

MA plan meets Medicare access and 

availability requirements. We also 

propose applying these more specific 

criteria to the proposed provider 

networks of both coordinated care and 

PFFS plans that are intending to meet 

Medicare access to services 

requirements, in whole or in part, 

through a network of direct contracting 

providers. 

Our operational experience has 

demonstrated that the concept of 

community patterns of health care 

delivery provides a useful industry 

standard benchmark for measuring a 

proposed provider network because it 

allows for varying geographical and 

regional conditions to be taken into 

consideration. For example, plans 

operating in rural rather than urban 

counties will necessarily face different 

market conditions in terms of the 

number and specialties of providers 

available and their willingness to 

contract with the plan. 

However, given the lack of specificity 

regarding how we determine if a given 

provider network meets Medicare access 

and availability requirements in 

§ 422.112(a)(1) as currently drafted, we 

believe it is important to amend that 

section of our regulations to describe 

how we will include the elements of the 

prevailing community patterns of health 

care delivery in its evaluations of 

provider networks. We believe the 

proposed changes will make the 

standards of community patterns of care 

more transparent and consistent across 

the country. The proposed changes are 

consistent with the elements that will be 

used by the automated system we are 

developing to assess network adequacy. 

Specifically, we propose to add 

paragraph (a)(10) to amend § 422.112 to 

specify the factors comprising 

community patterns of health care 

delivery that we will use as a 

benchmark in evaluating a proposed 

MA plan health care delivery network. 

Under proposed § 422.112(a)(10), these 

factors would include, but not be 

limited to— 

• The number and geographical 

distribution of eligible health care 

providers available to potentially 

contract with an MAO to furnish plan 

covered services within the proposed 

service 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. 

We plan to further define through 

subregulatory guidance (for example the 

Call Letter) how we will operationalize 

these provisions. For example, as 

previously noted, we have in the past 

used as a rough benchmark a maximum 

access to provider ratio of 30 minutes/ 

30 miles to determine ‘‘network 

adequacy.’’ We solicit comment on 

whether these regulatory provisions are 

sufficiently clear, and whether 

clarification should be provided through 

regulation or subregulatory guidance, 

such as the annual Call Letter. 

7. Deemable Program Requirements 

Under Parts C and D (§ 422.156(b)(7), 

§ 422.156(f), § 423.165(b), and 

§ 423.165(f)) 

We are proposing to clarify which 

regulatory requirements are ‘‘deemable’’ 

for MA organizations that offer 

prescription drug benefit programs. 

Sections 1852(e)(4) and 1860D–4(j) of 

the Act provide that we can authorize 

approved accrediting organizations 

(AOs) to accredit MA organizations and 

Part D sponsors, and deem such entities 

to have met our program requirements, 

as long as the standards the AO uses to 

evaluate the performance of the 

organizations and plan sponsors meet or 

exceed our own performance 

assessment standards. The statute also 

dictates which performance standards 

we can allow an AO to evaluate in the 

place of CMS. Those standards that we 

permit AOs to survey for, rather than 

CMS, are referred to as ‘‘deemable’’ 

program requirements. 

The current regulations state that the 

Part D prescription drug benefit program 

is a deemable requirement for MA 

organizations that offer prescription 

drug benefits. We believe that this 

language does not precisely reflect the 

requirements that are listed as deemable 

in the statute. Therefore, we are 

proposing to modify § 422.156(b)(7) to 

refer to the list of deemable 

requirements for Part D sponsors set out 

at § 423.165(b)(1) through (b)(3), as we 

believe this cross reference is a more 

accurate reflection of the specific 

program requirements that are deemable 

per section 1860D–4(j) of the Act for MA 

organizations that offer prescription 

drug benefits. 

In § 422.156(f) and § 423.165(f), we 

are proposing to clarify the extent of our 

authority under the deeming program. 

The regulation currently states that we 

retain our authority to initiate 

enforcement actions against MA 

organizations or Part D sponsors that we 

determine, on the basis of its own 

survey, or the survey of an accrediting 

organization, no longer meet the 

Medicare requirements for which 

deemed status was granted. We believe 

that this language is unduly limiting 

and does not comport with the statute. 

Section 1852(e)(4)(D) of the Act states 

nothing in section 1852(e)(4) of the Act 

shall be construed to limit our authority 

under section 1857 of the Act, which 

encompasses much more than 

enforcement actions. Therefore, we are 

proposing to revise the language in 

§ 422.156(f) and § 423.165(f) to more 

closely match the authority granted by 

the statute, which is to state that we 

retain authority to impose intermediate 

sanctions and civil money penalties 

(CMPs), initiate contract terminations, 

and perform evaluations and audits of 

an organization’s records, facilities and 

operations, notwithstanding the 

deeming provisions. 

We plan to further define through 

subregulatory guidance how we will 

operationalize these provisions. We 

solicit comment on whether these 

regulatory provisions provide sufficient 

clarity. If not, we solicit comment on 

whether clarification should be 

provided through regulation or 

subregulatory guidance, such as the 

annual Call Letter. 

In § 423.165(b), we are proposing to 

delete paragraph (b)(4) from the items 

listed as deemable program 

requirements. The regulation currently 

states that a program to protect against 

fraud, waste, and abuse is a deemable 

program requirement. We believe that 

including this in the list of deemable 

requirements was an error, as the statute 

does not list a program to protect against 

fraud, waste, and abuse as one of the 

programmatic areas that is deemable. 

Therefore, we are proposing to remove 

programs to protect against fraud, waste, 

and abuse from the list of deemable 

programmatic requirements. 


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8. Modify the Corrective Action Plan 

(CAP) Process as it Relates to 

Procedures for Termination and 

Nonrenewal of a Part C or D Contract by 

CMS (§ 422.506(b)(3), § 422.510(c)(1), 

§ 423.507(b)(3), and § 423.509(c)(1)) 

Sections 1857(h) and 1860D– 

12(b)(3)(F) of the Act provide that the 

Secretary may terminate a contract with 

an MA organization or PDP sponsor in 

accordance with formal investigation 

and compliance procedures established 

by the Secretary under which the 

sponsoring organizations are to be 

provided with reasonable notice and 

opportunity for hearing and reasonable 

opportunity to develop and implement 

a CAP to correct the deficiencies that 

were the initial basis for termination 

prior to terminating the contract. These 

statutory provisions further provide, 

under sections 1857(h)(2) and 1860D– 

12(b)(3)(F) of the Act, that these 

procedures shall not apply if the 

Secretary determines that a delay in 

termination, resulting from compliance 

with these procedures prior to 

termination, would pose an imminent 

and serious risk to the health of 

individuals enrolled with the 

sponsoring organization. 

Under this statutory authority, we 

issued the December 5, 2007 final rule 

that detailed timeframes for the 

development and implementation of 

CAPs prior to an issuance of a notice of 

intent to terminate or nonrenew a CMS 

contract. These regulations, codified at 

§ 422.506(b)(3), § 422.510(c)(1), 

§ 423.507(b)(3), and § 423.509(c)(1), 

currently require us to provide 

sponsoring organizations with 45 

calendar days from the date of our 

request, to develop and submit a CAP 

prior to CMS issuing a notice of intent 

to terminate or nonrenew a contract to 

the sponsoring organization. In 

addition, the current regulations 

provide that if, after our review, this 

first CAP submission is determined 

unacceptable, the sponsoring 

organization will be provided an 

additional 30 calendar days to submit a 

revised CAP to CMS for review. Under 

these current provisions, once we 

determine the CAP acceptable, we are 

then required to notify the sponsoring 

organization of the deadline by which 

the CAP must be fully implemented. We 

must then assess whether successful 

implementation occurred. It is only after 

exercising these protracted procedures 

that we may issue a notice of intent to 

terminate or nonrenew a contract to the 

sponsoring organization in instances 

when we determine that successful 

implementation of the CAP has not 

occurred and/or the deficiencies have 

not been fully corrected. 

Since the implementation of the 

December 5, 2007 final rule, we have 

determined that some modification is 

required of our overall approach to our 

compliance procedures, particularly in 

situations when serious and/or repeated 

compliance deficiencies are identified. 

More specifically, we have concluded 

that the compliance procedures and 

timeframes set forth in § 422.506(b)(3), 

§ 422.510(c)(1), § 423.507(b)(3), and 

§ 423.509(c)(1) related to notice and 

opportunity to develop and implement 

corrective actions could be improved to 

more effectively assist us and 

sponsoring organizations in achieving 

timely, efficient, and effective correction 

of identified underlying contract 

compliance deficiencies. These current 

compliance procedures require us to 

focus our internal oversight resources 

and expertise on reviewing and 

approving ‘‘how’’ sponsoring 

organizations will correct their 

deficiencies rather than utilizing our 

resources and expertise more effectively 

and efficiently to review information 

submitted by sponsoring organizations 

to determine if the underlying 

deficiencies have actually been 

corrected. For example, if the deficiency 

cited was for misclassification of 

appeals versus grievances, current 

practice requires a sponsoring 

organization to develop a written plan 

on how it will fix the misclassification 

problem. Then the sponsoring 

organization must submit the plan to us 

for review and approval before it would 

be allowed to implement the plan. 

Rather than focusing on the plan or 

process that the sponsoring organization 

developed, we instead, should focus on 

reviewing data to determine if the 

sponsoring organization has actually 

fixed the problem and is classifying 

appeals and grievances appropriately. 

Similarly, under the current 

compliance procedures, sponsoring 

organizations potentially expend 

significant resources and expertise 

responding to requests from us for plans 

about how they will correct deficiencies 

as opposed to expending efforts on 

correcting the deficiencies identified by 

us and providing sufficient evidence 

that the identified deficiencies have 

been corrected. Given that sponsoring 

organizations have varying business 

models, levels of resources, and 

expertise, it is particularly challenging 

for us to be the decision-maker as to 

whether one operational plan of 

correction under a particular 

operational business model versus 

another will most effectively correct 

identified deficiencies and achieve 

particular compliance outcomes. 

Therefore, we believe our compliance 

procedures need to shift from focusing 

on the submission of plans for our 

review and approval that merely outline 

a process for how deficiencies will be 

corrected to a focus on requiring plans 

to demonstrate that particular outcomes 

have been achieved, for example, that 

deficiencies have actually been 

corrected. We are proposing to eliminate 

the existing language contained in 

regulations at § 422.506(b)(3), 

§ 422.510(c)(1), § 423.507(b)(3), and 

§ 423.509(c)(1) that requires CAPs to be 

submitted for our approval prior to us 

issuing a notice of intent to terminate or 

nonrenew a contract. 

We are proposing instead to add new 

provisions at § 422.506(b)(3), 

§ 422.510(c)(1), § 423.507(b)(3), and 

§ 423.509(c)(1) that captures the 

outcome-oriented approach which is 

currently incorporated in our day-to-day 

ongoing contract compliance and 

oversight activities. Under this 

approach, we are proposing to add new 

provisions which state that before 

providing a notice of intent to terminate 

or nonrenew a contract, we will provide 

the sponsoring organization with a 

notice of its deficiencies and afford it 

the opportunity to develop and 

implement a CAP to correct these 

deficiencies. We are also proposing that 

the sponsoring organization is solely 

responsible for the identification, 

development, and implementation of its 

CAP and for demonstrating to us that 

the underlying deficiencies have been 

corrected within the time period 

afforded under the notice and 

opportunity for corrective action. 

All sponsoring organizations are 

assigned a CMS account manager whose 

primary responsibility consists of dayto-day monitoring and oversight of that 

organization. In addition to these 

account management monitoring and 

oversight activities, we conduct other 

oversight activities based on data and 

information collected from sponsoring 

organizations and from other relevant 

sources. As a part of these ongoing 

overall monitoring and oversight 

activities, sponsoring organizations 

routinely receive written notification of 

their compliance deficiencies, including 

but not limited to, notices of 

noncompliance, warning notices, and 

requests for corrective actions. These 

ongoing contract monitoring and 

oversight processes are designed to 

proactively prevent, detect, and respond 

to compliance deficiencies at the lowest 

level of occurrence by providing 

sponsoring organizations with ongoing 

notification and information from CMS 


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about the current status of any 

identified compliance deficiencies that 

come to our attention and an 

opportunity to correct where 

appropriate. As a result, in many 

instances sponsoring organizations will 

receive written notification of 

noncompliance and opportunities to 

correct any deficiencies arising from the 

above-described day-to-day monitoring 

and oversight procedures. Therefore, in 

most cases the sponsoring organization 

will have been made fully aware of its 

deficiencies before CMS provides it 

with the notice and opportunity to 

implement a CAP that must be afforded 

prior to CMS issuing a notice of intent 

to terminate or nonrenew a contract 

under sections 1857(h) and 1860D– 

12(b)(3)(F) of the Act. 

In addition to these proposals, we are 

proposing to amend the existing 

language at § 422.506(b)(3), 

§ 422.510(c)(1), § 423.507(b)(3), and 

§ 423.509(c)(1) that sets forth the 

specific timeframes afforded sponsoring 

organizations for the development and 

implementation of a CAP prior to CMS 

issuing a notice of intent to terminate or 

nonrenew. 

Based on our experience under our 

ongoing contract compliance and 

oversight processes and our new 

outcome-oriented approaches to 

contract oversight and compliance, we 

have concluded that affording 

sponsoring organizations at least 30 

calendar days to develop and 

implement a CAP prior to issuing the 

notice of intent to terminate or 

nonrenew is a sufficiently reasonable 

opportunity under the statutory 

authority afforded. We will consider the 

nature and extent of the particular 

compliance deficiencies and other 

relevant factors such as whether or not 

the deficiencies are isolated or repeated 

and longstanding, and whether or not 

the entity has been afforded a prior 

notice and opportunity to correct in 

reaching a decision whether it may be 

appropriate for the MAO or Part D 

Sponsor to be afforded more than 30 

days to correct the identified 

deficiencies. 

Thus, we are proposing to amend 

§ 422.506(b)(3), § 422.510(c)(1), 

§ 423.507(b)(3), and § 423.509(c)(1) to 

afford sponsoring organizations at least 

30 calendar days to fully implement a 

CAP and to demonstrate to CMS that the 

underlying deficiencies have been 

corrected. 

9. Procedures for Imposing Intermediate 

Sanctions and Civil Money Penalties 

Under Parts C and D (§ 422.756 and 

§ 423.756)) 

Sections 1857(g) and 1860D– 

12(b)(3)(E) of the Act provide the 

Secretary the ability to impose 

intermediate sanctions on sponsoring 

organizations. Intermediate sanctions 

under these statutory provisions consist 

of suspension of enrollment, suspension 

of payment and CMPs. Sections 

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

the Act that specifically govern 

enrollment suspensions require the 

intermediate sanctions to remain in 

place until the Secretary is satisfied that 

the basis for the sanction determination 

has been corrected and is not likely to 

recur. Additionally, under sections 

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

Act, sponsoring organizations are 

required to provide the Secretary with 

such information as the Secretary may 

find necessary and appropriate. Current 

regulations governing intermediate 

sanctions are contained in Subpart O of 

parts 422 and 423. Sections 422.756 and 

423.756 provide specific procedures for 

imposing intermediate sanctions and 

CMPs, and include provisions outlining 

the duration of the sanction. 

Existing regulations at § 422.756(d)(3) 

and § 423.756(d)(3) incorporate the 

statutory standard by providing that the 

sanction remains in effect until we 

notify the sponsoring organization that 

we are satisfied that the basis for 

imposing the sanction has been 

corrected and is not likely to recur. 

Based on recent experience, it has been 

difficult at times for us to make the 

determination to lift a sanction. For 

example, when we impose an 

enrollment sanction on a sponsoring 

organization because it has failed to 

comply with enrollment and 

disenrollment requirements, it is very 

difficult for us to conclude that the 

sponsoring organization’s enrollment 

deficiencies have been corrected and are 

not likely to recur when the 

organization is not permitted to enroll 

members. Difficulties also arise when 

the sponsoring organization attempts to 

fix deficiencies with highly technical 

internal business processes. In order to 

assist us in making the determination 

that the deficiencies have been 

corrected and are not likely to recur, we 

need to have greater flexibilities at our 

disposal. 

We are proposing two changes to the 

regulation that provide additional 

flexibilities to assist us in making the 

determination to lift a sanction. First, 

we are proposing that we may require 

the sponsoring organization to hire an 

independent auditor to provide us with 

additional information to determine if 

the deficiencies upon which the 

sanction was based have actually been 

corrected and are not likely to recur. 

The independent auditor would be 

hired by the sponsoring organization 

and work in accordance with our 

specifications in order to provide 

accurate and reliable information to 

CMS. 

In making a determination to lift 

sanctions, we often must rely on either 

self-disclosed information from the 

sanctioned sponsoring organization, 

CMS data, some of which is also selfdisclosed, or we must attempt to engage 

in a process to independently verify that 

the underlying deficiencies have been 

corrected and are not likely to recur. 

Given our experience with the nature 

and extent of some compliance 

deficiencies (for example, those caused 

by information technology system 

deficiencies or lack of adequate internal 

controls) and the need to obtain the 

level of skill and experience necessary 

to conduct an exhaustive audit and 

verification of the correction of these 

deficiencies, we have concluded that an 

independent auditor hired by the 

sponsoring organization would be 

beneficial for both the sponsoring 

organization and CMS. This proposal is 

consistent with our statutory authority 

which requires sponsoring organizations 

to provide information to us when we 

deem it is necessary and appropriate. 

An independent auditor, who is familiar 

with the processes of the sanctioned 

sponsoring organization, may be able to 

provide CMS with important 

information that we may use to help us 

make a more timely decision as to when 

to lift a sanction. 

A similar approach is used by the 

HHS Office of Inspector General (OIG) 

in their Corporate Integrity Agreements 

and/or Self-Disclosure Protocol 

processes. The OIG often negotiates 

compliance obligations with health care 

providers and other entities as part of 

the settlement of Federal health care 

program investigations. A provider or 

entity consents to these obligations as 

part of the civil settlement and in 

exchange for the OIG’s agreement not to 

seek an exclusion of that health care 

provider or entity from participation in 

Medicare, Medicaid, and other Federal 

health care programs. The typical terms 

of a comprehensive OIG corporate 

integrity agreement include the 

requirement for the provider to retain an 

independent review organization to 

provide independent validation and 

verification of adherence to Medicare 

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the provider has been found to be 

noncompliant. 

We do not intend to require all 

sponsoring organizations that are under 

intermediate sanctions to hire an 

independent auditor because not all 

determinations will require the 

expertise of an independent auditor. 

However, there are situations when the 

expertise of an independent auditor will 

be helpful and in those cases, we are 

proposing we be afforded the discretion 

to require that an auditor be hired by the 

sponsoring organization. For example, 

an independent auditor who specializes 

in complex information technology 

systems and who has knowledge of how 

the systems interact with each other to 

be compliant with our requirements 

may be helpful in those instances where 

an organization with enrollment and 

disenrollment processing systems has 

been sanctioned. This is an example of 

a situation where we would require the 

sponsoring organization to hire an 

independent auditor in order to assist in 

making the determination that the 

deficiencies that formed the basis of the 

sanction have been corrected and are 

not likely to recur. 

We are also considering an alternative 

proposal whereby instead of providing 

us with the authority to require 

sponsoring organizations to engage an 

independent auditor, we would grant 

sponsoring organizations the discretion 

to hire an independent auditor to 

evaluate the organization’s compliance 

with our requirements. We would afford 

the results of the independent auditor’s 

review some weight in our 

determination of whether the bases for 

the sanction have been corrected and 

are not likely to recur. We invite 

comments from sponsors and the 

industry about this alternative proposal 

and suggestions on other options we 

could implement to accomplish the 

desired outcome. 

At this time we are proposing to add 

language to § 422.756 and § 423.756 that 

would allow us to require that a 

sponsoring organization hire an 

independent auditor to provide us with 

additional information to determine if 

the deficiencies that are the basis for a 

sanction have been corrected and are 

not likely to recur. Under either this 

proposal or our alternative proposal, the 

independent auditor would work in 

accordance with our specifications and 

must be willing to attest that a complete 

and full independent review has been 

performed. 

Next, we are proposing that in 

instances where an enrollment and/or 

marketing suspension has been 

imposed, we may determine that it is 

appropriate to subject the sponsoring 

organization to a ‘‘test period’’ whereby 

the organization or sponsor will, for a 

limited time, engage in marketing 

activities and/or accept enrollments in 

order to assist us in making a 

determination as to whether the bases 

for the sanctions have been corrected 

and are not likely to recur. The basis for 

this proposal is that we have found that 

there is often not a satisfactory way to 

determine if marketing and/or 

enrollment problems have been 

corrected while a sanction is in place 

and no such activities are permitted. 

Similarly, sponsoring organizations also 

have experienced challenges in 

demonstrating to us that these kinds of 

deficiencies have been corrected and are 

not likely to recur while they are under 

marketing and/or enrollment sanctions. 

In order to lift intermediate sanctions as 

expeditiously as possible when the 

sponsoring organization has corrected 

the deficiencies and to protect 

beneficiaries if the deficiencies have not 

been fully corrected, this proposed 

provision will permit us to assess 

whether the deficiencies upon which 

the sanction was made have been 

corrected and are not likely to recur by 

conducting a test of the organizations or 

sponsor’s processes. The specific 

requirements for the marketing and/or 

enrollment ‘‘test period’’ will be 

determined by considering numerous 

factors, including but not limited to: the 

size of the organization, the specific 

deficiencies, and the timeframe in 

which the ‘‘test period’’ is conducted. 

This provision will benefit sponsoring 

organizations, beneficiaries, and CMS. 

Sponsoring organizations will have an 

effective way to demonstrate that a 

sanction should be lifted. Beneficiaries 

will be protected because we will have 

sufficient evidence that deficiencies 

have been corrected prior to lifting 

sanctions and we will be assured that 

the bases for the sanctions have been 

corrected and are not likely to recur. 

Therefore, we are proposing to add 

language to § 422.756 and § 423.756 that 

in instances where marketing or 

enrollment or both intermediate 

sanctions have been imposed, we may 

determine, in our sole discretion, that it 

is appropriate to require the sponsoring 

organization to market and/or to accept 

enrollments for a limited time in order 

to assist us in making a determination 

as to whether the deficiencies that are 

the bases for the intermediate sanctions 

have been corrected and are not likely 

to recur. Following this time period, if 

we determine the deficiencies have not 

been corrected or are likely to recur, the 

intermediate sanction will remain in 

effect until such time that we are 

assured the deficiencies have been 

corrected and are not likely to recur. 

The sponsoring organization would 

have not had a right to a hearing to 

challenge our determination to keep the 

sanction in effect. 

In addition to the above proposed 

changes to § 422.756 and § 423.756, we 

are proposing to delete the existing 

provisions at § 422.756(c) and 

§ 423.756(c) which currently detail the 

three types of intermediate sanctions 

that may be imposed pursuant to our 

authority under sections 1857(g)(2)(B) 

through (C) and 1860D–12(b)(3)(E) of 

the Act. These provisions are 

duplicative of the list of sanctions at 

§ 422.750(a) and § 423.750(a) and are 

unnecessary. Due to this deletion, we 

are proposing to redesignate paragraphs 

(d) through (f) in § 422.756 and 

§ 423.756 as paragraphs (c) through (e), 

respectively. 

10. Termination of Contracts Under 

Parts C and D (§ 422.510(a) and 

§ 423.509(a)) 

Sections 1857(c)(2) and 1860D– 

12(b)(3)(B) of the Act permit CMS to 

terminate a sponsoring organization’s 

contract if the sponsoring 

organization— 

• Has failed substantially to carry out 

the contract; 

• Is carrying out the contract in a 

manner inconsistent with the efficient 

and effective administration of this part; 

or 

• No longer substantially meets the 

applicable conditions of this part. 

Existing regulations at § 422.510(a)(6) 

through (12) and § 423.509(a)(6) through 

(11) provide a number of bases (in 

addition to the statutory bases) upon 

which a contract may be terminated. 

This list does not include every reason 

for which we have the authority to 

terminate a contract. For example, the 

list does not explicitly include a 

provision that provides that a failure by 

the sponsoring organization to comply 

with enrollment and disenrollment 

regulations may be a basis for CMS 

termination. However, sponsoring 

organizations must follow enrollment 

and disenrollment regulations and a 

failure to comply with these regulations 

may be a basis for terminating the 

sponsoring organization’s contract 

because it would have failed 

substantially to carry out the terms of its 

contract as required by the Act. We are 

concerned that by not specifically 

including each and every requirement 

on this enumerated list, organizations 

may be under the mistaken impression 

that we cannot take an action to 

terminate (or non-renew) a contract, or 

sanction an organization, for a failure to 

comply with a requirement(s) that is not 


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enumerated. Therefore, we are 

proposing to delete the enumerated 

bases for termination contained at 

§ 422.510(a)(6) through (12) and 

§ 423.509(a)(6) through (11). In addition, 

we are proposing to revise § 422.510(a) 

and § 423.509(a) to separate the 

language into two paragraphs. The first 

paragraph, (a)(1), will list the statutory 

bases for termination under sections 

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

Act which state that we may at any time 

terminate a contract if we determine 

that the sponsoring organization has: (i) 

Failed substantially to carry out the 

contract; (ii) is carrying out the contract 

in a manner inconsistent with the 

efficient and effective administration of 

this part; or (iii) no longer substantially 

meets the applicable conditions of this 

part. The second paragraph, (a)(2), will 

clarify—(i) that a sponsoring 

organization’s failure to comply with 

our regulations, (ii) failure to meet 

performance standards; and/or (iii) 

participation in false, fraudulent, or 

abusive activities, may constitute a basis 

for CMS to determine that the 

sponsoring organization meets the 

requirements for contract termination in 

accordance with paragraph (a)(1). 

More specifically, we are proposing to 

add new language to § 422.510(a)(2)(i) 

and § 423.509(a)(2)(i) that failure to 

comply with any of the regulatory 

requirements contained in Parts 422 or 

423 may constitute a basis for CMS to 

determine that the sponsoring 

organization meets the requirements for 

contract termination in accordance with 

paragraph (a)(1). This new provision is 

intended to clarify that compliance with 

all regulations is necessary to remain a 

contracting organization with CMS and 

if the sponsoring organization’s failure 

to comply with the regulations supports 

one or more of the bases for termination 

in paragraph (a)(1), then we may 

terminate the contract. 

We are also proposing to add new 

language to § 422.510(a)(2)(ii) and 

§ 423.509(a)(2)(ii) that failure to meet 

our performance expectations in 

carrying out the Part C and Part D 

regulatory requirements may constitute 

a basis for us to determine that the 

sponsoring organization meets the 

requirements for contract termination in 

accordance with proposed paragraph 

(a)(1). This includes when we determine 

that a sponsoring organization is out of 

compliance with a Medicare 

requirement because our analysis of 

data related to that sponsoring 

organization’s performance indicates it 

is an outlier relative to that of other 

organizations. 

In some instances, we may use an 

outlier analysis to determine a sponsor’s 

performance relative to industry 

standards that were established by 

looking at the performance of all 

sponsors across the program, as 

described earlier in the preamble in our 

discussion of the development of our 

policies concerning the awarding, 

monitoring, and enforcement of 

Medicare contracts. This strategy is part 

of a larger strategy to oversee the 

program using a data driven, risk-based, 

transparent approach. This information 

is used to monitor plan sponsor 

compliance and make plan-specific and 

programmatic decisions. As reflected in 

the proposed regulations, in addition to 

using these data for program-wide 

evaluations and assessments, these 

performance standards will continue to 

be used to make assessments concerning 

compliance with our requirements and, 

when deemed appropriate, to take CMS 

contract actions, including contract 

termination and nonrenewal. 

Finally, in our proposed language we 

are retaining the authority to terminate 

a sponsoring organization that has 

committed or participated in false, 

fraudulent, or abusive activities as 

currently stated in § 422.510(a)(4) and 

§ 423.509(a)(4). However, we are 

proposing to redesignate current 

§ 422.510(a)(4) and § 423.509(a)(4) as 

§ 422.510(a)(2)(iii) and 

§ 423.509(a)(2)(iii), respectively, as such 

failures may also constitute a basis for 

us to determine that the sponsoring 

organization meets the requirements for 

contract termination in accordance with 

the proposed revisions to paragraph 

(a)(1). 

In addition, we are proposing 

additional amended language to this 

regulation. The existing regulations 

permit us to terminate a contract only 

when we determine that a sponsoring 

organization’s fraudulent activities 

concern the Medicare program. We 

believe that we should not be 

contracting with MA organizations and 

Part D sponsors who commit or 

participate in fraudulent activities 

related to any governmental health care 

programs. Therefore, we are proposing 

to amend this regulation to include 

false, fraudulent, or abusive activities 

affecting Medicaid, or other State or 

Federal health care programs. 

In addition, existing regulations that 

govern termination at § 422.510(a)(5) 

and § 423.509(a)(5) provide that we may 

terminate a contract if the sponsoring 

organization experiences financial 

difficulties so severe that its ability to 

make necessary health services available 

is impaired to the point of posing an 

imminent and serious risk to the health 

of its enrollees, or otherwise fails to 

make services available to the extent 

that such a risk to health exists. This 

language incorporates the Secretary’s 

authority under sections 1857(h)(2) and 

1860D–12(b)(3)(F) of the Act to take an 

immediate termination if it is 

determined that a delay in termination, 

in order to comply with the CAP and 

appeal termination procedures, would 

pose an imminent and serious risk to 

the health of the individuals enrolled. 

We are proposing changes elsewhere in 

these regulations to our provisions 

governing expedited terminations. 

Therefore, we are proposing to delete 

the regulatory text contained at 

§ 422.510(a)(5) and § 423.509(a)(5). 

Recognizing that it is not possible to 

enumerate every reason for which we 

have the authority to terminate a 

contract, we believe we have reached a 

good balance between providing 

sufficient regulatory detail and 

preserving administrative flexibility. 

When regulatory provisions require 

further clarification, we plan to further 

define through subregulatory guidance 

how we would operationalize these 

provisions. We have historically used 

our manual chapters, reporting 

requirements, and marketing guidelines 

to indicate how we measure compliance 

with our performance requirements and 

what we consider acceptable practice. 

We solicit comment on whether these 

regulatory provisions provide sufficient 

clarity. If not, we solicit comment on 

whether clarification should be 

provided through regulation or 

subregulatory guidance, such as the 

annual Call Letter or our Manual. 

11. Request for Hearing Under Parts C 

and D (§ 422.662 and § 423.651) 

Sections 1857(c) and 1860D–12 of the 

Act permit us to terminate contracts 

with sponsoring organizations. Current 

regulations at § 422.662(a) and 

§ 423.651(a) governing the hearing 

procedures require sponsoring 

organizations to file a request for a 

hearing on contract determinations with 

the Hearing Officer and to also file it 

with ‘‘any CMS office.’’ This procedure 

is ineffective and inefficient because it 

is likely to result in a request for hearing 

not being received by the appropriate 

officials within CMS. Consequently, we 

are proposing a modification in the 

language contained at § 422.662(a) and 

§ 423.651(a) to state that the sponsoring 

organization must file the request for a 

hearing in accordance with the 

requirements specified in the notice of 

the contract determination or 

intermediate sanction, thus ensuring 

that the proper officials within CMS 

receive the request and can act upon the 

request in a timely manner. 


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We are also making a conforming 

change at § 422.662(b) and § 423.651(b) 

which govern the timeframes for filing 

the request for hearing to provide that 

the request must be filed within 15 

calendar days after receipt of the notice 

(versus the existing language which 

states 15 calendar days from the ‘‘date 

CMS notifies’’ the sponsoring 

organization of its determination). This 

change is to ensure consistency with the 

way deadlines are described in other 

regulatory provisions of parts 422 and 

423 governing contract determinations 

or the imposition of intermediate 

sanctions (including related appeals 

processes). 

12. Burden of Proof, Standard of Proof, 

Standards of Review, and Conduct of 

Hearing (§ 422.660, § 423.650, § 422.676 

and § 423.658) 

Under the existing regulations at 

§ 422.660(b), and § 423.650(b), when 

appealing a contract determination or an 

intermediate sanction, the sponsoring 

organization bears the burden of proof 

to demonstrate that it was in 

‘‘substantial compliance’’ with our 

requirements on the ‘‘earliest of’’ 

following three dates: 

• The date of the notice of contract 

determination or intermediate sanction. 

• The date of the most recent onsite 

audit. 

• The date of the alleged breach of the 

current contract or past substantial 

noncompliance as determined by CMS. 

In practice, these existing standards of 

review (‘‘substantial compliance’’ and 

‘‘earliest of test’’) have led to confusion 

among parties to the hearing and have 

been difficult for the Hearing Officer to 

apply. We have come to realize that the 

existing ‘‘substantial compliance’’ 

standard of review articulated at 

§ 422.660(b), and § 423.650(b) does not 

reflect the nuances of the different legal 

standards provided in the Act for 

making contract determinations and 

imposing intermediate sanctions. For 

example, sections 1857(c)(2)(B) and 

1860D–12(b)(3)(F) of the Act provide 

that the Secretary may terminate a 

contract if the Secretary finds that the 

sponsoring organization ‘‘has failed 

substantially to carry out the contract, is 

carrying out the contract in a manner 

inconsistent with the efficient and 

effective administration of this part, or 

no longer substantially meets the 

applicable conditions of this part.’’ 

Similarly, there is no reference to a 

substantial compliance standard in the 

bases available to CMS for imposing 

intermediate sanctions. Based on these 

nuances, we have determined that the 

application of the substantial 

compliance standard of review to all 

appeals is unnecessarily confusing and 

may have led to unintended 

consequences in that it may have 

distorted review of the applicable 

statutory and regulatory requirements. 

Accordingly, we are proposing to delete 

‘‘substantial compliance’’ as a standard 

of review. 

In addition to the preceding, the 

‘‘earliest of’’ test does not accurately 

reflect how and when we make our 

determinations for different contract 

actions or intermediate sanctions. For 

example, when making a determination 

as to whether or not we should enter 

into a contract with an applicant, we 

review all of the information that the 

applicant provides and decides whether 

it meets our standards according to 

§ 422.501 and § 422.502 or § 423.502 

and § 423.503. If the applicant does not 

meet those standards, then we will deny 

the application. During a hearing, it 

would be inappropriate for the 

applicant to insist that its application 

should be approved because it corrected 

its deficiencies after we issued a denial 

of the application. The ‘‘earliest of’’ test 

may create this mistaken impression 

because it provides that during a 

hearing the applicant must demonstrate 

that it was in ‘‘substantial compliance’’ 

with our requirements on the ‘‘earliest 

of’’ one of three dates. This creates 

confusion and imposes an unworkable 

time period for the applicant or 

sponsoring organization to demonstrate 

that it has met CMS standards. 

Therefore, we are also proposing to 

delete the existing regulations which 

provide for an ‘‘earliest of’’ test. 

Finally, though the existing 

regulations explicitly state that the 

sponsoring organization bears the 

burden of proof, it does not provide the 

standard of proof that is to be applied 

by the hearing officer. We believe that 

the sponsoring organization bearing the 

burden of proof is appropriate since the 

purpose of the hearing is to provide the 

sponsoring organization an opportunity 

to appeal and dispute our contract 

determination or imposition of 

intermediate sanction. Therefore, we 

believe that no change is necessary 

concerning the burden of proof. In 

order, however, to more clearly 

articulate the standard of proof and 

standards of review we are proposing 

the following changes to our 

regulations. 

First, we are clarifying the standard of 

proof that we believe applies to these 

appeals proceedings. It has been our 

experience that the hearing officer does 

appropriately use the preponderance of 

evidence standard when weighing the 

evidence at a hearing for an appeal of a 

CMS contract determination or 

imposition of intermediate sanction. We 

believe, however, that it is important to 

explicitly state the standard of proof so 

as to provide as much clarity and 

consistency as possible for the Hearing 

Officers and the parties to a hearing. In 

addition, the preponderance of the 

evidence standard is consistent with the 

standard of proof used in Subparts T to 

Parts 422 and 423 which governs appeal 

proceedings for civil money penalties. 

Second, we are addressing the use of 

a proper standard of review. The 

proposed standard of review that we 

believe applies to these appeal 

procedures is dependent on the type of 

contract determination or intermediate 

sanction. Our proposed revisions make 

explicit which standard of review is to 

be applied by the Hearing Officer to the 

three types of contract determinations 

identified at § 422.641(a) and 

§ 423.641(a) and to intermediate 

sanctions identified at § 422.750 and 

§ 423.750 by noting the different 

requirements for each type of action. 

Specifically, the proposed regulation 

clarifies that the standards of review are 

different for determinations involving 

Part C or D contract application 

qualifications, those involving the 

termination or non-renewal of a 

sponsoring organization’s contract, and 

those involving the imposition of 

intermediate sanctions. These separate 

and distinct standards of review are 

intended to reflect the inherent 

differences in the processes and 

standards we use to make each type of 

determination. 

Therefore, we are proposing to delete 

the existing language contained at 

§ 422.660(b) and § 423.650(b) and 

replace it with language which provides 

that the applicant or the sponsoring 

organization has the burden of proving 

by a preponderance of the evidence that 

our determination was inconsistent with 

the requirements of the applicable part. 

We specify that these requirements are 

§ 422.501 and § 422.502 that governs the 

processes and standards for applicants 

for the MA program, § 423.502 and 

§ 423.503 for applicants for the Part D 

program, § 422.506 or § 422.510 for MA 

contract determinations, § 423.507 or 

§ 423.509 for Part D contract 

determinations, and § 422.752 or 

§ 423.752 for intermediate sanctions. 

Additionally, we propose to modify 

§ 422.660(c) and § 423.660(c), which 

currently specify that the notice of any 

decision favorable to a Part C or D 

applicants appealing a determination 

that it is not qualified to enter into a 

contract with us must be issued by July 

15th for the contract in question to be 

effective on January 1st of the following 

year. We propose changing the July 15th 


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deadline to September 1st. Over the past 

4 years, we have found the July 15th 

deadline to be an unreasonable 

timeframe within which to complete the 

hearing process afforded denied 

applicants pursuant to Subpart N of 

Parts 422 and 423. September 1st allows 

sufficient time for an applicant to 

receive a decision issued by the CMS 

Hearing Officer on the status of its 

application and for us to contract with 

the applicant should the applicant 

receive a favorable decision. 

Accordingly, we are also proposing to 

make the following conforming changes 

to § 422.660 and § 423.650. 

• Revise the section headings for 

§ 422.660 and § 423.650 to read ‘‘Right 

to a hearing, burden of proof, standard 

of proof, and standards of review’’ in 

order to conform with the section 

headings to our proposed changes. 

• Add paragraph headings. We 

believe that these additions would 

improve the structure and readability of 

the proposed regulatory text. 

• Correct the references in 

§ 422.660(a)(1) and § 423.650(a)(1). 

Sections 422.660(a)(1) and 423.650(a)(1) 

currently state that a contract applicant 

that has been determined to be 

unqualified to enter into a contract with 

CMS under § 422.501 and § 423.503 

respectively, is entitled to a hearing. 

The correct citations for the sections 

that we use when making a 

determination as to whether to enter 

into a contract with an applicant are 

§ 422.501 and § 422.502 for Part C 

contracts and § 423.502 and § 423.503 

for Part D contracts. Therefore, we are 

proposing to accurately reflect these 

references in the regulations by making 

a technical change which incorporates 

the appropriate and necessary citations 

by adding the reference § 422.502 to 

§ 422.660(a)(1), and by adding the 

reference § 423.502 to § 423.650(a)(1). 

• Make technical changes in 

§ 422.660(a) and § 423.650(a). In 

paragraphs (a)(1) through (a)(4) of these 

sections, we are proposing to revise the 

terminology preceding the crossreference (that is, change ‘‘pursuant to’’ 

to ‘‘in accordance with’’ or ‘‘under’’), 

adding a section symbol before the 

section number, and completing the 

cross-reference by adding the phrase ‘‘of 

this part’’ after the section number. 

Finally, we are also proposing to 

modify the existing regulations at 

§ 422.676(d) and § 423.658(d) governing 

the conduct of the hearing. We are 

proposing to revise the language 

contained in § 422.676(d) and 

§ 423.658(d) to provide that, consistent 

with the burden of proof, during the 

hearing the sponsoring organization 

bears the burden of being the first to 

present its argument to the Hearing 

Officer according to any briefing 

schedule determined by the Hearing 

Officer. We believe that requiring the 

sponsoring organization to present its 

argument to the Hearing Officer first is 

appropriate since the basis for our 

determination is detailed in the notice 

of determination that is sent to the 

sponsoring organization. Since the 

purpose of the sponsoring organization’s 

appeal is to dispute our determination 

it seems appropriate that the sponsoring 

organization should first be required to 

present its argument as to why it 

believes the determination is incorrect 

or otherwise not supported prior to 

CMS’ putting on its case in support of 

its contract or intermediate sanction 

determination. 

13. Expedited Contract Terminations 

Procedures (§ 422.510, § 423.509, 

§ 422.664, § 423.652, § 422.644, and 

§ 423.642)) Under Parts C and D 

Sections 1857(h)(2) and 1860D– 

12(b)(3)(F) of the Act provide the 

procedures requiring reasonable notice 

and opportunity to develop and 

implement a CAP and for a hearing shall 

not apply prior to termination if the 

Secretary determines that a delay in 

termination, resulting from compliance 

with these procedures would pose an 

imminent and serious risk to the health 

of individuals enrolled with the 

sponsoring organization. These kinds of 

terminations are referred to as 

‘‘expedited terminations’’ under current 

regulations. 

Sections 422.510(a)(4) and (5), and 

§ 423.509(a)(4) and (5) currently provide 

two of these bases for expedited 

terminations. Under § 422.510(a)(4) and 

§ 423.509(a)(4), we may terminate a 

contract when there is credible evidence 

that the sponsoring organization 

committed or participated in false, 

fraudulent, or abusive activities 

affecting the Medicare program. Under 

§ 422.510(a)(5) and § 423.509(a)(5), we 

may terminate a contract when the 

sponsoring organization experiences 

financial difficulties so severe that its 

ability to make necessary health services 

available is impaired ‘‘to the point of 

posing an imminent and serious risk to 

the health of its enrollees or otherwise 

fails to make services available to the 

extent that such a risk to health exists’’, 

thereby incorporating the expedited 

termination statutory language. 

Termination procedures at 

§ 422.510(c)(2) and § 423.509(c)(2) 

provide that if a contract is terminated 

under § 422.510(a)(4) or (a)(5), and 

§ 423.509(a)(4) or (a)(5), the sponsoring 

organization will not have the 

opportunity to submit a CAP prior to 

termination. Our notice of termination 

procedures also provide at 

§ 422.510(b)(2)(i) and § 423.509(b)(2)(i) 

that, if a contract is terminated under 

§ 422.510(a)(4) or (a)(5) and 

§ 423.509(a)(4) or (a)(5), we will notify 

the sponsoring organization that its 

contract will be terminated on a date 

specified by CMS. Appeal procedures at 

§ 422.664(b)(2) and § 423.652(b)(2) 

currently provide that a contract 

terminated under either of these bases 

will be terminated on the date specified 

by CMS and will not be postponed if a 

hearing is requested. 

These current regulations governing 

expedited terminations do not 

adequately reflect the scope of the 

Secretary’s authority under section 

1857(h)(2) and 1860D–12(b)(3)(F) of the 

Act. The Act does not limit the 

Secretary’s authority to effectuate 

expedited terminations solely based on 

the circumstances prescribed in 

§ 422.510(a)(4) or (a)(5), and 

§ 423.509(a)(4) or (a)(5) and therefore, 

these regulations are unduly limiting. If 

compliance with the CAP provisions 

and hearing procedures prior to 

termination would pose an imminent 

and serious risk to the health of 

individuals enrolled with the 

sponsoring organization, the Act 

permits us to terminate a contract 

without providing a right to a CAP or 

hearing prior to termination. While the 

current regulations provide several 

instances where such a determination 

would be appropriate, these are not the 

only instances where such a 

determination would need to be made to 

protect beneficiaries from imminent and 

serious risk to their health. 

Therefore, we are proposing to delete 

the references to § 422.510(a)(4) or (a)(5) 

and § 423.509(a)(4) or (a)(5) as contained 

in the termination (§ 422.510(b)(2)(i), 

§ 423.509(b)(2)(i), § 422.510(c)(2) and 

§ 423.509(c)(2)) and in the appeal 

procedures (§ 422.664(b)(2) and 

§ 423.652(b)(2)). More specifically, we 

are proposing to amend the termination 

procedures language of § 422.510(b)(2)(i) 

and § 423.509(b)(2)(i) to clarify that for 

terminations based on violations 

prescribed in § 422.510(a) and 

§ 423.509(a), if we determine that a 

delay in termination, resulting from 

compliance with CAP and hearing 

procedures prior to termination, would 

pose an imminent and serious risk to 

the health of the individuals enrolled 

with the sponsoring organization, the 

effective date of the termination will be 

specified, in writing by CMS. In 

addition, we are proposing to amend the 

termination procedures language at 

§ 422.510(c)(2) and § 423.509(c)(2) to 

clarify that if we determine that a delay 


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in termination, resulting from 

compliance with the CAP procedures, 

would pose an imminent and serious 

risk to the health of the individuals 

enrolled with the MA organization or 

Part D sponsor, the MA organization or 

Part D sponsor will not be provided 

with an opportunity to develop and 

implement a CAP prior to termination. 

Lastly, we are proposing to amend the 

appeals procedures language at 

§ 422.664(b)(2) and § 423.652(b)(2) to 

state that if we determine that a delay 

in termination, resulting from 

compliance with the notice and 

opportunity for hearing procedures, 

prior to termination, would pose an 

imminent and serious risk to the health 

of individuals enrolled with the MA 

organization or Part D sponsor, the date 

of termination will not be postponed if 

the MA organization or Part D sponsor 

requests a hearing. 

It is important to note that our 

proposal to delete the references to 

§ 422.510(a)(4) or (a)(5), and 

§ 423.509(a)(4) or (a)(5) contained in the 

existing termination and appeal 

procedures should not be interpreted in 

any way to limit our ability under our 

statutory authority to expedite a 

termination when we determine that a 

sponsoring organization is experiencing 

severe financial difficulty, otherwise 

fails to make services available to the 

extent that such a risk to the health 

exists or when there is credible 

evidence that a sponsoring organization 

committed or participated in false, 

fraudulent, or abusive activities. 

We are also making conforming 

changes (to ensure consistency of the 

proposed regulations) to the termination 

notice procedures contained in 

§ 422.510(b) and § 423.509(b) and notice 

of contract determinations contained in 

§ 422.644(c) and § 423.642(c) which 

reference the expedited termination 

bases. In § 422.510(b) and § 423.509(b), 

we are deleting the references to 

§ 422.510(a)(4) or (a)(5), and 

§ 423.509(a)(4) or (a)(5). In § 422.644(c) 

and § 423.642(c), we are deleting the 

references to § 422.510(a)(4) or (a)(5), 

and § 423.509(a)(4) or (a)(5) and 

replacing the language with the 

proposed language contained in 

§ 422.510(b)(2)(i) and § 423.509(b)(2)(i). 

14. Time and Place of Hearing Under 

Parts C and D (§ 422.670 and § 423.655) 

Sections 1857(h)(1)(b) and 1860D– 

12(b)(3)(F) of the Act provide the 

procedures requiring reasonable notice 

and opportunity for hearing when we 

terminate a sponsoring organization’s 

contract. Current regulations at 

§ 422.670(b) and § 423.655(b) provide 

the Hearing Officer may, on his or her 

own motion, or at the request of party, 

change the time and place for the 

hearing and may adjourn or postpone 

the hearing. Based on our experience 

with this process, we believe that both 

sponsoring organizations and we may 

need additional time to prepare for a 

hearing. Therefore, we are proposing to 

add language to § 422.670(b) and 

§ 423.655(b) to state the sponsoring 

organization or we may request that the 

hearing date be postponed by filing a 

written request no later than 5 calendar 

days prior to the scheduled hearing, 

when either the sponsoring organization 

or CMS requests an extension, the 

Hearing Officer will provide a one-time 

15 calendar day postponement, and 

additional postponements may be 

granted at the discretion of the Hearing 

Officer. 

In addition, current regulations at 

§ 422.670(a) and § 423.655(a) require 

that the CMS Hearing Officer schedule 

a hearing to review a contract 

determination or the imposition of an 

intermediate sanction within 30 

calendar days from the ‘‘receipt of 

request for the hearing.’’ We are 

proposing to change the language at 

§ 422.670(a) and § 423.655(a) to provide 

that the CMS Hearing Officer schedule 

a hearing to review a contract 

determination or the imposition of an 

intermediate sanction within 30 

calendar days after the ‘‘receipt of the 

request for the hearing.’’ This change is 

to ensure consistency with the way 

deadlines are described in other 

regulatory provisions of parts 422 and 

423 governing contract determinations 

or the imposition of intermediate 

sanctions (including related appeals 

processes). 

15. Discovery Under Parts C and D 

(§ 422.682 and § 423.661) 

Sections 1857(h)(1)(b) and 1860D– 

12(b)(3)(F) of the Act provide the 

procedures requiring reasonable notice 

and opportunity for hearing when we 

terminate a sponsoring organization’s 

contract. The statute does not require a 

formal discovery process for CMS 

appeal procedures. In the December 5, 

2007 final rule, we provided in 

§ 422.682 and § 423.661 for a formal 

discovery process prior to hearing. 

However, based on our experience since 

the promulgation of this rule, we do not 

now believe a formal discovery process 

is necessary or appropriate for these 

kinds of proceedings. In addition, the 

existing timeframe in which the hearing 

normally must take place, 30 calendar 

days after request for a hearing, does not 

easily accommodate a formal discovery 

process. 

Therefore, we are proposing to delete 

the formal discovery process contained 

in § 422.682 and § 423.661. 

Simultaneously, we need to ensure that 

both parties receive witness lists and 

relevant documents with enough time 

prior to the hearing while at the same 

time ensuring the hearing is conducted 

in a timely and orderly fashion. 

Therefore, we are proposing to amend 

the regulations at § 422.682 and 

§ 423.661. First, we propose to modify 

the existing regulations to change the 

titles of § 422.682 and § 423.661 from 

‘‘Discovery’’ to ‘‘Witnesses and 

Documents’’ to reflect the changes 

made. Second, under this newly titled 

section, we are proposing to substitute 

new language which requires that 

witness lists and documents must be 

identified and exchanged at least 5 

calendar days prior to the scheduled 

hearing. We believe this change more 

appropriately reflects what is necessary 

to meet the evidentiary needs of the 

parties by providing the parties with the 

appropriate amount of information in 

advance of the hearing to present their 

evidence and counter arguments. 

Additionally, existing regulations at 

§ 422.670(a)(2) and § 423.655(a)(2) 

currently provide that the Hearing 

Officer will notify the parties of the 

ability to conduct formal discovery. 

Because we are proposing to delete the 

formal discovery processes in § 422.682 

and § 423.661, we are proposing to make 

a conforming change by deleting 

§ 422.670(a)(2) and § 423.655(a)(2). 

16. Review by the Administrator Under 

Parts C and D (§ 422.692(a) and 

§ 423.666(a)) 

Sections 1857(h)(1)(b) and 1860D– 

12(b)(3)(F) of the Act provide the 

procedures requiring reasonable notice 

and opportunity for hearing when we 

terminate a sponsoring organization’s 

contract. Our current regulations at 

§ 422.692 and § 423.666 provide for a 

sponsoring organization to request 

review by the CMS Administrator of a 

hearing decision. These existing 

regulations provide that a sponsoring 

organization may request review by the 

Administrator within 15 calendar days 

of ‘‘receiving the hearing decision.’’ 

We are proposing to revise the 

language at § 422.692(a) and 

§ 423.666(a) to provide that the 

sponsoring organization may request 

review by the Administrator within 15 

calendar days after ‘‘receipt of the 

hearing decision.’’ In addition, we are 

proposing to change the language at 

§ 422.692(c) and § 423.666(c) governing 

the notification of Administrator 

determination to state that the 

Administrator must notify both parties 


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of his or her determination regarding 

review of the hearing decision within 30 

calendar days after ‘‘receipt of the 

request for review’’ (versus the existing 

language which provides within 30 

calendar days of ‘‘receiving the request 

for review’’). These changes ensure 

consistency with the way deadlines are 

described in other regulatory provisions 

of Parts 422 and 423 governing contract 

determinations or the imposition of 

intermediate sanctions (including 

related appeals processes). 

17. Reopening of an Initial Contract 

Determination or Decision of a Hearing 

Officer or the Administrator Under Parts 

C and D (§ 422.696 and § 423.668) 

Sections 1857(h)(1)(b) and 1860D– 

12(b)(3)(F) of the Act provide the 

procedures requiring reasonable notice 

and opportunity for hearing when we 

terminate a sponsoring organization’s 

contract. Our current regulations at 

§ 422.696 and § 423.668 govern the 

reopening of an initial contract 

determination or decision of a Hearing 

Officer or the Administrator. More 

specifically, existing regulations at 

§ 422.696(a) and § 423.668(a) state that 

we may reopen and revise an ‘‘initial 

determination’’ upon our own motion. 

The term ‘‘initial determination’’ is not 

used elsewhere in Subpart N (Contract 

determinations and Appeals). Therefore, 

we are proposing to revise these 

regulations by replacing the language 

‘‘initial determination’’ with ‘‘contract 

determination’’ in the section headings 

of § 422.696 and § 423.668 and in the 

text of § 422.696(a) and § 423.668(a). 

18. Prohibition of MA and Part D 

Applications for 2 Years After a Mutual 

Termination (§ 422.503(b)(6) and 

§ 423.504(b)(5)) 

The regulations in § 422.503(b)(6) and 

§ 423.504(b)(5) currently provide that 

MA organizations and Part D sponsors 

that nonrenew contracts with CMS are 

considered unqualified to recontract 

with us for a period of 2 years, unless 

we identify circumstances that warrant 

special consideration. This is consistent 

with § 422.506(a)(4) and § 423.507(a)(3), 

which describe contract nonrenewal 

requirements and procedures. We 

interpret these provisions to apply to 

MA organizations and Part D sponsors 

that nonrenew all of their contracts with 

us in a given area for a given line of 

business (MA or Part D), thereby 

severing their contractual relationship 

with the Agency across all of their MA, 

Part D, or both lines of business in the 

area. We have not interpreted this 

provision to apply to an organization 

that, for instance, holds many MA 

contracts in an area but chooses to 

nonrenew fewer than all of those 

contracts. 

In practice, a voluntary nonrenewal of 

a contract by a Part D sponsor or MA 

organization is not dissimilar from an 

organization requesting and being 

granted a mutual termination of their 

contract under § 422.503 and § 423.508. 

The primary difference between the two 

events is often timing, whereby a 

nonrenewal request to take effect at the 

end of the current contract year must be 

received by us on or before the first 

Monday in June (the bid deadline), as 

specified in § 423.507(a)(2)(i) and 

§ 422.506(a)(2)(i). Once an organization 

submits a bid, it can no longer 

voluntarily nonrenew its contract for the 

following year. Rather, the Part D 

sponsor or MA organization must 

request a mutual contract termination. 

The later in the year the organization 

requests such a mutual termination for 

the following contract year, the more 

disruptive and difficult the process 

becomes. Particularly, once the 

organization completes all of its contract 

renewal obligations, such as signing a 

new bid attestation and a contract with 

CMS, where applicable, we begin 

including the new plan offerings under 

the contract on our Web site and in 

print materials to inform beneficiaries 

about the opportunity to enroll in those 

plan offerings for the upcoming contract 

year. To request a mutual contract 

termination late in the year once such 

information has become publicly 

available, marketed to beneficiaries, and 

beneficiaries have been given the 

opportunity to enroll is to create 

significant disruption for us and 

beneficiaries. Similarly, even greater 

disruption results from mutual 

terminations requested to take effect 

during the course of a contract year. 

Circumstances are sometimes such 

that the requesting MA organization or 

Part D sponsor is requesting the mutual 

termination because it realizes it would 

be significantly out of compliance with 

one or more program requirements 

should it keep the contract in place. 

Therefore, it is sometimes in the 

organization’s and our interest to 

execute the mutual termination. 

Nevertheless, the disruption is 

significant and completely the 

responsibility of the sponsor. Yet, 

currently the regulations are silent on 

whether the MA organization or Part D 

sponsor would be qualified to enter into 

new contracts with CMS in future years. 

We believe that a termination by mutual 

consent, which involves a termination 

by an MA organization or a Part D 

sponsor as well as by CMS, should be 

considered a termination of a contract 

for purposes of the 2-year ban on 

entering into new contracts under 

section 1857(c)(4)(A) of the Act, which 

is incorporated for Part D under section 

1860D–12(b)(3)(B) of the Act. 

For these reasons, we are proposing 

that as a condition of the consent to a 

mutual termination, we will prohibit the 

MA organization or Part D sponsor from 

applying for new contracts or service 

area expansions for a period of 2 years, 

absent circumstances that warrant 

special consideration as provided under 

section 1857(c)(4)(A) of the Act. Such 

language would be incorporated into the 

mutual termination consent agreement 

to be signed by both parties. 

Therefore, we are proposing to modify 

§ 423.508 by adding paragraph (e), 

which states that as a condition of the 

consent to a mutual termination, we 

will require as a provision of the 

termination agreement language 

prohibiting the Part D sponsor from 

applying for new contracts or service 

area expansions for a period of 2 years, 

absent circumstances warranting special 

consideration. Similarly, in 

§ 423.504(b), we propose to add a new 

paragraph (b)(6) stating that 

organizations may be qualified to apply 

for new contracts to the extent that they 

have not terminated a contract by 

mutual consent under which, as a 

condition of the consent, the Part D 

sponsor agreed that it was not eligible 

to apply for new contracts or service 

area expansions for a period of 2 years 

per § 423.508(e). To accomplish these 

changes, we propose to redesignate the 

current § 423.504(b)(6) to 

§ 423.504(b)(7). 

We propose to make the same 

modification to the MA regulations. 

Specifically, we are proposing to modify 

§ 422.508 by adding paragraph (c), 

which states that as a condition of the 

consent to a mutual termination, we 

will require as a provision of the 

termination agreement language 

prohibiting the MA organization from 

applying for new contracts or service 

area expansions for a period of 2 years, 

absent circumstances warranting special 

consideration. Similarly, in section 

§ 422.503(b), we propose to add a new 

paragraph (b)(7), stating that 

organizations may be qualified to apply 

for new contracts to the extent that they 

have not terminated a contract by 

mutual consent under which, as a 

condition of the consent, the MA 

organization agreed that it was not 

eligible to apply for new contracts or 

service area expansions for a period of 

2 years per § 422.508(c). 


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B. Changes To Strengthen Beneficiary 

Protections 

This section includes provisions 

aimed at strengthening beneficiary 

protections under Parts C and D. Under 

Part D, we address proposals in the area 

of eligibility and enrollment policy, 

transition period requirements, 

coordination of benefits policy, 

retroactive claims adjustment 

reimbursements and recoveries, and use 

of standardized technology. We also 

propose to revise Part D rules regarding 

timeframes and responsibility for 

making redeterminations. 

Under Part C, we propose to revise 

our rules to— 

• Authorize us to annually establish 

an overall annual cap on member cost 

sharing; 

• Prohibit PPO, PFFS, and MSA plans 

from using compliance with voluntary 

prior notification procedures in 

determining cost-sharing amounts; 

• Establish new requirements for 

organization determinations; and 

• Offer two definitional revisions. 

In the area of Parts C and D marketing, 

we continue to monitor plans that use 

independent agents and brokers to 

ensure sponsoring organizations adhere 

to CMS requirements. In this rule, we 

solicit comments on options aimed at 

further protecting beneficiaries in this 

area. We also propose to strengthen our 

marketing requirements, distinguishing 

marketing materials from enrollee 

communications materials and 

mandating the use of standardized 

marketing material language and format 

to ensure clarity and accuracy among 

plan documents. We also clarify notice 

requirements, and propose that 

sponsoring organizations disclose 

information concerning the 

organization’s performance and 

compliance deficiencies to enable 

beneficiaries to make informed choices. 

This information is detailed in Table 2. 

TABLE 2—PROVISIONS TO STRENGTHEN BENEFICIARY PROTECTIONS

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Broker & Agent Requirements under Parts C and D .... N/A ............... N/A ..................................... N/A ............... N/A. 

Beneficiary Communications Materials under Parts C 

and D.

Subpart V ..... § 422.2260, § 422.2262 ..... Subpart V ..... § 423.2260, § 423.2262. 

Required Use of Standardized Model Materials under 

Parts C and D.

Subpart V ..... § 422.2262 ......................... Subpart V ..... § 423.2262. 

Extend the mandatory minimum grace-period for failure 

to pay premiums.

Subpart B ..... § 422.74 ............................. Subpart B ..... § 423.44. 

Maximum allowable out-of-pocket cost amount for 

Medicare Parts A and B services.

Subpart C ..... § 422.100 ........................... N/A ............... N/A. 

Maximum allowable cost sharing amount for Medicare 

Parts A and B services and prescription drugs.

Subpart C ..... § 422.100 ........................... Subpart C ..... § 423.104 

Prohibition on prior notification by PPO, PFFS, and 

MSA plans.

Subpart A ..... § 422.2, § 422.4, 

§ 422.105(b).

N/A ............... N/A 

Requirements for LIS eligibility: Expand the deeming 

period for LIS-eligible beneficiaries to cover at least 

13 months.

N/A ............... N/A ..................................... Subpart P ..... § 422.773(c)(2). 

Expand auto-enrollment rules to entire LIS-eligible population.N/A ............... N/A ..................................... Subpart B ..... § 423.34 

Special Enrollment Period (SEP) Policies ..................... N/A ............... N/A ..................................... Subpart B ..... § 423.38. 

Transition Process .......................................................... N/A ............... N/A ..................................... Subpart C ..... § 423.120(b)(3). 

Sponsor responsibility for retroactive claims adjustment 

reimbursements and recoveries.

N/A ............... N/A ..................................... Subpart J ..... § 423.464. 

Time Limits for Coordination of Benefits ........................ N/A ............... N/A ..................................... Subpart J ..... § 423.466. 

Pharmacy use of Standard Technology (ID cards) 

under Part D.

N/A ............... N/A ..................................... Subpart C ..... § 423.120. 

Allow members in stand-alone Part D plans to be temporarily out of area for up to 12 months.N/A ............... N/A ..................................... Subpart B ..... § 423.44. 

Prohibit mass SPAP reenrollments during plan year .... N/A ............... N/A ..................................... Subpart J ..... § 423.464(e). 

Non-Renewal Public Notice 60-day non-renewal beneficiary notification requirement.Subpart K ..... § 422.506 ........................... Subpart K ..... § 423.507. 

Notice of Alternative Medicare Plans ............................. Subpart K ..... § 422.5(a)(2)(ii) .................. Subpart K ..... § 423.507(2)(ii). 

Timeframes and Responsibility for making Redeterminations under Part D.N/A ............... N/A ..................................... Subpart M .... § 423.590. 

Requirements for Requesting Organization Determinations.Subpart M .... § 422.568 ........................... N/A ............... N/A. 

Organization Determinations under Parts C .................. Subpart M .... § 422.566 & § 422.568 ....... N/A ............... N/A. 

Refine/clarify definitions related to authorized representatives.Subpart M .... § 422.561, § 422.574 & 

§ 422.624.

N/A ............... N/A. 

Sponsors may be required to disclose to enrollees 

compliance and performance deficiencies.

Subpart C ..... § 422.111(g) ....................... Subpart C ..... § 423.128(f). 

Revise definition of ‘‘service area’’ to exclude facilities 

in which individuals are incarcerated.

Subpart A ..... § 422.2 ............................... N/A ............... N/A. 

1. Broker and Agent Requirements 

Under Parts C and D 

Prior to January 1, 2006, beneficiaries 

could enroll in MA plans (then called 

Medicare+Choice plans) at any time 

throughout the year, effective the first 

day of the next month. Under those 

circumstances, most MA plans were 

able to employ a full-time sales force. 

Effective January 1, 2006, enrollment in 

MA plans and Part D prescription drug 

plans (PDPs) was limited to an annual 

coordinated election period in the fall, 

and in the case of MA plans only, the 


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open enrollment period during the first 

3 months of the year. As a result, 

maintaining a full-time, year-round 

sales force became untenable for many 

organizations, leading to increasing 

reliance on independent agents and 

brokers to educate beneficiaries about 

their Medicare health care options and 

enroll them in their products. 

In 2008, the Congress enacted the 

Medicare Improvements for Patients and 

Providers Act (Pub. L. 110–275) 

(MIPPA). In order to address concerns 

raised by reports of significant agent and 

broker misconduct in the market place, 

section 103 of MIPPA placed certain 

restrictions and limits on the marketing 

of MA plans and PDPs. Our objective in 

implementing the marketing 

requirements included in the MIPPA 

was to ensure that agent and broker 

compensation would not create 

financial incentives for agents and 

brokers to enroll Medicare beneficiaries 

in particular MA plans or PDPs based 

on considerations other than the best 

interests of the beneficiary. 

In the September 18, 2008 Federal 

Register, we published an interim final 

rule with comment period (73 FR 

54226) implementing the MIPPA 

compensation provisions. In the 

November 14, 2008 Federal Register, we 

published the Medicare Advantage & 

Prescription Drug Programs: 

Clarification of Compensation Plans 

interim final rule with comment period 

(73 FR 67406), which clarified and 

modified the September 18, 2008 rule in 

part because we believed that plans 

were misinterpreting certain provisions 

of the September 18, 2008 interim final 

rule. Because so little time has passed 

since the publication of these rules, we 

believe it is too soon to fully evaluate 

whether these changes involving agent 

compensation have achieved the 

MIPPA’s goal of creating incentives for 

agents and brokers to assist beneficiaries 

with selecting plans based on their 

health care needs rather than on agent 

or broker financial interests. 

We recognize the important role that 

agents and brokers play in assisting 

beneficiaries with accessing and 

understanding plan information, making 

informed choices, and enrolling them in 

Medicare health plans. However, we 

remain concerned about the inherent 

financial incentives independent agents 

and brokers have when selling Medicare 

products. For this reason, we are 

continuing to explore the most effective 

means of providing Medicare health 

plan and drug plan information and 

enrollment assistance in order to ensure 

that beneficiaries select the plan that 

best meets their needs, including 

whether additional changes are needed 

in the requirements related to plan 

sponsors’ use of agents and brokers. 

Our overarching objective is that with 

any potential further limitations on 

independent agent and broker activity 

beneficiaries will continue to have the 

assistance they need to make health care 

choices best suited to their needs. We 

provide a number of tools, both through 

our print publications and our online 

resources (Medicare Options Compare, 

MPDPF, and Online Enrollment Center) 

to assist beneficiaries with their health 

care decisions, and we continuously 

seek to improve these tools. We are 

exploring whether State Health 

Insurance Assistance Programs (SHIPs) 

have the capacity to serve significantly 

more Medicare beneficiaries. We also 

are considering limiting the use of 

independent agents and brokers by MA 

organizations to certain times of the 

year, specifically, the open enrollment 

period (OEP) and annual enrollment 

period (AEP), or to selected groups of 

beneficiaries. Limiting the use of 

independent agents and brokers to the 

OEP and AEP or to a subset of 

beneficiaries would allow us to better 

focus our monitoring efforts throughout 

the year, while still recognizing the role 

independent agents and brokers play in 

assisting beneficiaries with obtaining 

and evaluating plan information 

(including year to year plan benefit 

changes), making informed choices, and 

enrolling in Medicare health plans. 

While we are not proposing any 

changes at this time, we are seeking 

comments on the approaches discussed 

in this section, as well as other potential 

solutions to ensure that beneficiaries 

receive adequate assistance in 

understanding their choices and with 

enrollment, including potential 

alternative roles for agents and brokers. 

Any changes resulting from comments 

to this section will be implemented 

through future notice and comment 

rulemaking. 

2. Beneficiary Communications 

Materials Under Parts C and D 

(§ 422.2260, § 422.2262, § 423.2260, and 

§ 423.2262) 

Section 1851(h) of the Act, which is 

made applicable to Part D in section 

1860D–1(b)(1)(vi) of the Act, established 

requirements regarding the review and 

approval of marketing materials by MA 

organizations and PDP sponsors. 

Sections 422.2260 and 423.2260 of the 

regulations define marketing materials 

as informational materials targeted to 

Medicare beneficiaries which may 

include the following: 

• General audience materials such 

as— 

++ General circulation brochures; 

++ Newspapers; 

++ Magazines; 

++ Television; 

++ Radio; 

++ Billboards; 

++ Yellow pages; or 

++ The Internet. 

• Marketing representative materials 

such as scripts or outlines for 

telemarketing or other presentations. 

• Presentation materials such as 

slides and charts. 

• Promotional materials such as 

brochures or leaflets, including 

materials for circulation by third parties 

(for example, physicians or other 

providers); 

• Membership communication 

materials such as— 

++ Membership rules; 

++ Subscriber agreements; 

++ Member handbooks; and 

++ Wallet card instructions to 

enrollees. 

• Letters to members about— 

++ Contractual changes; 

++ Changes in providers; 

++ Premiums; 

++ Benefits, plan procedures, and 

membership; or 

++ Claims processing activities. 

Sections 422.2260, 422.2262, 

423.2260, and 423.2262 codify 

requirements regarding CMS review and 

approval of marketing materials. Given 

a number of years of experience in 

implementing these processes under 

both the Part C and Part D programs, we 

have found that our definition of the 

term ‘‘marketing materials’’ is so broad 

as to encompass plan notification 

materials that are often either situational 

materials or beneficiary specific 

customized communications. As these 

materials are considered marketing 

materials, they are subject to our rules 

regarding review, distribution, and 

approval in § 422.2262 and § 423.2262. 

However, we have found that CMS 

Regional Office review and approval 

procedures for situational marketing 

materials should follow a separate 

review process determined by CMS. 

Materials that are beneficiary specific 

letters are not considered to be 

marketing materials such as— 

• Part D explanations of benefits 

(EOBs); 

• Notifications about claims 

processing changes or errors; and 

• Other one-time or situational, 

beneficiary specific letters to current 

enrollees. 

Therefore, we propose to revise 

§ 422.2260 and § 423.2260 to exclude 

materials about claims processing 

activities from the definition of 

marketing materials. We also propose to 

add a definition of current enrollee 


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communications materials not to be 

considered marketing materials 

encompassing information targeted to 

situational or beneficiary-specific 

circumstances, including claims 

processing issues and other one-time 

communications about operations. In 

addition, we propose to revise 

§ 422.2262 and § 423.2262 to specify 

that, while current enrollee 

communications are not subject to the 

statutory requirement that applies to 

marketing materials (that is, that they be 

submitted to CMS for review prior to 

use), we retain the right to review them, 

and their use could be disapproved by 

CMS, or disapproved unless 

modifications are made. We believe 

these changes will streamline the review 

and approval of beneficiary 

communication notices to current 

members. 

3. Required Use of Standardized Model 

Materials Under Parts C and D 

(§ 422.2262 and § 423.2262) 

Section 1851(h) of the Act establishes 

standards for review and approval of 

marketing materials. Section 1860D– 

1(B)(1)(vi) of the Act requires CMS to 

use rules ‘‘similar to (and coordinated 

with)’’ the foregoing marketing rules set 

forth in section 1851(h) with respect to 

Part D marketing. Specifically, 

organizations may not distribute 

marketing materials unless they have 

been submitted to CMS for review. 

Materials submitted for such review are 

deemed to be approved unless 

disapproved within 45 days, or 10 days 

when using model language specified by 

CMS. In reviewing marketing materials 

or election forms under § 422.2264 and 

§ 423.2264, we ensure that marketing 

materials are provided in a format (with 

appropriate print size, as applicable) 

specified by CMS and will use standard 

terminology specified by CMS. 

Our current marketing materials 

submission and review process 

encourages MAOs and PDP sponsors to 

use model materials to expedite the 

review and approval process. The model 

documents contain language provided 

by CMS, including language that is 

optional (or that can be modified), for 

plan use. Under this arrangement, 

MAOs and Part D sponsors may submit 

customized materials that reflect 

preferred word choices or phrasing tied 

to corporate messaging. 

As marketing materials that describe 

plan benefits are critical to ensuring that 

beneficiaries make the best health care 

decisions for their particular needs, it is 

imperative that plan materials are 

accurate, free of errors, and comparable 

across MAOs and PDPs. Accordingly, in 

order to reduce variability of marketing 

materials and to ensure documents are 

more accurate and understandable to 

beneficiaries, we propose to move 

toward greater standardization of the 

information provided in plan marketing 

materials. Specifically, we are proposing 

to revise § 422.2262 and § 423.2262 to 

require that MAOs and PDP sponsors 

use standardized marketing material 

language and format, without 

modification, in every instance in which 

we provide standardized language and 

formatting. We provide MAOs and PDP 

sponsors with standardized marketing 

materials through the annual Call Letter 

or Health Plan Management System 

(HPMS) memoranda. We believe this 

change would ensure beneficiaries 

receive more accurate and comparable 

information to make informed decisions 

about their health care options. This 

proposed change will also ensure 

increased efficiencies and greater 

consistency in our marketing material 

review protocols and processes. 

4. Involuntary Disenrollment for Failure 

To Pay Plan Premiums Under Parts C 

and D (§ 422.74 and § 423.44) 

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

provides that MA organizations may 

terminate those MA plan enrollees who 

fail to pay basic and supplemental 

premiums within the grace period 

established by the MA organization. 

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 

organizations under section 1851 of the 

Act. Consistent with these sections of 

the Act, the Parts 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 1-month grace 

period before disenrolling individuals 

for failure to pay the premium. 

Similarly, under current regulations at 

§ 423.44(b)(1)(i) and § 423.44(d)(1), Part 

D sponsors may disenroll an individual 

from a PDP for failing to pay PDP 

premiums on a timely basis, using the 

process set forth in the regulations. 

Unlike the statute, the Part D regulations 

do not specifically use the term ‘‘grace 

period,’’ but we have interpreted the 

regulations in the Medicare Managed 

Care Manual provisions (Section 40.3.1 

of the Enrollment Chapter) to require 

that organizations provide beneficiaries 

a grace period of not less than 1 month, 

beginning on the first day of the month 

for which the premium is unpaid, before 

disenrollment for failure to pay 

premiums timely. For both Parts C and 

D, these involuntary disenrollments are 

not mandatory; thus, organizations may 

choose to implement longer grace 

periods or forego involuntary 

disenrollments entirely. 

However, MA organizations and Part 

D sponsors that choose to disenroll 

enrollees for failure to pay premiums 

must notify the enrollee of the 

delinquency and allow the enrollee an 

opportunity to resolve the delinquency 

within 30 days. Further, the 

organization or sponsor must also be 

able to demonstrate to us that it has 

made reasonable efforts to collect the 

unpaid premium amounts. Given the 

time required to notify the enrollee of 

the delinquency, for the enrollee to 

make payment, and for the payment to 

be received by the organization in cases 

where the organization has established 

the minimum grace period, the actual 

amount of time the enrollee has to 

resolve the delinquency may be less 

than one month. 

A beneficiary who is disenrolled from 

his or her MA or Part D plan for failure 

to pay premiums is not eligible for a 

special enrollment period based on that 

disenrollment. This beneficiary may be 

unable to enroll in another plan until 

the next annual election period in the 

fall. This may leave a significant gap in 

coverage for MA–PD and PDP enrollees, 

since their disenrollment will likely 

leave them without prescription drug 

coverage for the remainder of the year, 

and in addition they potentially face a 

late enrollment penalty (LEP) should 

they subsequently choose to re-enroll in 

some type of Medicare prescription drug 

coverage. Given the possible risk to the 

health status of individuals that lose 

prescription drug coverage, as well as 

the LEP consequences, we propose to 

codify in regulations a stronger version 

of our existing policy. 

Therefore, we are proposing to amend 

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

§ 423.44(d)(1) regarding disenrollment 

for nonpayment of premium to require 

a minimum grace period of 2 months 

before any involuntary disenrollment 

associated with failure to pay a 

premium. We further propose to codify 

the aforementioned manual provision 

regarding the beginning of the grace 

period for Part D. We believe that a 2- 

month period will provide adequate 

time for organizations to respond to 

instances in which individuals fail to 

pay their premiums, and for affected 

enrollees to take steps to remedy the 

situation and avoid disenrollment. We 

note that organizations would still be 

able to offer a more generous grace 

period than provided in the regulation, 

if they so choose. 


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5. Maximum Allowable Out-of-Pocket 

Cost Amount for Medicare Parts A and 

B Services (§ 422.100) 

Under section 1852(b)(1) of the Act, 

we may not approve MA plans if we 

determine that the design of the plan 

and its benefits would substantially 

discourage enrollment by certain MA 

eligible individuals. Based on program 

experience and efforts to curb 

discriminatory benefit packages, we are 

proposing that all local MA plans 

include an annual out-of-pocket cap on 

members’ total cost-sharing liability for 

Part A and Part B services, the amount 

of which will be set annually by CMS. 

Given that regional PPO plans already 

are required to have an annual cap on 

member out-of-pocket costs and that 

many local MA plans already have such 

limits, we believe that requiring the 

inclusion of such a limit in plan design 

is necessary in order to avoid 

discouraging enrollment by individuals 

who utilize higher than average levels of 

health care services (that is, in order for 

a plan not do be discriminatory in 

violation of section 1852(b)(1) of the 

Act). 

While our concern about 

discriminatory or confusing benefit 

packages is longstanding, it has been 

particularly acute since the 

implementation of the Medicare 

Prescription Drug, Improvement and 

Modernization Act of 2003 (MMA) (Pub. 

L. 108–173). Since that time, plan 

offerings have become increasingly 

complex in terms both of cost sharing 

design and rules governing the 

application of cost sharing. For 

example, Health Maintenance 

Organization (HMO) plans may have a 

point of service benefit that allows the 

enrollee to obtain services out of 

network, but for higher cost-sharing 

levels. Preferred provider organization 

(PPO) plans are required to cover all 

plan services both in and out of network 

with typically higher out-of-network 

cost sharing. Members in private fee-forservice (PFFS) plans with a network 

may have differential cost sharing 

depending on whether they obtain 

services from a contracting or a deemed 

provider. Also, some coordinated care 

plans have introduced cost sharing 

‘‘tiers’’ by which enrollees may be 

assessed different cost-sharing amounts 

depending on, for example, the plan 

contracted hospital from which they 

seek care. Because MA plans can vary 

in numerous ways, we are increasingly 

concerned that, faced with too many 

complex choices, beneficiaries are 

unable to confidently compare health 

plans and make meaningful choices. 

Because of these concerns, in the last 

few years, we have used our authority 

under section 1852(b)(1) of the Act to 

scrutinize cost sharing and benefit 

designs offered by MA plans, and to 

require changes on a case by case basis 

where we found discriminatory costsharing. We also established out-ofpocket limits that, if adopted under an 

MA plan, would exempt the plan cost 

sharing from the same level of scrutiny 

it would otherwise receive. 

For example, during the period since 

2003, we have issued guidance: (1) 

Establishing an optional out-of-pocket 

maximum that plans could adopt which 

would result in less scrutiny of costsharing amounts for individual benefits 

under the plan; and (2) identifying 

certain health care services for special 

review that beneficiaries with higher 

than average health care needs are likely 

to need (for example, in-patient 

hospital, dialysis, skilled nursing 

facility (SNF), mental health services, 

Part B drugs and home health care). 

To implement this guidance, we 

established a comprehensive process to 

review the proposed cost sharing of 

each plan benefit package and 

determine if the cost sharing design 

discriminates against those beneficiaries 

with higher than average health care 

needs. Specifically, we have conducted 

outlier analyses for the purpose of 

reviewing whether cost sharing levels 

on submitted benefit designs are 

discriminatory. We review, for example, 

the distribution of cost sharing levels 

submitted by MA organizations to 

identify the levels in the upper tail end 

of the range. This analysis assists us in 

determining the cost sharing threshold 

above which we consider the level to be 

discriminatory. We believe these efforts 

have resulted in some improvements in 

reducing discriminatory cost sharing 

and transparency of plan design. For 

example, including regional PPO plans, 

nearly 60 percent of all current MA 

plans have an out-of-pocket cap on 

beneficiary cost sharing with some local 

plans excluding certain services. Based 

on this experience, we believe that both 

a standard and mandatory cap on 

member cost sharing for all local MA 

plan types is an important and 

necessary step to ensure that plans are 

not discriminatory and beneficiaries are 

protected from unreasonable financial 

costs regardless of which MA plan they 

enroll. 

Under our authority in section 

1852(b)(1)(A) of the Act to ensure 

against MA plans that discriminate, our 

authority under section 1856(b)(1) of the 

Act to establish MA standards by 

regulation, and our authority under 

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

necessary and appropriate contract 

terms, we propose to amend 

§ 422.100(f)(3) by adding a new 

paragraph (f)(4) to specify that all local 

MA plans must establish an out-ofpocket maximum inclusive of all 

Medicare Parts A and B services that is 

no greater than the annual limit set by 

CMS. The cap for local PPO plans will 

be inclusive of all in-network and outof-network beneficiary cost sharing. The 

methodology for determining the out-ofpocket maximum for local MA plans 

will be similar to the methodology we 

used to establish the voluntary out-ofpocket maximum amount for MA plans 

for contract year 2010. The out-ofpocket maximum will be set at a certain 

percentile of expected FFS spending, 

and this amount will be estimated by 

the Office of the Actuary (OACT). We 

summarized the methodology used to 

determine the voluntary out-of-pocket 

maximum for MA plans for contract 

year 2010 on page 13 of the 2010 Call 

Letter. As summarized in the 2010 Call 

Letter, MA out-of-pocket threshold is 

based on a beneficiary-level distribution 

of Parts A and B cost sharing for 

individuals enrolled in Original 

Medicare. The CY 2010 out-of-pocket 

threshold of $3,400 represents the 85th 

percentile of projected beneficiary 

spending in 2010. We do not expect an 

impact on cost-sharing and premiums, 

all other things being equal, for plans 

that already provide for an out-of-pocket 

maximum. However, requiring all plans 

to have an out-of-pocket maximum will 

likely result in increases to premiums 

and/or cost-sharing, although we are not 

able to quantify the extent of this 

increase. We propose to continue to 

furnish information to MA organizations 

on our methodology and the amounts 

for acceptable out-of-pocket caps on a 

timely basis through the annual Call 

Letter or Health Plan Management 

System (HPMS) memoranda. We solicit 

comments on this approach. 

6. Maximum Allowable Cost Sharing 

Amount for Medicare Parts A and B 

Services and Prescription Drugs 

(§ 422.100, § 423.104) 

We have always reviewed cost sharing 

levels for individual services for the 

purpose of determining whether or not 

such levels are discriminatory. Based on 

our experience, in which we annually 

review the levels of cost sharing across 

all bids, we propose to amend our 

regulations on the general requirements 

related to MA benefits and qualified 

prescription drug coverage to expressly 

authorize us to establish cost sharing 

thresholds for individual services below 

which cost sharing will be considered 

non-discriminatory. We believe that 

requiring the inclusion of such cost 


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sharing thresholds in plans’ benefit 

designs affords greater predictability 

and protection against high out-ofpocket costs for beneficiaries with 

medical conditions that could result in 

exceptionally high out-of-pocket costs 

obligations, and further ensures that 

those beneficiaries are not discouraged 

from enrolling in an MA plan. 

Under Part C, we propose annually to 

review bid data to determine specific 

cost sharing levels for Medicare A and 

B services below which would not have 

a discriminatory effect, and therefore 

may be approved in an MA benefit 

package. Similarly, under Part D, we 

would annually review bid data to 

determine acceptable cost sharing tiers 

for non-defined standard benefit 

designs. We will furnish information to 

MA organizations and Part D sponsors 

on its methodology and the acceptable 

cost sharing amounts based on the prior 

year’s bids on a timely basis either 

through the annual Call Letter or Health 

Plan Management System (HPMS) 

memoranda. The methodology for 

determining the cost-sharing thresholds 

for Part A and B services will involve 

reviewing the prior year’s bid data, as 

well as actuarial equivalencies from 

original Medicare, to determine outliers. 

These amounts could be adjusted based 

on new bid submissions for the current 

year. 

We propose to determine these 

acceptable cost sharing levels based on 

factors such as distribution of cost 

sharing among submitted bids, 

comparison to Original Medicare cost 

sharing (in the case of Part C), and other 

factors that we find to assist in 

identifying discriminatory levels of cost 

sharing (for example, the number of 

tiers in the case of a Part D plan). A 

sponsoring organization’s cost sharing 

will be considered discriminatory if it is 

higher than the maximum level that we 

determine to be non-discriminatory for 

a particular service in the case of an MA 

plan or a drug cost tier in the case of a 

Part D plan. We will communicate 

expected discriminatory cost sharing 

thresholds to sponsoring organizations 

through the annual Call Letter or HPMS 

memoranda during the annual bid and 

benefit package review process. These 

thresholds will be based on the prior 

year’s experience and may be adjusted 

based on bid submissions for the current 

year. We solicit comment on this 

approach, including the extent to which 

we have provided sufficient clarity on 

how we determine whether cost-sharing 

levels are discriminatory. 

Organizations submitting MA plan or 

prescription drug plan bids found to 

have discriminatory cost sharing will 

have an opportunity to resubmit their 

bid and benefit package to comply with 

our non-discrimination requirements. 

We will annually evaluate our review 

process and the criteria we use to 

determine cost sharing discrimination 

and may make changes to ensure that 

beneficiaries are protected from 

discriminatory cost sharing. 

We propose to amend § 422.100 by 

adding a new paragraph (f)(5) to specify 

that cost sharing for Medicare A and B 

services may not exceed levels annually 

determined by CMS to be 

discriminatory. Additionally, we 

propose to revise § 423.104(d)(2) by 

adding a new paragraph (iii) to specify 

that tiered cost sharing for non-defined 

standard benefit designs may not exceed 

levels annually determined by CMS to 

be discriminatory. 

7. Prohibition on Prior Notification by 

PPO, PFFS and MSA Plans Under Part 

C (§ 422.2, § 422.4, and § 422.105(b)) 

In the preamble of the Medicare 

Program; Establishment of the Medicare 

Advantage Program final rule published 

in the January 28, 2005 Federal Register 

(70 FR 4598 through 4599), as well as 

in the 2009 and 2010 Call Letter, 

http://www.cms.hhs.gov/ 

PrescriptionDrugCovContra/Downloads/ 

CallLetter.pdf and http:// 

www.cms.hhs.gov/ 

PrescriptionDrugCovContra/Downloads/ 

2010CallLetter.pdf, respectively, we 

provided guidance permitting local and 

regional PPO plans (for out-of-network 

services) and PFFS plans to provide for 

lower cost sharing amounts in cases in 

which an enrollee or provider 

voluntarily gives the MA organization 

with prior notification that the service 

will be received. We also made clear 

that PPO plans (for out-of-network 

services) and PFFS plans may not 

require such notice, or prior 

authorization or referrals from 

gatekeepers, as a condition of coverage 

in order to restrict an enrollee’s access 

to services. As stated below, Medical 

Savings Account (MSA) plans similarly 

may not impose prior authorization 

requirements as a condition of coverage. 

Under prior authorization, a plan 

requires an enrollee to seek its approval 

before obtaining services from a 

provider; if the enrollee does not obtain 

prior approval, then the plan can deny 

coverage for the service. We provided 

additional guidance to PPO and PFFS 

plans on how they must explain to 

current and prospective enrollees the 

plan’s standard cost sharing and the 

reduced cost sharing related to prior 

notification. 

However, since that time, we have 

become increasingly concerned about 

the use of prior notification by PPO and 

PFFS plans. Program experience has 

demonstrated that prior notification is 

confusing to beneficiaries, misleading in 

terms of disclosure of cost-sharing, and, 

in some instances, used inappropriately 

as a form of prior authorization. In the 

GAO report titled ‘‘Medicare Advantage: 

Characteristics, Financial Risks, and 

Disenrollment Rates of Beneficiaries in 

Private Fee-for-Service Plans (GAO–09– 

25),’’ the GAO noted that some PFFS 

plans it reviewed ‘‘inappropriately used 

the term prior authorization rather than 

pre-notification in the informational 

materials they distributed to 

beneficiaries, which may have caused 

confusion about beneficiaries’ financial 

risks.’’ We have concluded that the 

complexity of cost sharing designs using 

prior notification has made it more 

difficult for both enrollees and 

providers to understand the enrollee’s 

cost sharing obligation in advance of 

receiving services. Therefore, in order to 

reduce the complexity of MA plans’ cost 

sharing designs and improve 

transparency for both enrollees and 

providers, we are proposing to prohibit 

PPO plans (for out-of-network services) 

and PFFS plans from providing for 

lower cost-sharing where prior 

notification rules have been satisfied. 

We propose to revise § 422.4(a)(1)(v) 

and (a)(3) to provide that PPO and PFFS 

plans will be prohibited from 

establishing prior notification rules 

under which an enrollee is charged 

lower cost sharing when either the 

enrollee or the provider notifies the plan 

before a service is furnished. 

We also propose to prohibit MSA 

plans from establishing prior 

notification rules. The definition of a 

MSA plan in section 1859(b)(3)(A)(iii) of 

the Act ensures open access to services 

for MSA enrollees without restriction to 

a provider network and without prior 

authorization reviews for health care 

services. MSA plans may have networks 

of providers, but may not restrict an 

enrollee’s access to those network 

providers. We believe that prior 

notification rules established by MSA 

plans would also be confusing to 

enrollees of those plans and have 

similar negative effects as those 

described above for PPO and PFFS 

plans. We propose to modify 

§ 422.4(a)(2) such that MSA plans will 

also be prohibited from establishing 

prior notification rules under which an 

enrollee is charged lower cost sharing 

when either the enrollee or the provider 

notifies the plan before a service is 

furnished. 

In the preamble of the Medicare 

Program; Establishment of the Medicare 

Advantage Program final rule published 

in the January 28, 2005 Federal Register 


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(70 FR 4617 through 4619), we 

discussed rules related to point of 

service (POS) options that are offered by 

some MA organizations. We stated that 

PPOs may offer a POS-like benefit under 

which beneficiary cost sharing would be 

less than it would otherwise be for nonnetwork provider services, but still 

might be greater than it would be for innetwork provider services, provided an 

enrollee follows preauthorization, precertification, or prenotification rules 

before receiving out-of-network services. 

We also noted that such 

preauthorization, pre-certification, or 

prenotification cannot be a necessary 

condition for receipt of, or required MA 

plan reimbursement for, out-of-network 

covered services by a PPO enrollee, but 

that it could act as a financial incentive 

(by lowering the normal out-of-network 

cost sharing that would otherwise 

apply) to an enrollee to voluntarily 

participate. Similar to our concerns 

about the use of prior notification rules 

by PPO and PFFS plans, as discussed 

above, we believe that the complexity of 

cost sharing designs for PPO plans with 

a POS-like benefit make it more difficult 

for both enrollees and providers to 

understand the enrollee’s cost sharing 

obligation in advance of receiving 

services. In order to reduce the 

complexity of PPO plans’ cost sharing 

designs and improve transparency for 

both enrollees and providers, we are 

proposing to prohibit PPO plans from 

offering a POS-like benefit. We propose 

to revise the definition of POS in § 422.2 

and § 422.105(b) to indicate the only 

HMOs may offer a POS benefit. The 

proposed change is consistent with 

section 1851(a)(2)(A)(i) of the Act, 

which states that an HMO may include 

a POS option. 

Although PPO (for out-of-network 

services), PFFS, and MSA plans may not 

impose prior authorization and referral 

requirements as conditions for covering 

services, enrollees and providers have 

the right to request a written advance 

coverage determination from the plan, 

in accordance with Subpart M of Part 

422, before an enrollee receives a 

service in order to confirm that the 

service is medically necessary and will 

be covered by the plan. 

8. Requirements for LIS Eligibility 

Under Part D (§ 423.773) 

Section 423.773(c) specifies that the 

individuals treated as full subsidy 

eligible individuals include the 

following: 

• Full-benefit dual eligible 

individuals; 

• Supplemental Security Income 

(SSI) recipients under Title XVI of the 

Act; and 

• Individuals eligible for Medicaid as 

a Qualified Medicare Beneficiary, 

Specified Low-Income Medicare 

Beneficiary, or a Qualifying Individual 

under a State’s Medicaid plan. 

In § 423.773(c)(2), we are proposing to 

amend the length of the period for 

which individuals are re-deemed 

eligible for the full low income subsidy 

to conform with guidance we issued in 

section 40.2.2 of Chapter 13 of the 

Medicare Prescription Drug Benefit 

Manual. Section 423.773(c)(2) currently 

specifies that a full subsidy eligible 

individual is deemed eligible for the full 

subsidy for a period up to 1 year. 

However, in practice, the period of 

deemed eligibility varies from as little as 

7 months to as long as eighteen months, 

depending on when the individual 

attained deemed status (that is, became 

eligible for Medicaid, a Medicare 

Savings Program, or for SSI). 

Every year, we review data from State 

Medicaid Agencies and the Social 

Security Administration (SSA) sent to 

us in July and August, respectively, to 

determine whether individuals 

currently deemed eligible for the 

subsidy should continue to be deemed 

(that is, ‘‘re-deemed’’) eligible for the 

subsidy. This allows us sufficient time 

to update individuals’ records in our 

systems, if necessary, and to notify them 

if they are losing deemed status, so that 

they can take the appropriate steps to 

apply for the subsidy, in time for 

coverage to be effective at the start of the 

new calendar year. 

When we are reviewing data in July 

and August, we also identify 

individuals who are newly eligible for 

Medicaid, a Medicare Savings Program, 

or SSI, and deem these individuals 

eligible for the subsidy for the 

remainder of the current calendar year. 

We also redeem these individuals for 

the subsidy for the next calendar year, 

because we do not have sufficient time 

in the final months of the year to 

conduct a separate redeeming process 

for these individuals. If we waited to 

redeem these beneficiaries after the start 

of the calendar year, they could incur 

greatly increased premium liability and 

cost sharing amounts at the start of the 

new calendar year than they would have 

otherwise. 

For example, if a State Medicaid 

Agency submits data to CMS indicating 

an individual is eligible for Medicaid in 

March of a given year, and that 

individual is Part D eligible, we deem 

that individual eligible for the Part D 

low income subsidy from March 1st 

through December 31st of that year. We 

redeem that individual for the following 

calendar year only if we receive 

subsequent information from the State 

or SSA indicating that the individual 

remains eligible for Medicaid, a 

Medicare Savings Program, or SSI. 

On the other hand, if a State submits 

data to CMS indicating that an 

individual is eligible for Medicaid in 

July or a later month of a given year, and 

the individual is Part D eligible, we 

deem the individual eligible for the Part 

D subsidy for the remainder of that 

calendar year and all of the following 

calendar year. (See section 40.2.2 of 

Chapter 13 of the Medicare Prescription 

Drug Benefit Manual.) Therefore, we 

propose to amend § 423.773(c)(2) to 

indicate that the deeming will be, at a 

minimum, for the following periods: If 

deemed status is determined between 

January 1st and June 30th of a calendar 

year, the individual is deemed subsidy 

eligible for the remainder of the 

calendar year. If deemed status is 

determined between July 1st and 

December 31st of a calendar year, the 

individual is deemed subsidy eligible 

for the remainder of the calendar year 

and the next calendar year. We believe 

this change will streamline the 

deeming/redeeming process and 

decrease the administrative burden on 

agencies and subsidy eligible 

individuals. 

9. Enrollment of Full Subsidy Eligible 

Individuals and Other Subsidy Eligible 

Individuals Under Part D (§ 423.34) 

In the January 28, 2005 Federal 

Register, when we issued the Medicare 

Prescription Drug Benefit final rule (70 

FR 4193), we added § 423.34 to describe 

our procedures for enrollment of fullbenefit dual eligible individuals. We 

discussed how full-benefit dual eligible 

individuals are enrolled, which PDPs 

they are assigned to, and the effective 

date of their enrollment. As noted in the 

preamble to the final regulation, 

enrollment of other low-income subsidy 

(LIS) eligible individuals would also be 

conducted, and details would be issued 

in operational guidance. However, we 

did not incorporate into the initial Part 

D regulations further detail about the 

enrollment procedures that would apply 

to this remaining population of LISeligible individuals. 

Section 1860D–1(b)(1)(A) of the Act 

directs the Secretary to establish a 

process for the enrollment of Part D 

eligible individuals. As we indicated in 

the preamble to the January 28, 2005 

final rule (70 FR 4209), while the statute 

does not explicitly provide for the autoenrollment of other LIS-eligible 

individuals into the Medicare Part D 

program, we believe that enrolling these 

individuals clearly is consistent not 

only with statutory intent but also with 

the intent of the individuals themselves. 


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The express purpose of applying for the 

Part D low-income subsidy is to obtain 

prescription drugs on a subsidized 

basis, which can only be accomplished 

through enrollment in a Part D plan. 

Therefore, we established a separate 

enrollment process for these individuals 

known as ‘‘facilitated enrollment.’’ We 

randomly assign these individuals to a 

PDP in their area with a premium below 

the low-income benchmark and notify 

these individuals that they may choose 

a Part D plan on their own and that if 

they do not choose a plan, we will 

enroll them in a plan in their area. We 

have been carrying out the ‘‘facilitated’’ 

enrollment process for more than 3 

years without objections from 

beneficiaries or from the advocacy 

community; in fact, we believe that 

many individuals are under the 

mistaken impression that being 

approved for the subsidy actually 

equates with enrolling in a plan, so we 

believe our proposal will help rectify 

that problem. (See section 30.1.4 of 

Chapter 3 of the Medicare Prescription 

Drug Benefit Manual for more 

information about facilitated 

enrollment). 

Based on this experience, we believe 

it would be appropriate to codify in 

regulation the enrollment procedures 

that we use for these individuals, which 

are similar to those specified in the 

regulation for the dual eligible 

population. We believe that our 

regulations would be more accurate and 

complete if they specifically addressed 

this population. Thus, we are proposing 

to amend § 423.34 to reflect the 

guidance we have issued in Chapter 3 

of the Prescription Drug Program 

Manual. Specifically, we are proposing 

to include information on how we 

enroll all LIS-eligible individuals, 

including full-benefit dual eligible 

individuals. 

We are proposing the following 

revisions to § 423.34: 

• In § 423.34(a), we propose to 

expand the general rule to refer to all 

LIS-eligible individuals, so that the rest 

of that section applies not only to fullbenefit dual eligible individuals, but 

also to all LIS-eligible individuals. 

• In § 423.34(b), we would retain the 

definition of full-benefit dual eligible 

individual, and add a definition for 

‘‘low-income subsidy eligible 

individual.’’ 

• We propose to amend the paragraph 

heading of § 423.34(c) to indicate that 

this paragraph describes the process we 

use to reassign LIS individuals during 

the annual coordinated election period. 

We would indicate that the 

reassignment process applies to certain 

low-income subsidy eligible individuals 

(that is, not just full benefit dual eligible 

individuals). 

• We are proposing to revise the 

paragraph heading of § 423.34(d) from 

‘‘Automatic Enrollment Rules’’ to 

‘‘Enrollment Rules.’’ We are proposing 

this change to reflect the inclusion of 

full subsidy and other subsidy eligible 

groups in this enrollment process, in 

addition to full-benefit dual eligible 

individuals. In our guidance, we refer to 

the process of enrolling full-benefit dual 

eligible individuals as ‘‘automatic 

enrollment,’’ and the process for other 

LIS eligibles as ‘‘facilitated enrollment.’’ 

(See section 30.1.4 of Chapter 3 of the 

Medicare Prescription Drug Benefit 

Manual.) 

• We propose to amend § 423.34(e) to 

indicate that the rules regarding 

declining enrollment and disenrollment 

also apply to all LIS-eligible 

individuals. 

• In § 423.34(f), we would clarify that 

the paragraph heading and contents of 

this paragraph are limited to the 

effective date of enrollment for fullbenefit eligible individuals. We propose 

to amend § 423.34(f)(3) to specify that, 

for individuals who are eligible for Part 

D and subsequently become eligible for 

Medicaid on or after January 1, 2006, 

the effective date of enrollment would 

be the first day of the month the 

individual becomes eligible for both 

Medicaid and Medicare Part D. 

• In § 423.34(g), we propose adding a 

new paragraph to specify that the 

effective date for low income subsidy 

eligibles who are not full benefit dual 

eligibles would be no later than the first 

day of the second month after we 

determine that the individual meets the 

criteria for enrollment into a PDP under 

this section. This change conforms to 

section 30.1.4 of Chapter 3 of the 

Medicare Prescription Drug Benefit 

Manual. Unlike full benefit dual eligible 

individuals who may have retroactive 

Part D coverage, these individuals have 

only prospective Part D coverage. 

Although we believe that all these 

provisions will benefit the LIS-eligible 

population, we recognize that concerns 

have been raised about the impact of the 

current random auto-enrollment process 

on affected beneficiaries. For example, 

focus groups of seniors suggest the 

possibility that some auto-enrolled 

beneficiaries may not realize they have 

been enrolled in a drug plan or that they 

have been reassigned to a different drug 

plan. We are committed to taking 

appropriate steps to improve this 

process. Thus, we welcome comments 

related to all aspects of these 

procedures, including comments on 

issues such as the following: 

• The efficacy of the existing autoenrollment and facilitated enrollment 

procedures, and suggestion for 

improving these procedures; 

• Ways to assess the impact of these 

procedures on the dual eligible and LIS 

population, including the costs, 

benefits, and potential unintended 

consequences. For example, is it 

possible that seniors who are LISeligible but not eligible for Medicaid 

will not realize that they have been 

auto-enrolled into a drug plan? Is there 

any possibility that auto-enrolling these 

individuals could ever lead to 

delinquencies in payments? Given that 

LIS-eligible individuals are autoenrolled into plans with premiums 

below the benchmark, we do not believe 

these individuals would ever become 

subject to premium issues or liable for 

other such costs that they are not aware 

of in advance. However, we welcome 

comment on whether the possibility 

exists and, if so, how payment 

delinquencies should be handled in this 

vulnerable population. 

• How we can better assist 

beneficiaries in identifying plan choices 

that best suit their individual drug 

needs, and encourage them to make an 

active election. 

10. Special Enrollment Periods Under 

Part D (§ 423.380) 

Consistent with the changes in 

§ 423.34, we are proposing to expand 

the special enrollment period described 

in § 423.38(c)(4), which currently 

applies to full-benefit dual eligible 

individuals, to all LIS-eligible 

individuals. This change is consistent 

with our authority in section 1860D– 

1(b)(3)(C) of the Act and would conform 

our regulations to current practice as 

reflected in CMS guidance in section 

20.3.8, item 7, of chapter 3 of the 

Medicare Prescription Drug Benefit 

Manual. 

11. Transition Process Under Part D 

(§ 423.120(b)(3)) 

Section 1860D–11(d)(2)(B) of the Act 

gives the Secretary authority similar to 

that of the Director of the Office of 

Personnel Management with respect to 

health benefits plans under chapter 89 

of title 5, United States Code. This 

includes the authority to ‘‘prescribe 

reasonable minimum standards for 

health benefits plans.’’ In addition, 

section 1860D–11(e)(2)(D) of the Act 

prohibits us from approving a plan if 

‘‘the design of the plan and its benefits 

(including any formulary and tiered 

formulary structure) are likely to 

substantially discourage enrollment by 

certain part D eligible individuals.’’ 


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Under the authority of section 1860D– 

11 of the Act, we established a 

requirement in the January 28, 2005 

final rule implementing the Part D 

program that requires sponsors of Part D 

plans to provide for an appropriate 

transition process for new enrollees 

prescribed Part D drugs that are not on 

its plan’s formulary (70 FR 4264). We 

further specified in regulation that the 

transition policy must be consistent 

with written policy guidelines and other 

CMS instructions. The transition 

requirement is codified in at 

§ 423.120(b)(3). 

Following publication of the 

regulation, we issued guidance in 2005 

on what constituted an appropriate 

transition process for new Part D 

enrollees. We noted in our guidance that 

an appropriate transition process was 

one that balances the protection of 

certain vulnerable populations with the 

flexibility necessary for Part D plans to 

develop a benefit design that promotes 

beneficiary choice and affordable access 

to medically necessary drugs. We 

updated the transition guidance for 

contract year 2007 as part of the 2007 

Call letter, noting that the transition 

guidance represented a minimum set of 

standards for a Part D sponsor transition 

process. This guidance was 

incorporated into Chapter 6 of the 

Medicare Prescription Drug Benefit 

Manual located at http:// 

www.cms.hhs.gov/ 

PrescriptionDrugCovContra/downloads/ 

R2PDBv2.pdf. 

Our experience has shown that 

transition processes represent an 

important enrollee protection to ensure 

access to needed Part D drugs. Given the 

movement from year to year of some 

dual eligible beneficiaries due to 

reassignment, and the annual bidding 

cycle related to Part D plan offerings in 

which benefits and formularies may be 

modified, we believe that some 

protections are necessary for plan 

enrollees with immediate prescription 

needs who experience a change in 

enrollment or who experience formulary 

changes under their existing plan at the 

beginning of a contract year. These 

protections are particularly important 

when an individual first presents at a 

participating pharmacy with a 

prescription for a drug that is not on the 

formulary, unaware of what is covered 

by the plan or of the sponsor’s 

exceptions process for providing access 

to Part D drugs that are not on the plan’s 

formulary. For example, a full-benefit 

dual eligible enrollee who is autoenrolled into a plan may not make an 

affirmative choice based on review of a 

plan’s benefit relative to his existing 

medications needs. For these types of 

situations, we directed Part D sponsors 

to have systems capabilities to allow 

them to provide a one time, temporary 

supply of non-formulary Part D drugs 

(including Part D drugs that are on a 

sponsor’s formulary but require prior 

authorization or step therapy under a 

sponsor’s utilization management rules) 

in order to accommodate the immediate 

needs of an enrollee, as well as to allow 

the sponsor and/or the enrollee 

sufficient time to work out with the 

prescriber an appropriate switch to a 

therapeutically equivalent medication 

or the completion of an exception 

request to maintain coverage of an 

existing drug based on medical 

necessity reasons. Our guidance has 

developed over time in response to 

these concerns, and we believe it strikes 

the right balance between enrollee 

protection and plan flexibility. 

Given the importance of our transition 

policy as an enrollee protection— 

particularly for auto-assigned and 

reassigned beneficiaries who did not 

affirmatively choose a Part D plan—we 

propose to codify in regulation certain 

policies from our guidance on the 

necessary elements of a plan transition 

process. We also believe that any plan 

that fails to meet its transition policy 

requirements discourages enrollment (or 

re-enrollment) by Part D eligible 

individuals that may currently be taking 

prescription drugs that are not on the 

plan’s formulary. Accordingly, we 

propose that a Part D sponsor must 

provide for a transition for the 

following: 

• New enrollees into PDPs following 

the annual coordinated election period; 

• Newly eligible Medicare enrollees 

from other coverage; 

• Individuals who switch from one 

plan to another after the start of the 

contract year; and 

• Current enrollees remaining in the 

plan who are affected by formulary 

changes from one contract year to the 

next. 

Our experience thus far has shown 

that these groups represent the 

minimum target populations that are 

most likely to require protections to 

ensure immediate access to their 

prescription drug benefit. 

We also propose, consistent with our 

current guidance, that a Part D sponsor’s 

transition process requirements be 

applicable to non-formulary drugs, 

meaning both: (1) Part D drugs that are 

not on a sponsor’s formulary; and (2) 

Part D drugs that are on a sponsor’s 

formulary but require prior 

authorization or step therapy under a 

plan’s utilization management rules. 

The latter is included because a 

formulary drug to which access is 

restricted via utilization management 

requirements is essentially equivalent to 

a non-formulary Part D drug to the 

extent that the relevant utilization 

management requirements are not met 

for a particular enrollee. 

Additionally, we propose, consistent 

with our current guidance, to codify the 

timeframes for the transition process 

and the days’ supply limit for a 

transition fill of an enrollee’s 

medication. Our guidance was premised 

on the position that it made sense to 

limit the amount of time during which 

a transition process is applicable to new 

enrollees to the first 3 months under the 

plan as we believed an enrollee 

unfamiliar with his or her plan’s 

formulary requirements would likely to 

present with a prescription during the 

first few months enrolled. We also 

propose to codify the transition process 

timeframe to apply during the first 90 

days of coverage under a new plan. This 

90-day timeframe would apply to retail, 

home infusion, long-term care, and 

mail-order pharmacies. 

We also propose to require plans to 

provide a temporary supply of drugs 

under their transition process. As we 

noted in our original transition guidance 

to Part D plan sponsors in Chapter 6 of 

the Medicare Prescription Drug Benefit 

Manual, providing a temporary supply 

represented the most efficient method of 

triaging requests for filling initial 

prescriptions of non-formulary drugs for 

large numbers of new enrollees who, 

despite education efforts to make them 

aware of the plan’s benefit, may not be 

aware of which drugs are listed on the 

plan’s formulary. Consistent with 

Chapter 6, we propose that Part D plan 

sponsors must ensure that the one-time, 

temporary supply of non-formulary Part 

D drugs requested during the first 90 

days of coverage in an outpatient setting 

must be for at least 30 days of 

medication, unless the prescription is 

written by a prescriber for less than 30 

days, in which case the Part D sponsor 

must allow multiple fills to provide up 

to a total of 30 days of medication. For 

a new enrollee in a Long term Care 

(LTC) facility, the temporary supply 

may be for up to 31 days (unless the 

prescription is written for less than 31 

days), consistent with the dispensing 

practices in the LTC industry. In 

addition, due to the often complex 

needs of LTC residents that often 

involve multiple drugs and necessitate 

longer periods in order to successfully 

transition to new drug regimens, 

sponsors must honor multiple fills of 

non-formulary Part D drugs, as 

necessary during the entire length of the 

90-day transition period. This is 

particularly important if transitions to 


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formulary drugs have not been 

effectuated prior to the refills. We 

propose to require up to a 31-day 

transition supply for enrollees in an 

LTC facility given that many LTC 

pharmacies and facilities dispense 

medication in 31-day increments. Thus, 

a Part D sponsor would be 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. 

In addition to codifying the preceding 

requirements, we also propose to take 

the opportunity in this rulemaking to 

clarify our expectations of sponsors 

with respect to providing transition 

notices. Based on our experience 

overseeing the Part D program, we have 

learned that a successful transition 

process is contingent upon informing 

enrollees and their caretakers about 

their options for ensuring that enrollees’ 

medical needs are safely accommodated 

within a Part D sponsor’s formulary. An 

enrollee who receives a temporary 

supply of a non-formulary Part D drug 

at a network pharmacy might simply 

assume that, by virtue of filling his or 

her prescription, the plan will cover that 

drug for the remainder of the contract 

year. For this reason, we are proposing 

to require sponsors to provide enrollees 

with appropriate notice regarding their 

transition process within a reasonable 

amount of time after providing a 

temporary supply of non-formulary Part 

D drugs (including Part D drugs that are 

on a sponsor’s formulary but require 

prior authorization or step therapy 

under a sponsor’s utilization 

management rules). 

Our guidance specifies that Part D 

sponsors send a written notice, via U.S. 

First Class mail, to each enrollee who 

receives a transition fill. This standard 

is consistent with our requirement that 

other enrollee communications, 

including formulary change notices and 

explanations of benefits, be sent via U.S. 

First Class mail. In addition, our 

guidance directs sponsors to send this 

notice to each affected enrollee within 

3 business days of the temporary fill. 

Our rationale for this turnaround time is 

that it is necessary in order to provide 

an affected enrollee with sufficient 

time—especially in light of our 30-day 

transition fill policy in the outpatient 

setting to work with his or her 

prescriber to switch to a therapeutically 

equivalent drug that is on the plan’s 

formulary or to process an exceptions 

request. 

Given the importance of enrollee 

access to medications, especially during 

a transition in coverage, or a transition 

in a level of care, we propose to codify 

this portion of our guidance and require 

provision of transition notices. 

However, in addition to this 

codification, we also propose to require 

plan sponsors to make reasonable efforts 

to notify prescribers, via mail, electronic 

or verbal communication, that the 

affected enrollees’ prescription cannot 

be refilled, either because of utilization 

management requirements such as prior 

authorization or step therapy, or 

because the prescribed medication is 

not on the plan sponsor’s formulary. We 

believe that this communication is 

necessary in order to expedite the 

prescriber’s plan to seek therapeutic 

alternatives for the enrollee or to fill out 

the requisite paper work to submit to 

the Part D sponsor to initiate the 

exceptions process. We invite comments 

on this proposal. 

Accordingly, we propose the 

following revisions to § 423.120(b)(3): 

• Add paragraph (3)(i) to clarify 

which enrollees the transition process 

should apply; 

• Add paragraph (3)(ii) to ensure 

access to a temporary supply of drugs 

within the first 90 days of coverage 

under a new plan; 

• Add paragraph (3)(iii) to provide a 

temporary fill when an enrollee requests 

a fill of a non-formulary drug during the 

time period specified in paragraph (ii) 

(including Part D drugs that are on a 

plan’s formulary but require prior 

authorization or step therapy under a 

plan’s utilization management rules) 

and the days supply in the outpatient 

setting must be for at least 30 days of 

medication. In the long-term care 

setting, the temporary supply must be 

for up to 90 days in 31 day supply 

increments; 

• Add paragraph (3)(iv) to ensure 

written notice is provided to each 

affected enrollee within 3 business days 

of the temporary fill; 

• Add paragraph (3)(v) to ensure that 

reasonable efforts are made to notify 

prescribers of affected enrollees who 

receive a transition notice under 

paragraph (iv). 

12. Part D Sponsor Responsibility for 

Retroactive Claims Adjustment 

Reimbursements and Recoveries Under 

Part D (§ 423.464) 

Sections 1860D–23 and 1860D–24 of 

the Act require PDP sponsors to 

coordinate with state pharmaceutical 

assistance programs (SPAPs) as well as 

other drug plans, including Medicaid 

programs, group health plans, Federal 

Employee Health Benefit Plans 

(FEHBP), military coverage and other 

plans or programs providing 

prescription drug coverage. These 

requirements are codified at § 423.464 

and set forth in the Medicare 

Prescription Drug Benefit Manual. As 

we have gained more experience with 

the prescription drug program, we have 

found that some beneficiary changes (for 

example, those resulting from 

retroactive low income subsidy LIS 

eligibility determinations, LIS status 

changes, or midyear Part D enrollment 

changes) that necessitate retroactive 

claims adjustments are a significant 

issue under Part D. These changes, as 

well as long-term care pharmacy billing 

practices for dual-eligible beneficiaries 

and the presence of secondary, tertiary 

and even quartenary payers have all 

contributed to a higher than expected 

volume of retroactive claims 

adjustments requiring Part D sponsor 

reimbursements and recoveries, as well 

as a greater than anticipated complexity 

of calculating these amounts. While we 

previously anticipated that beneficiaries 

would be owed reimbursements due to 

changes in LIS status, and required plan 

sponsors to make such reimbursements 

in § 423.800(c), we have since learned 

that our current regulations do not 

reflect the other entities that may 

sometimes need to be taken into account 

in reimbursement or recovery 

transactions. Moreover, we have also 

learned that no industry standard 

electronic process exists to explicitly 

handle underpayment recoveries or 

overpayment reimbursements created by 

these adjustments, and that the current 

Health Insurance Portability and 

Accountability Act (HIPAA) standard 

for coordination of benefits for 

pharmacy claims only partly supports 

these activities when the pharmacy 

initiates ‘‘reverse and rebill’’ 

transactions. As a result, we are aware 

that Part D sponsors are sometimes 

struggling with how to manage these 

retroactive adjustments and that those 

sponsors that are refunding 

overpayments or seeking underpayment 

recovery are each doing it differently. 

Since current regulations do not 

address retroactive adjustments and the 

complexities associated with 

coordination of benefit activities that 

cannot be accomplished between the 

Part D sponsor and the pharmacy 

through reversal and re-billing, we have 

issued general guidance to direct 

sponsor coordination of benefit 

activities. Sections of the COB and LIS 

chapters of the Medicare Prescription 

Drug Benefit Manual specify standards 

for a PDP sponsor to: work with other 

providers of prescription drug coverage 

to resolve payment issues; have a 

process in place to handle the payment 


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resolution that is not restricted by 

implementation of timely filing 

requirements; make retroactive 

adjustments and promptly refund 

monies owed to the correct party 

(including, but not limited to the 

beneficiary); and generally limit 

requests for pharmacy reprocessing to 

those situations involving a pricing 

error. Additionally, CMS guidance 

includes as part of the coordination of 

benefits the transfer of true out-ofpocket (TrOOP) costs and gross covered 

drug cost data to a new Part D plan 

when a beneficiary changes enrollment 

during the coverage year. In our October 

20, 2008 Part D sponsor implementation 

guidance on the automated process for 

the transfer of these TrOOP-related data, 

we established a 45-day maximum time 

limit from receipt of a post-adjudicative 

change in the reported data for the 

sponsor to take adjustment action, make 

a refund, and/or initiate recovery. We 

established this time limit after an 

informal survey and discussions with 

Part D sponsors and their processors. 

While some entities indicated they were 

making adjustments more frequently, 

the industry generally supported a 90- 

day limit, which is consistent with the 

time limit on pharmacy claim reversals. 

However, we believe this longer 

timeframe is not in the best interests of 

the beneficiary because it would delay 

the payment of refunds and notification 

of the need for payment recovery. On 

the other hand, because many of the 

claims reversals occur early in the 90- 

day period, a very short adjustment 

timeframe could lead to a series of 

consecutive refunds and recoveries that 

would be confusing and, therefore, also 

not in the best interests of the 

beneficiary. Accordingly, we believe 

that a 45-day time limit represents a 

reasonable compromise. 

Many of the post-adjudicative 

adjustments, such as those that are due 

to enrollment changes, are changes that 

affect beneficiary cost-sharing, 

premiums and/or plan benefit phase. 

Establishing a reasonable time limit for 

all Part D adjustment, refund, and 

recovery activity is in the beneficiaries’ 

best interests because it ensures that 

required changes are effectuated on 

timely basis, thus correcting retroactive 

and prospective beneficiary premium 

and cost-sharing amounts. Moreover, it 

is in the best interest of others who have 

paid a claim, or are holding a balance 

due, on the beneficiary’s behalf because 

it ensures that these amounts are 

resolved timely. 

At § 423.464 and § 423.466, we are 

proposing to codify our previous policy 

guidance (for instance, our 

memorandum on plan LIS changes 

dated October, 30, 2006) by proposing 

that sponsors must both make 

retroactive claim adjustments and take 

other payer contributions into account 

as part of the coordination of benefits. 

Further, we are also proposing to add a 

new timeliness standard at § 423.466 to 

require adjustment and issuance of 

refunds or recovery notices within 45 

days of the sponsor’s receipt of the 

information necessitating the 

adjustment. While claims adjustments 

must be made and notices issued within 

the established timeframes, we continue 

to recognize that calculating the precise 

amount of the adjustment and any 

resulting reimbursements or recoveries 

may not always be practicable due to 

limitations in the electronic transaction 

set and contractual terms and 

conditions for payment in use in the 

pharmacy industry. However, sponsors 

must exercise due diligence in fulfilling 

these requirements. 

To date, most Part D coordination of 

benefits activity has been performed at 

point-of-sale or soon after, so pharmacy 

reversal and rebilling of claims can be 

accomplished within the payers’ timely 

filing windows. For Part D, this window 

must be a minimum of 90 days, but for 

other (non-Part D) providers of 

prescription drug coverage the filing 

window could be as short as 30 days. 

With the instability of LIS data and Part 

D enrollments creating a significant 

volume of retroactive adjustments, it has 

become evident that sponsors are facing 

more claims adjustments than current 

pharmacy claim reversal and rebilling 

approaches can adequately address. 

Online real-time coordination of 

benefits, in which the order of payment 

among multiple payers is established 

and programmed into payer systems, 

generally did not take place in 

pharmacy benefit management prior to 

Part D implementation. Therefore, 

following the issuance of the Medicare 

Prescription Drug Benefit final rule on 

January 28, 2005, CMS and the industry, 

in collaboration with the National 

Council for Prescription Drug Programs 

(NCPDP), collaborated to develop an 

electronic process consistent with 

HIPAA-authorized transaction standards 

to allow supplemental payer 

information to be available at point-ofsale and patient-pay amounts remaining 

after supplemental payer payments to be 

reported back to the primary Part D 

sponsor for purposes of tracking TrOOP. 

However, by design, all billing 

transactions still require the pharmacy 

to initiate the activity. What this means 

in the case of a claims adjustment is that 

if the beneficiary is no longer at the 

counter and a supplemental payer’s 

claim filing window is closed, the 

pharmacy can no longer effectively 

coordinate benefits between payers. 

And payers cannot effectively 

coordinate among themselves, both 

because of the absence of electronic 

standards for post-adjudication claim 

adjustments among payers (as opposed 

to between pharmacies and payers), and 

the presence of contractual prohibitions 

between payers and pharmacies on the 

disclosure of proprietary pricing 

information. Therefore, at the present 

time, CMS and the industry are 

struggling to determine how best to 

handle retroactive claims adjustments 

whenever the adjustment cannot be 

resolved simply between the sponsor 

and the pharmacy. 

Pharmacies regard their pricing 

information as proprietary and are 

concerned about the potential chilling 

effect any disclosure of this information 

might have on their ability to negotiate 

with payers. Therefore, to ensure the 

confidentiality of pricing information, 

coordination of benefits on the initial 

claim is accomplished without reporting 

complete information on negotiated 

pricing. The amount reported in the 

transaction to the Part D plan is the 

amount of the beneficiary payment after 

the supplemental payment. As a result, 

a Part D sponsor attempting to 

determine refund or recovery amounts 

without having the pharmacy reverse 

and rebill the original claim can 

generally only impute the amount of 

any supplemental payment made by 

another payer by determining the 

difference between the Part D costsharing and the beneficiary amount paid 

after the supplemental payment. The 

only alternative is to ask the pharmacy 

to reverse and rebill the claim to all 

payers. However, this procedure is 

generally unreasonable after the 

industry standard 30-day window 

because many supplemental payers will 

not accept the late claim and, as a 

consequence, the pharmacy would be 

left short the supplemental payer 

payment amount, as well as any 

difference in beneficiary cost sharing 

that might be due. 

In the absence of legal authority to 

compel supplemental payer cooperation 

and to avoid pharmacy underpayment, 

imposing a requirement on sponsors to 

nonetheless calculate a precise 

reimbursement or recovery liability 

would require the creation of a new 

payer-to-payer transaction that both 

enables reprocessing and addresses 

pharmacies’ concerns about revealing 

their proprietary pricing. It is not clear 

that both goals can be achieved. Nor is 

it clear that even if this conflict could 

be resolved, that the cost of doing so 

would be justified by the benefits. That 


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is, it is not clear to us that the benefits 

of more precisely calculating the 

differential amounts owed or due (the 

incremental amounts more or less that 

supplemental payers and beneficiaries 

would have paid if the correct LIS 

subsidy had been applied to the original 

claim) outweigh the costs of developing 

customized electronic transactions for 

such calculations. This is because while 

some adjustments are from nonsubsidized to subsidized cost sharing, 

many others only change patient pay 

amounts after the Part D plan payment 

by a dollar or two, and many would not 

change the beneficiary cost sharing at all 

because the difference would be picked 

up by or owed to a supplemental payer. 

Thus, despite the importance of 

accurate reimbursement to all parties, 

the cost of developing specialized 

transactions may outweigh the benefits 

that would accrue. 

Some supplemental payers are 

cooperating in the exploration of a 

solution through NCPDP, for example, 

certain SPAPs, but others continue to 

close their claims filing window at 30 

days and permit no further 

coordination. Part D sponsors and/or 

their claim processors are likewise 

currently engaged with CMS through 

NCPDP in examining the scope of the 

problem and exploring alternative 

approaches to retroactively and 

electronically adjust claims. However, at 

this time, while simple adjustments 

involving just the Part D sponsor and 

the pharmacy are relatively 

straightforward (and can and should be 

promptly transacted), those involving 

other payers are not. Thus, we continue 

to hold the plans accountable for 

making best efforts to coordinate 

benefits occasioned by claim 

adjustments, but we acknowledge that 

electronic transaction standards have 

not yet been developed to support 

timely, reliable, and precise 

coordination on adjusted claims when 

multiple payers are involved. Therefore, 

we will continue to work with the 

industry on methods to make best 

efforts in this area, including limiting 

other payer recoveries and 

reimbursements to imputed amounts 

due to and from supplemental payers 

that choose to fully cooperate with 

industry consensus-driven processes 

developed through NCPDP. We note 

that amounts due to or from 

beneficiaries must also be imputed in 

some of these situations. We are 

soliciting comments on alternative 

approaches to improving postadjudication coordination of benefits 

necessitated by retroactive Medicare 

enrollment and low-income subsidy 

changes when multiple payers are 

involved, as well as our assessment that 

the costs of achieving precision in such 

transactions may far outweigh the 

benefits. 

In the short-term, there are some 

adjustment-related activities that plans 

can control and, consistent with our 

authority in section 1860D–24(a)(1) of 

the Act, we can require that sponsors do 

these better. Therefore, we are 

proposing the following revisions to 

§ 423.464: 

• Revising paragraph (a) to clarify 

that all Part D sponsors must comply 

with administrative processes and 

requirements established by CMS to 

ensure effective coordination between 

Part D plans and other providers of 

prescription drug coverage for 

retroactive claims adjustments, 

underpayment reimbursements and 

overpayment recoveries; and 

• Adding a paragraph (g)(7) to 

address the sponsors’ responsibility to 

account for payments by SPAPs and 

other providers of prescription drug 

coverage in reconciling retroactive 

claims adjustments that create 

overpayments and/or underpayments, 

as well as to account for payments 

made, and for amounts being held for 

payment, by other individuals or 

entities. The new paragraph also 

specifies that Part D sponsors must have 

systems to track and report adjustment 

transactions and to demonstrate that— 

++ Adjustments involving payments 

by other plans and programs providing 

prescription drug coverage have been 

made; 

++ Reimbursements for excess costsharing and premiums for low-income 

subsidy eligible individuals have been 

processed in accordance with the 

requirements in § 423.800(c); and 

++ Recoveries of erroneous payments 

for enrollees have been sought as 

specified in § 423.464(f)(4). 

13. Time Limits for Coordination of 

Benefits (§ 423.466) 

Currently, there is no statutory or 

regulatory time limit for Part D sponsor 

coordination of benefits with SPAPs, 

other providers of prescription drug 

coverage, or other payers. Current CMS 

guidance as set forth in the 

Coordination of Benefits (COB) chapter 

of the Medicare Prescription Drug 

Benefit Manual requires Part D sponsors 

to establish at least a 90-day timely 

claims filing window and to make 

appropriate allowances for COB claims 

on a case-by-case basis. Section 50 of 

the COB chapter also requires sponsors, 

in retroactive enrollment situations, to 

coordinate benefits with other payers as 

required by the regulations at 

§ 423.464(f), as well as accept claims 

from the beneficiary without imposing 

time limits. This section states further 

that sponsors, even in those situations 

when retroactive enrollment is not an 

issue, continue to be liable for claims 

received after the end of the coverage 

year as defined in § 423.308 and note 

that while contract provisions regarding 

timely claims filing may limit claims 

from network pharmacies, nonnetwork 

pharmacies and beneficiaries must still 

have the opportunity to submit claims 

for reimbursement without the 

imposition of time limits by the Part D 

sponsor. 

Experience with Part D has shown 

there is benefit to be derived from 

placing a time limit on claims 

submission for Part D sponsor 

coordination of benefits. In addition to 

limiting sponsors’ financial liability, a 

time limit would strengthen the ability 

of SPAPs, other providers of 

prescription drug coverage and other 

payers, including beneficiaries to obtain 

payment for covered Part D drugs. We 

would likewise benefit from a COB time 

limit by enabling us to close our Part D 

prescription drug databases. 

In considering now establishing time 

limits on the submission of claims to 

Part D sponsors by beneficiaries and 

other payers of prescription drug 

coverage for proper coordination of 

benefits, we note that the Medicare FFS 

time limit for filing claims, as specified 

in § 424.44, is December 31st of the 

following year for services furnished 

during the first 9 months of a calendar 

year and December 31st of the second 

following year for services furnished 

during the last 3 months of the calendar 

year. The time for filing will be 

extended 6 months if the failure to file 

timely is due to an error or 

misrepresentation by an employee, 

intermediary, carrier, or agent of the 

Department. We also noted that States 

have a 3-year time limit for seeking 

recovery of Medicaid claims payments 

when the State is not the primary payer. 

Specifically, the Deficit Reduction Act 

of 2005 (Pub. L. 109–171) (DRA) 

strengthened the State Medicaid 

programs’ ability to obtain payment 

from health insurers with which they 

need to coordinate benefits by adding 

section 1902(a)(25)(I) of the Act. The 

new section requires States to have laws 

in effect that require health insurers to 

make payment as long as the claim is 

submitted by the State within 3 years 

from the date on which the item or 

service was furnished. This DRA 

provision does not include SPAPs and, 

therefore, does not impose a time limit 

on the requirement for Part D sponsors 

to coordinate benefits with SPAPs. 


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Having considered these filing limit 

precedents, we now propose to establish 

a 3-year filing limit for Part D 

coordination of benefits with SPAPs, 

other entities providing prescription 

drug coverage, and all other payers, 

including beneficiaries or other 

individuals or entities paying, or 

holding amounts for payment, on the 

beneficiaries’ behalf. Specifically, we 

propose to revise new § 423.466 by 

adding a new paragraph (b) that would 

establish a 3-year time limit on Part D 

coordination of benefits. That is, we 

propose to require Part D sponsors to 

coordinate benefits with SPAPs, other 

entities providing prescription drug 

coverage, and other payers for a period 

not to exceed 3 years from the date on 

which the prescription for the covered 

Part D drug was filled. By adding this 

provision to the regulation, we clarify 

timely filing responsibilities and 

deadlines for all beneficiaries and 

payers, as well as place a limit on Part 

D sponsors’ claims payment liabilities 

and coordination of benefits 

responsibilities. 

We are proposing this requirement 

consistent with our authority under 

sections 1860D–23(a)(2) and 1860D– 

24(a)(1) of the Act to establish 

requirements to ensure effective 

coordination among Part D plans, 

SPAPs, and other providers of 

prescription drug coverage, and 

consistent with our general rulemaking 

authority under section 1871(a) of the 

Act. Experience since the 

implementation of Part D has 

demonstrated that the ability of both 

CMS and the sponsors to manage our 

respective responsibilities in 

administering the program is 

complicated by the absence of any time 

limit for coordination of benefits. Part D 

sponsors face open-ended financial 

liability for continued benefit 

coordination and must project and 

include the costs of future liabilities in 

their bids. We also incur the expense of 

keeping our databases open to continue 

to accept prescription drug event data 

for the purpose of reopening Part D 

payment determinations to account for 

claims received by Part D sponsors from 

SPAPs, other entities providing 

prescription drug coverage, and other 

payers after the end of the coverage 

year. We believe that a 3-year limit 

provides more than ample time for 

beneficiaries to seek reimbursement of 

out-of-network and other paper claims, 

as well as sufficient time for 

coordination of benefits activities to 

take place among payers. 

14. Use of Standardized Technology 

Under Part D (§ 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 us 

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 administrative 

simplification requirements of Title XI 

of the Act and to consult with the 

NCPDP and other standard setting 

organizations, as appropriate. In 

accordance with section 1860D– 

4(b)(2)(B) of the Act, we consulted with 

NCPDP and subsequently issued 

guidance adopting NCPDP’s ‘‘Pharmacy 

ID Card Standard’’, which is based on 

the American National Standards 

Institute (ANSI) INCITS 284–1997 

standard entitled ‘‘Identification CardHealth Care Identification Cards’’, as the 

standard for identification cards for the 

Part D program. Information required in 

the Pharmacy ID Card Standard 

includes billing identifiers necessary to 

direct online real-time transactions to 

the appropriate online processor to 

enable real-time adjudication of the 

prescription drug claim at point of sale. 

Our current regulations and guidance 

specifically address the requirement for 

Part D sponsors to issue (and reissue, as 

appropriate) standardized cards that 

may be used by an enrollee to ensure 

access to negotiated prices under 

section 1860D–2(d) of the Act. The only 

way that an enrollee can be assured 

access to the negotiated price at the 

point of sale is through online 

adjudication of the prescription drug 

claim. Any other price available to the 

beneficiary at the point of sale, as for 

instance, the pharmacy’s ‘‘cash price’’, 

cannot be deemed to be the negotiated 

price mandated under section 1860D– 

2(d) of the Act. Therefore, to ensure 

access to these negotiated prices, the 

billing information on the cards must be 

used by the pharmacies at which 

beneficiaries fill their prescriptions to 

submit claims to an enrollee’s Part D 

sponsor (or its intermediary). Beginning 

with the COB requirements originally 

issued on July 1, 2005, as required by 

section 1863D–23(a)(1) of the Act, and 

subsequently maintained as Chapter 14 

of the Prescription Drug Plan Manual, 

we have instructed plan sponsors to 

process all claims online real-time (see 

section 50.4 entitled, ‘‘Processing 

Claims and Tracking TrOOP’’. The 

requirements of accurate TrOOP 

accumulations, Part D benefit 

administration of multiple coverage 

intervals, and coordination of benefits 

with other payers all necessitate online 

real-time adjudication of individual 

pharmacy claims. Furthermore, since 

July 1, 2005, we have stated that we 

expect that Part D plan sponsors will 

establish policies and procedures 

appropriately restricting the use of 

paper claims to those situations in 

which on-line claims processing is not 

available to the beneficiary at the point 

of sale in order to promote accurate 

TrOOP accounting, as well as to 

minimize administrative costs to the 

Part D plans and the Medicare program 

and reduce opportunities for fraudulent 

duplicative claim reimbursements. We 

are now proposing at section 

423.120(c)(3) to require Part D sponsors 

to contractually mandate that their 

network pharmacies submit claims 

electronically to the Part D sponsor or 

its intermediary on behalf of the 

beneficiary whenever feasible unless the 

enrollee expressly requests that a 

particular claim not be submitted to the 

Part D sponsor or its intermediary. 

We are proposing to codify this 

guidance in regulation at this time 

because we have been made aware of an 

increasing number of instances in which 

network pharmacies are not submitting 

pharmacy claims to Part D Sponsors on 

behalf of Part D enrollees. Generally, we 

believe it is in the best interest of Part 

D enrollees to have their claims 

consistently processed through the Part 

D sponsor (or its intermediary). Not only 

does processing claims through the Part 

D sponsor ensure access to Part D 

negotiated prices, but it also ensures 

that proper concurrent drug utilization 

review (including safety checks) is 

performed (as required under 1860D– 

4(c) of the Act). Only the plan can 

conduct accurate concurrent drug 

utilization review when multiple 

pharmacies are utilized by the 

beneficiary or prevent payment to 

excluded providers. Online, real-time 

processing also facilitates accurate 

accounting for enrollees’ true out-ofpocket (TrOOP) and total drug costs by 

the Part D sponsor so that each claim is 

processed in the appropriate phase of 

the benefit and accurate cost sharing 

assessed. In addition, a Part D sponsor 

cannot coordinate benefits with other 

payers as required under sections 

1860D–23 and 1860D–24 of the Act if it 

never receives the claim. 

We also propose to add a new 

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

our existing guidance that Part D 

sponsors utilize standard electronic 

transactions established by 45 CFR 


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54666 Federal Register / Vol. 74, No. 203 / Thursday, October 22, 2009 / Proposed Rules 

162.1102 for processing Part D claims. 

We will issue guidance on the use of 

optional or conditional fields in the 

HIPAA standard transactions through 

the Call Letter and Prescription Drug 

Benefit Manual instructions. We 

routinely work with NCPDP and 

industry representatives in arriving at 

recommendations for standardized use 

of such fields when necessary to 

improve administration of the Part D 

benefit. Previous examples of such 

guidance include those described in 

sections 50.4 and 50.5 of Chapter 14 of 

the Prescription Drug Benefit Manual on 

‘‘Processing Claims and Tracking 

TrOOP’’ and ‘‘Standardized Claims 

Messaging’’, respectively. Such 

instructions are consistent with the 

rules governing use of HIPAA 

transactions whereby use of optional 

and conditional fields is governed by 

contractual terms between trading 

partners. 

In a related matter, we are interested 

in better understanding the impact of a 

requirement for Part D sponsors to 

establish uniquely identifiable Part D 

payer/processor and enrollee 

identification numbers in billing and 

other coordination of benefits-related 

transactions. We have learned that not 

all processors organize their enrollment 

data this way, and some may rely upon 

other data such as person codes or dates 

of birth to distinguish between two 

enrollees (such as spouses) with a single 

identification number (‘‘RxID’’). This 

practice complicates coordination of 

benefits activities with other parties 

when unique identifiers are necessary. 

We have also learned that pharmacies 

cannot routinely distinguish Medicare 

Part D claims from other types of 

prescription drug coverage when the 

same routing information (‘‘RxBIN and 

RxPCN’’) is used for all lines of business 

managed by a single processor. If 

pharmacies cannot consistently 

distinguish Part D claims, they cannot 

ensure that Part D claims and 

beneficiaries are handled in accordance 

with Part D-specific policies and 

procedures. Consequently we are 

proposing to add a new paragraph (c)(4) 

in § 423.120 to require that sponsors and 

their intermediary processors establish 

and exclusively utilize unique RxBIN or 

‘‘RxBIN/RxPCN combinations’’ to 

identify all Medicare part D member 

claims, as well as to assign unique 

‘‘RxID’’ identifiers to individual Part D 

beneficiaries. We solicit comments on 

the operational issues and timelines that 

would be involved in making these 

proposed technical changes to claims 

processing systems. 

As stated previously, we generally 

believe it is in the best interest of Part 

D enrollees to have their claims 

electronically submitted at the point of 

sale by pharmacies to the Part D sponsor 

(or its intermediary), but recognize there 

are situations when this will not be 

feasible or warranted. The most obvious 

example involves prescriptions filled at 

out-of-network pharmacies when Part D 

enrollees generally must pay out of 

pocket and submit paper claims for 

reimbursement from the Part D sponsor. 

Another example involves situations 

when network pharmacies offer special 

discount prices that are lower than plan 

negotiated prices. If this discounted 

price is not a pharmacy’s usual and 

customary (U&C) price, we understand 

that the pharmacy may not offer it to the 

Part D sponsor (or its intermediary) for 

claims processing. In these situations, 

we have articulated a ‘‘lower cash 

price’’ policy whereby the enrollee may 

pay the pharmacy in full and submit a 

paper claim for reimbursement so that 

the costs will be counted towards his or 

her total drug spend and TrOOP 

balances. Finally, we also recognize that 

enrollees may have personal reasons for 

not wanting specific prescription claims 

processed through their Part D sponsor 

(or intermediary) and we uphold the 

enrollees’ right to make such decisions. 

In situations such as the last two 

examples, our proposed requirement 

now clarifies that the enrollee must 

expressly request that a particular claim 

not be submitted to the Part D sponsor 

or its intermediary for processing. That 

is, the beneficiary should of his or her 

own initiative request that the claim not 

be submitted to the Part D plan, and this 

decision must neither be solicited nor 

assumed by the pharmacy. 

While the previous examples explain 

why some pharmacy claims for Part D 

enrollees legitimately will not be 

processed through the Part D sponsor 

(or its intermediary), we are concerned 

about other reasons why network 

pharmacies may be failing to submit 

claims to Part D sponsors (or their 

intermediaries). Most notably, we are 

concerned that enrollees, their 

pharmacists or both incorrectly believe 

that the enrollee will always pay their 

Part D sponsor’s higher negotiated price 

in situations when the pharmacy has a 

lower price. In many cases, this is 

illustrated by the enrollee submitting a 

paper claim after having paid cash at a 

network pharmacy even though the 

enrollee would have received the same 

price if the claim was processed through 

the Part D sponsor (or its intermediary) 

by the network pharmacy. We believe 

there may be confusion resulting from 

the increasing availability of very low 

cost generic drugs at many Part D 

network pharmacies. 

It is important to distinguish between 

a lower pharmacy price that is the 

pharmacy’s U&C price versus a lower 

pharmacy price that is a non-U&C 

special discounted price. As our ‘‘lower 

cash price’’ policy describes, an enrollee 

would need to pay out of pocket and 

submit for reimbursement if the 

pharmacy’s lower price is not its U&C 

price because the pharmacy will not 

submit that price to the Part D sponsor 

(or its intermediary). However, if the 

pharmacy submits a U&C price that is 

lower than a Part D sponsor’ negotiated 

price, the enrollee will pay the lesser of 

the Part D sponsor’s negotiated price or 

the pharmacy’s U&C price. Therefore, 

the enrollee is better off when the 

pharmacy submits the claim to the Part 

D sponsor (or its intermediary) because 

the enrollee will pay the lower 

pharmacy price and have the dollar 

amounts reflected in their TrOOP and 

total drug spend balances. 

Finally, we are concerned that 

sometimes enrollees are not aware that 

claims are not being processed through 

their Part D sponsor. We believe this can 

occur when pharmacies mistakenly 

believe that processing the claim 

through the Part D sponsor will result in 

the enrollee paying a higher Part D 

sponsor negotiated price or because the 

pharmacy deliberately does not want to 

incur transaction costs when the 

enrollee will be paying the pharmacy 

U&C price regardless. Our new 

requirement makes it clear that Part D 

sponsors must contractually require 

their network pharmacies to submit 

claims to the Part D sponsor (or its 

intermediary) whenever feasible unless 

the enrollee expressly requests that such 

claims not be submitted. We believe this 

requirement will help to ensure that 

Part D enrollees always have access to 

critical safety checks, as well as Part D 

negotiated prices and that their TrOOP 

and total drug spend balances 

accurately reflect their Part D 

expenditures. 

15. Absence From Service Area for More 

Than 12 Months Under Part D (§ 423.44) 

Section 1860D–1 of the Act 

establishes eligibility criteria for 

enrolling in a PDP plan or an MA–PD 

plan. In accordance with section 

1860D–1(a)(3) of the Act, a ‘‘Part D 

eligible individual’’ is defined as an 

individual who is entitled to or enrolled 

in Medicare benefits under Part A or 

enrolled in Part B. In order to enroll in 

a PDP, the individual must reside in the 

plan’s service area, and cannot be 

enrolled in an MA plan, other than an 

MSA plan or PFFS plan that does not 


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Federal Register / Vol. 74, No. 203 / Thursday, October 22, 2009 / Proposed Rules 54667 

provide qualified prescription drug 

coverage. 

Section 1860D–1(b)(1)(B) of the Act 

generally directs us to use disenrollment 

rules similar to those established under 

section 1851 of the Act. We applied the 

provisions of section 1851(g)(3) of the 

Act that provide authority for the basis 

of terminations for MA plans, which are 

codified in § 422.74. The disenrollment 

provisions for PDPs are outlined in 

§ 423.44. 

Under the current MA and PDP rules 

at § 422.74 and § 423.44, respectively, 

individuals who are out of the service 

area for more than 6 months will be 

disenrolled. There is an exception for 

MA plans that offer visitor or traveler 

benefits which allows a temporary 

absence from the service area for up to 

12 months. However, given the inherent 

difference between PDPs and MA plans 

(in particular, the range of services each 

provides) we believe that it may not be 

appropriate or necessary to apply the 

disenrollment requirements established 

under MA in the same way for PDPs. 

The 6-month limit on the length of time 

an MA enrollee may be out of the 

service area before being disenrolled is 

based in large part on the inability of the 

enrollee to access the full range of 

medical services while out of the plan 

service area. However, Part D benefits 

generally can be accessed through a 

national pharmacy network, which can 

serve individuals effectively regardless 

of whether they are in their PDP region 

of residence. Thus, the same out-of-area 

time limit for PDPs may not be 

necessary, as long as there are specific 

assurances from the PDP that 

individuals will have access to PDP 

benefits while out of the area (provided 

the individual remains in the United 

States). For example, a PDP may have 

shared computer systems with PDPs in 

other regions or have a network of 

pharmacies in other regions (or 

nationwide) that would provide 

immediate access to prescription drugs 

outside of the region on the same basis 

as pharmacies within the enrollee’s 

region of residence. 

Therefore, given the nature of the Part 

D benefit and the strong likelihood that 

a PDP enrollee can access the full range 

of PDP benefits while out of the service 

area, we are proposing to amend 

§ 423.44 to allow a temporary absence 

from the PDP plan service area for up to 

12 months before disenrollment would 

be mandatory. We believe 12 months is 

an appropriate time frame because it is 

consistent with the time frame for MA 

plans’ visitor or traveler benefits. 

16. Prohibition of Mid-Year Mass 

Enrollment Changes by SPAPS Under 

Part D (§ 423.464(e) 

Section 1860D–23(b) of the Act 

defines a SPAP as a State program that 

(1) provides financial assistance for the 

purchase or provision of supplemental 

prescription drug coverage or benefits 

on behalf of part D eligible individuals; 

(2) when determining eligibility and the 

amount of assistance to Part D eligible 

individuals under the Part D program, 

provides assistance to such individuals 

in all Part D plans and does not 

discriminate based upon the Part D plan 

in which the individual is enrolled; and 

(3) satisfies the requirements of other 

provisions in section 1860D–23 of the 

Act, like Medicare as primary payer. 

Section 1860D–23(a)(1) of the Act 

provides that the Secretary has the 

authority to establish requirements for 

Part D sponsors to ensure the effective 

coordination between a Part D plan and 

an SPAP. Included among those 

requirements are enrollment file 

sharing, claims processing and payment, 

claims reconciliation, application of the 

out-of-pocket expenditures, and other 

administrative processes set by the 

Secretary. In order to coordinate 

effectively with Part D sponsors, we 

permit SPAPs to conduct large volumes 

of enrollments (sometimes referred to as 

‘‘mass enrollments’’) consistent with our 

nondiscrimination guidance (see 

Chapter 14 of the Medicare Prescription 

Drug Benefit Program Manual). Most 

SPAPs perform these mass enrollments 

on a calendar year basis for all its 

members who have not chosen a Part D 

plan; however, some SPAPs have 

chosen to perform these enrollments on 

a noncalendar year basis. In these 

situations, Part D sponsors have found 

that substantial disenrollment of large 

numbers of SPAP members from one 

plan, followed by mass enrollment into 

another during the calendar year 

significantly affects their financial 

operations. 

We believe that mass re-enrollment 

into a new plan mid-year disrupts any 

continuity of care the beneficiary has 

established with his other current Part 

D plan, and introduces transition risks 

such as drugs not being covered by the 

member’s new plan, or requiring the 

member to change his or her pharmacy 

that are not outweighed by any 

administrative convenience to the 

SPAP. Therefore, given these concerns, 

we are proposing, under our authority 

described above, to add a requirement to 

§ 423.464(e) to prohibit mid-year mass 

enrollment changes by SPAPs. We 

believe this revision would deter any 

SPAPs from engaging in what has been 

a rare but exceedingly disruptive 

practice, and require large enrollment 

changes to be made on a calendar year 

basis only. We note that individual 

members of qualified SPAPs (or the 

State acting as the authorized 

representative of individual members) 

will continue to have Special 

Enrollment Periods (SEP), as provided 

in the current CMS guidance, for caseby-case enrollment actions. 

In addition to beneficiary disruptions, 

our actuaries have determined that there 

are significant financial disparities 

among the Part D plans related to mass 

mid-year plan enrollment changes. The 

source of the disparity is the frontloading of plan liabilities in the annual 

bid due to the unique benefit structure 

of Part D program, including the 

coverage gap. Specifically, plans that 

have beneficiaries early in the year are 

likely to incur expenses attributable to 

the initial coverage period, the portion 

of the benefit that includes 75 percent 

coverage. Plans that have beneficiaries 

later in the year are more likely to have 

beneficiaries during the coverage gap 

portion of the benefit, which requires 

100 percent beneficiary cost-sharing and 

no plan payment obligation in most 

cases. Because the funding of the benefit 

is uniform over the entire plan year, 

plans that lose beneficiaries mid-year 

are more likely to incur losses (the 

premiums associated with these 

beneficiaries after the initial coverage 

period), and plans that acquire 

beneficiaries mid-year from other Part D 

plans are more likely to experience 

gains (due to the beneficiaries enrolling 

during the gap in coverage) that in 

neither case have been anticipated in 

the plan’s bids. This inequitable result 

demonstrates the importance of having 

a policy in place that minimizes mass 

mid-year plan changes. 

17. Nonrenewal Beneficiary Notification 

Requirement Under Parts C and D 

(§ 422.506, and § 423.507) 

Section 1857(a) of the Act provides 

the Secretary with the authority to enter 

into contracts with MA organizations, 

and section 1860D–12(b)(1) of the Act 

provides the Secretary with the 

authority to enter into contracts with 

PDP sponsors. Additionally, sections 

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

Act grant the Secretary the authority to 

renew contracts. In accordance with the 

above-referenced authority, we have 

issued contracting regulations including 

§ 422.506 of the MA regulations, and 

§ 423.507 of the Part D regulations 

which provide for the nonrenewal of a 

contract. 

Nonrenewals of MA or PDP contracts 

require the MA organization, the Part D 


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54668 Federal Register / Vol. 74, No. 203 / Thursday, October 22, 2009 / Proposed Rules 

sponsor, or CMS to notify both the 

enrollees of the organization or sponsor 

and the general public of the 

nonrenewal. Existing regulations require 

notification 60 days prior to the 

effective date of the nonrenewal for 

notification both to enrollees and to the 

general public. The effective date of 

contract nonrenewals in the MA and 

PDP programs is January 1st of each 

calendar year. We propose to change the 

requirement for notification to enrollees 

from an ‘‘at least 60 day requirement’’ 

to an ‘‘at least 90 day requirement’’, as 

it was prior to January 1, 2009. 

Changing the requirement for the 

personalized beneficiary specific CMSapproved notice to at least 90 days 

provides beneficiaries with an increased 

notice period giving beneficiaries more 

time to choose a new Medicare plan 

prior to the start of the new benefit year. 

When we changed the required notice 

period to 60 days, we did so primarily 

to provide adequate time for the appeals 

process to conclude prior to the start of 

the next calendar year; however, our 

recent experience has indicated that the 

vast number of nonrenewals are 

voluntarily elected by the PDP sponsor 

or MA organization, so there is rarely a 

need to accommodate the appeals 

process. For this reason, we propose 

revising § 422.506(a)(2)(ii) and (b)(2)(ii) 

of the MA regulations and 

§ 423.507(a)(2)(ii) and (b)(2)(ii) of the 

Part D regulations to change the 

beneficiary notice requirement from at 

least 60 days to at least 90 days. 

We also propose removing the current 

requirement for nonrenewing plans (in 

voluntary nonrenewal situations) and 

for us (in CMS-initiated nonrenewal 

situations) to provide notice to the 

general public by publishing a notice in 

one or more newspapers of general 

circulation concerning the impending 

nonrenewal. This change is motivated 

by the cost of newspaper advertisements 

and the declining rate of newspaper 

circulation, weighed against the very 

limited benefit gained from notice to the 

general public who is minimally, if at 

all, affected by the nonrenewal. Also, 

non-renewal information is now easily 

available to the general public through 

Internet web sites maintained by us (for 

example, http://www.Medicare.gov), a 

resource not available to the public 

when the newspaper notice requirement 

was first adopted. We believe that the 

requirement to provide personalized 

nonrenewal information to plan 

enrollees is sufficient to ensure 

adequate nonrenewal notice to the 

beneficiaries that are being nonrenewed, 

the population that is most directly 

affected by the nonrenewal. For this 

reason, we propose deleting 

§ 422.506(a)(2)(iii) and (b)(2)(iii) of the 

MA regulations and § 423.507(a)(2)(iii) 

and (b)(2)(iii) of the Part D regulations 

to remove the requirement that the 

general public be informed of the 

impending nonrenewal through the 

publication of newspaper notices. 

18. Notice of Alternative Medicare Plans 

Available To Replace Nonrenewing 

Plans Under Parts C and D 

(§ 422.506(a)(2)(ii) and 

§ 423.507(a)(2)(ii)) 

To allow additional operational 

flexibility, we also propose to change 

the requirement for PDP sponsors and 

MA organizations to provide written 

notification of the alternative Medicare 

plans available to replace the 

nonrenewing plan. We propose 

changing the requirement to include the 

option of either providing a written list 

of alternatives available, or placing 

outbound calls to all affected enrollees 

to ensure beneficiaries know whom to 

contact to learn about their enrollment 

options. We believe this change will be 

advantageous for beneficiaries because, 

depending on where the beneficiary 

resides, a listing of available plan 

options is often very long and may be 

too overwhelming for the beneficiary to 

use appropriately. A much more useful 

approach would be to provide 

beneficiaries with contact information 

and resources for identifying the most 

appropriate option given their unique, 

individual circumstances. For this 

reason, we propose revising 

§ 422.506(a)(2)(ii) of the MA regulations 

and § 423.507(a)(2)(ii) of the Part D 

regulations, to provide the option of 

sending written notices of all available 

alternatives or placing outbound 

beneficiary calls to ensure beneficiaries 

know whom to contact to learn about 

their enrollment options. In either case, 

as discussed earlier in this section, a 

personalized CMS-approved beneficiary 

notice regarding the nonrenewal still 

must be sent to each beneficiary. 

19. Timeframes and Responsibility for 

Making Redeterminations Under Part D 

(§ 423.590) 

In accordance with section 1860D– 

4(g) of the Act, the Part D 

redetermination notice provisions in 

§ 423.590 largely mirror the MA 

reconsideration notice provisions in 

§ 422.590. There is one notable 

exception—§ 422.590(d)(3) allows MA 

plans to make the initial notice of a 

completely favorable expedited 

reconsideration orally, so long as a 

written confirmation is mailed to the 

enrollee within 3 calendar days of the 

oral notice. We did not carry over this 

requirement to § 423.590, although a 

parallel instruction is contained in our 

subregulatory guidance in Chapter 18 of 

the PDP manual. Therefore, we propose 

to reconcile this discrepancy by adding 

new § 423.590(d)(2). Consistent with the 

requirements in § 422.590(d)(3), new 

§ 423.590(d)(2) will allow Part D plan 

sponsors to make the initial notice of a 

completely favorable expedited 

redetermination orally, so long as a 

written confirmation of the fully 

favorable decision is mailed to the 

enrollee within three calendar days of 

the oral notice. 

We also propose in § 423.590(d)(2) to 

allow Part D plan sponsors to make the 

initial notice of an adverse expedited 

reconsideration orally, so long as a 

written confirmation of the decision is 

mailed to the enrollee within three 

calendar days of the oral notice. We also 

propose to add a cross reference to 

paragraphs § 422.590(d)(1) and (d)(2) in 

paragraph (g) in order to apply the 

written notice requirements in 

paragraph (g) to adverse expedited 

redetermination decisions. We 

recognize that the MA reconsideration 

notice provisions at § 422.590(d)(5) and 

(e) do not provide explicit instructions 

regarding how MA organizations are to 

notify MA enrollees of adverse 

expedited reconsideration decisions. 

However, given the expedited status of 

these requests, we believe adding these 

two proposed notice requirements to the 

Part D expedited redetermination 

process is in the enrollee’s best 

interests. Additionally, because adverse 

redetermination decisions are not 

automatically forwarded to the Part D 

Independent Review Entity, Part D 

enrollees need to receive clear 

information about the right to appeal 

and the procedures for appealing. We 

note that these two proposals are 

consistent with our subregulatory 

guidance and the process for notifying 

enrollees of expedited adverse coverage 

determination decisions in § 423.572(b). 

Similarly, § 423.590(a)(1) requires a 

plan sponsor to send an enrollee written 

notice of a completely favorable 

decision for benefits; however, the 

regulations do not specify the content of 

that notice. Consistent with the statute, 

§ 423.590(a)(1) mirrors the parallel 

provision at § 422.590(a)(1). However, 

for the same reasons outlined in the 

discussion above in this section, we 

believe incorporating notice 

requirements for the Part D standard 

reconsideration notice provisions does 

not conflict with the related MA 

provisions, and will provide an 

important beneficiary protection that 

will ensure continuity of care for 

Medicare beneficiaries who are 


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obtaining refills of prescription drugs 

under Part D. Therefore, we propose to 

add § 423.590(h) to establish the form 

and content requirements for 

completely favorable redetermination 

decisions, and propose making those 

notice requirements applicable to 

redeterminations issued under 

paragraph (a)(1). We also propose to 

reference paragraphs (d)(1) and (d)(2) in 

paragraph (h), so the proposed form and 

notice requirements in paragraph (h) 

will apply to completely favorable 

expedited redetermination decisions. 

20. Requirements for Requesting 

Organization Determinations Under Part 

C (§ 422.568) 

Section 1852(g)(3) of the Act allows 

an enrollee to request an expedited 

organization determination either orally 

or in writing. However, the method for 

requesting a standard determination is 

not addressed in either the Act or the 

implementing regulations at § 422.568. 

Both beneficiary advocates and MA 

plans have voiced concern about the 

absence of express regulatory authority 

allowing enrollees to request standard 

organization determinations both orally 

and in writing. Therefore, we propose 

adding specific language in § 422.568 

allowing oral requests for organization 

determinations, except where the 

request is for payment. 

21. Organization Determinations Under 

Part C (§ 422.566 and § 422.568) 

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

requires MA organizations to have a 

procedure for making determinations 

regarding whether an enrollee is entitled 

to receive health services or payment 

under the program. In accordance with 

section 1852(g)(1)(A) of the Act, 

§ 422.566 and § 422.568 establish the 

requirements related to organization 

determinations and notices. Existing 

§ 422.566(b)(4) specifies that an 

organization determination includes a 

determination resulting in 

‘‘[d]iscontinuation or reduction of a 

service if the enrollee believes that 

continuation of the services is medically 

necessary.’’ (emphasis added). 

Similarly, under § 422.568(c), the plan 

must give the enrollee a written notice 

of the determination ‘‘if an enrollee 

disagrees with the MA organization’s 

decision to discontinue or reduce an 

ongoing course of treatment.’’ (emphasis 

added). 

Both of these provisions have at times 

been read to imply that the existence of 

an organization determination, and the 

associated notice requirements, were 

tied to the enrollee’s ‘‘belief’’ or 

‘‘disagreement.’’ Therefore, we propose 

changing this language to better reflect 

its meaning and purpose by removing 

the phrases ‘‘if the enrollee believes that 

continuation of the services is medically 

necessary’’ and ‘‘if an enrollee disagrees 

with an MA organization’s decision to’’. 

Regardless of an enrollee’s decision 

whether to appeal as a result of this 

discontinuation or reduction, the key 

purpose of these provisions was to 

ensure that enrollees received an 

explanation of the plan’s decision and 

their rights if they choose to appeal the 

determination. Therefore, we propose 

removing the language noted above from 

§ 422.566(b)(4) and § 422.568(c). 

22. Representatives (§ 422.561, 

§ 422.574, and § 422.624) 

For various reasons, enrollees may 

choose or need to have someone 

represent them in the appeals process in 

order to protect their interests. 

Presently, under sections 1852(f) and (g) 

of the Act, a representative may act on 

behalf of an enrollee or other party 

when filing a grievance. However, 

existing § 422.561 does not explicitly 

permit the filing of grievances by 

representatives unlike the 

corresponding Part D regulation. In 

order to rectify this and be consistent 

with the Part D definition of 

representative at § 423.560, we propose 

to amend § 422.561 to clarify that a 

representative may act on an enrollee’s 

behalf with respect to the grievance 

process. 

23. Disclosure Requirements Under 

Parts C and D (§ 422.111(g) and 

§ 423.128(f)) 

Section 1857(a) of the Act provides 

the Secretary with the authority to enter 

into contracts with MA organizations, 

and section 1860D–12(b)(1) of the Act 

provides the Secretary with the 

authority to enter into contracts with 

PDP sponsors. Currently, § 422.111 and 

§ 423.128 provide specific requirements 

on information that must be disclosed to 

enrollees, either at specific designated 

times, or upon request. We are 

proposing at § 422.111(g) and 

§ 423.128(f) to state that we may require 

a sponsoring organization to disclose to 

its enrollees and potential enrollees 

information concerning the sponsoring 

organization’s performance and contract 

compliance deficiencies in a manner 

specified by CMS. This disclosure may 

be required when a sponsoring 

organization is sanctioned, or when a 

sponsoring organization’s compliance 

and/or performance deficiencies rise to 

a certain level, such that we determine 

it is necessary for the sponsoring 

organization to notify its existing and 

potential enrollees of these deficiencies. 

The vehicle by which the information is 

disclosed by the plan, such as through 

the organization’s Web site, preenrollment materials, or separate letter 

to enrollees, and the timing and content 

of that disclosure, are subject to CMS 

review and approval. The language we 

are proposing is not intended to limit 

these required disclosures to particular 

times of the year when beneficiaries 

would ordinarily be able to make 

changes or elections (for example, AEP 

or OEP). We believe that this kind of 

transparency will provide additional 

incentives for sponsoring organizations 

to make improvements to their 

operations and also provide relevant 

information to beneficiaries and the 

public concerning plan choices. We 

solicit comment on these regulatory 

provisions. In particular, we solicit 

comment on whether these disclosure 

requirements should be imposed only in 

those circumstances where a beneficiary 

would be afforded the opportunity to act 

on them (for example, requiring 

disclosure during the particular times of 

year when beneficiaries would 

ordinarily be able to make change or 

elections, except in those situations 

where the compliance deficiency is so 

significant that a beneficiary may be 

afforded a special enrollment 

opportunity). 

24. Definition of MA Plan Service Area 

(§ 422.2) 

Section 1851(b)(1)(A) of the Act 

provides that Medicare beneficiaries are 

eligible to enroll in an MA plan only if 

they reside in the geographic area 

served by the MA plan, that is, the 

‘‘service area.’’ An MA plan’s ‘‘service 

area’’ is currently defined in § 422.2 and 

the definition expressly requires 

organizations to meet access standards, 

in accordance with access standards in 

§ 422.112. 

One question that has been posed to 

us is whether incarcerated individuals 

are eligible to join an MA plan, 

especially an MA plan that does not 

offer Medicare prescription drug 

coverage. Note that the definition of 

service area for a Part D plan (§ 423.4) 

already excludes a jail or prison within 

the boundaries of the Part D plan service 

area, given that beneficiaries in jail or 

prison do not have access to pharmacies 

as required under § 423.120. It is a 

logical conclusion that incarcerated 

beneficiaries similarly would not have 

access to MA plan services, as required 

under § 422.112. Therefore, such an area 

could not meet the MA service area 

definition, which requires that such 

access standards be satisfied. 

Additionally, there is no reason for an 

individual to enroll in an MA plan 

while incarcerated, since basic health 


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54670 Federal Register / Vol. 74, No. 203 / Thursday, October 22, 2009 / Proposed Rules 

5 Gold, Marsha. Strategies for Simplifying the 

Medicare Advantage Market. Publication prepared 

for the Kaiser Family Foundation. July, 2009. 

6Rice, T. Reducing the Number of Drug Plans for 

Seniors: A Proposal and Analysis of three Case 

Studies. Presentation at Academy of Health Annual 

Research Meeting: Washington, DC. June 9, 2008. 

care services typically are furnished by 

the jail or prison. Similarly, it would not 

be appropriate for an MA organization 

to receive monthly payments for such 

an individual, since medical services 

typically would be covered for the 

individual by the facility in which the 

individual is incarcerated. Such 

payments would represent an 

unwarranted windfall for services the 

MA organization would not have to, and 

could not, deliver. Therefore, we are 

proposing to amend the definition of an 

MA plan ‘‘service area’’ at § 422.2 to 

exclude facilities in which individuals 

are incarcerated. 

C. Changes To Provide Plan Offerings 

With Meaningful Differences 

This section addresses proposed 

changes to our regulations designed to 

foster plan offerings with meaningful 

differences. One of the underlying 

principles in the establishment of the 

Medicare Part D prescription drug 

benefit and the revisions to the 

Medicare managed care program 

resulting from the MMA was that both 

market competition and the flexibility 

provided to MA organizations and Part 

D sponsors in the statute would result 

in the offering of a broad array of costeffective health and prescription drug 

coverage options for Medicare 

beneficiaries. Indeed, in the several 

years since implementation of the 

MMA, private health plans have taken 

full advantage of the opportunity to 

offer a wide array of health care plans 

and prescription drug benefit packages 

to Medicare beneficiaries. As a result, 

since 2006, Medicare beneficiaries 

throughout the United States have had 

available to them a multiplicity of 

health care and prescription drug 

options offered by a substantial number 

of private sector entities. We continue to 

support the concept of offering a wide 

variety of health plan and prescription 

drug coverage choices for Medicare 

beneficiaries consistent with our 

commitment to afford beneficiaries 

access to high value health care. 

However, based on several years of 

experience with the MA and Part D 

programs, we have learned that 

although beneficiaries need access to a 

variety of alternative plan options, 

benefit packages must represent 

significant differences to ensure 

meaningful choices. As noted 

previously, we have attempted to work 

with Part D sponsors since 2006 to 

reduce the number of offerings from 

PDP sponsors as well as to convey 

information about Part D plan benefit 

designs in ways that are meaningful and 

understandable to beneficiaries. For 

example, we provide information about 

the various local MA plan and PDP 

options available to beneficiaries in the 

health plan charts included in the 

annual Medicare & You publication. 

Because there are practical limitations 

to the display of detailed comparative 

information in a print format, we also 

provide comparative plan information 

through other vehicles. We post 

landscape files to our Web site (see 

http://www.cms.hhs.gov/ 

PrescriptionDrugCovGenIn/) that 

provide more detailed comparative 

information, such as information about 

benefit type and, for Part D, whether the 

plan has a $0 premium with full LIS 

subsidy, and a description of any gap 

coverage provided. This information is 

geared more toward beneficiary 

advocates and researchers than 

beneficiaries. 

In addition, because a static 

description of plan benefits design 

features does not suffice to allow 

meaningful comparisons between drug 

plans, we also design and maintain the 

Medicare Options Compare (MOC) and 

the Medicare Prescription Drug Plan 

Finder (MPDPF) Web tool. These Web 

tools allow beneficiaries to customize 

their comparisons based on their 

particular needs and thus compare plan 

benefit packages in a meaningful way. 

For example, the MPDPF allows 

beneficiaries or their representatives to 

develop customized comparisons that 

are sensitive to a beneficiary’s drug 

regimen, as well as tolerance for generic 

and therapeutic substitutes. Our goal in 

maintaining this tool is to strike a 

balance between the desire to provide as 

much information as possible to 

beneficiaries yet only provide 

information that is useful in making 

appropriate drug plan choices. We 

continue to look for ways to improve 

this tool and make information more 

understandable to beneficiaries and 

welcome comments in this area. 

Ensuring that Part C and D sponsors 

offer substantially different plan 

options, as the proposed regulatory 

changes discussed below are intended 

to do, will further maximize 

opportunities for beneficiaries to select 

benefit packages that meet their 

particular needs, while also 

streamlining and simplifying the plan 

selection process. 

Half of all Medicare beneficiaries have 

over 40 MA plan choices (this figure 

does not include special needs plans or 

employer group health plans which 

have additional criteria for enrollment), 

and many states offer 50 or more stand 

alone Part D plans, a number that can 

double when one includes Medicare 

Advantage plans with a Part D benefit. 

Several studies suggest that the MA and 

Part D program offerings are so 

numerous that they can be confusing. In 

a report by Marsha Gold of Mathematica 

Policy Research, Inc., for example, Gold 

writes of the MA program that ‘‘Existing 

research suggests that simplification 

may have advantages for beneficiaries,’’ 

and that one such advantage is 

preventing competitors to take 

advantage of the system ‘‘through 

product design.’’ 5 In his study, ‘‘How 

Much Choice is Too Much? The Case of 

the Medicare Prescription Drug 

Benefit,’’ T. Rice argues, based on Part 

D beneficiary studies that he and others 

in the field have conducted, that ‘‘The 

results show that decision quality [of 

seniors’ ability to choose plans with the 

lowest annual total cost] deteriorated as 

the number of plans increases.’’ 6

As part of our goal of streamlining 

and simplifying the plan selection 

process for beneficiaries, we are also 

proposing to revise the nonrenewal 

regulations to expressly provide as a 

ground for nonrenewal the fact that an 

MA or Part D plan has failed to attract 

more than a small number of enrollees 

over a sustained period of time. In 

deciding whether to nonrenew a plan on 

this basis, we would expect to consider 

arguments as to why such low 

enrollment would be defensible in a 

particular situation (for example, the 

plan provides a benefit structure that is 

extremely important to its enrollees, 

despite the fact that they are small in 

number). 

In this section, we discuss our 

proposed revisions to both the bid 

submission and review processes and 

the nonrenewal regulations. We believe 

these proposed revisions will help us 

accomplish the balance we wish to 

strike with respect to encouraging 

competition and providing health plan 

and PDP choices to beneficiaries that 

represent meaningful choices in benefit 

packages. Table 3 outlines these 

proposed revisions. 


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TABLE 3—PROVISIONS TO ENSURE MEANINGFUL DIFFERENCES IN PLAN OFFERINGS

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Bid Submissions: Ensuring Significant Differences Subpart F ... § 422.254 ................................... Subpart F ... § 423.265. 

Bid Review Process ................................................ Subpart F ... § 422.256 ................................... Subpart F ... § 423.272. 

Transition Process in Cases of Acquisitions and 

Mergers).

Subpart F ... § 422.256 ................................... Subpart F ... § 423.272. 

Non-renewing Low-enrollment Plans ...................... Subpart K .. § 422.506(b)(1)(iv) ..................... Subpart K .. § 423.507(b)(1)(iii). 

1. Bid Submissions—Ensuring 

Significant Differences (§ 422.254 and 

§ 423.265) 

Consistent with our authority under 

section 1857(e)(1) of the Act, 

incorporated for Part D by section 

1860D–12(b)(3)(D) of the Act, to 

establish additional contract terms and 

our authority under section 1860D– 

11(d)(2)(B) of the Act to propose 

regulations imposing ‘‘reasonable 

minimum standards’’ on Part D 

sponsors, we propose to amend 

§ 422.254(a)(4) and § 423.265(b) to 

specify that, when submitting bids to 

contract as an MA organization or Part 

D plan sponsor for the following 

contract year, MAOs and Part D 

sponsors must ensure that they submit 

bids for multiple plans in the same area 

only if those plans have significant 

differences from each other in terms of 

key benefit or plan characteristics such 

as premiums, cost-sharing, formulary 

structure, or benefits offered. 

By proposing this change to our 

existing regulatory requirements 

regarding submission, review, and 

negotiation of bids, as well as CMS 

approval of plans, we aim to strengthen 

and build on our efforts to date to 

ensure a proper balance between 

affording beneficiaries a wide range of 

plan choices and avoiding undue 

beneficiary confusion in making 

coverage selections. Since 2005, we 

have reviewed Part D plan bids and 

negotiated with sponsors based on key 

benefit package characteristics, such as 

deductibles, substantial formulary 

differences, coverage in the coverage 

gap, and previous enrollment numbers. 

We also have reviewed plan offerings 

and negotiated with Part C contractors 

as part of our annual bid review and 

approval process, in an effort to identify 

and eliminate MA plans that appear to 

be duplicative. In connection with 2010 

plan offerings, for example, we 

contacted MAOs whose plans in a 

service area represented insignificant 

cost differences, as well as MAOs 

having MA plans with 100 or fewer 

enrollees, and conveyed our expectation 

that they consolidate or terminate such 

plans, when appropriate. 

We do not propose to specify in 

regulations text specific benefit package 

requirements or enrollment thresholds. 

Rather, it is our goal to permit MA 

organizations and PDP sponsors 

maximum flexibility to create plans 

with meaningful differences and, where 

warranted, to permit low enrollment 

plans to continue to operate when it is 

in the best interest of the program and 

of Medicare beneficiaries. We would 

issue guidance about the overall 

process, including the criteria for 

meaningful plan offerings and 

assessment of such offerings, in the 

annual Part C and D Call Letter. With 

this in mind, with respect to Part C, we 

would consider meaningful differences 

among plans offered by an MAO in a 

service area, as determined by CMS, to 

include a mix of plan types (for 

example, HMO, PPO, private FFS, or 

MSA plan), significant differences in 

plan benefit packages (the offering of a 

Part D benefit or a significant Part B 

buy-down, for example), or significant 

differences in premiums or cost-sharing 

(for example, a low premium-high costsharing plan versus a high premium-low 

cost-sharing plan) or aggregate costs to 

beneficiaries. In one possible scenario, 

under these general guidelines, we 

would particularly scrutinize whether 

there were sufficient differences among 

MA plan options if an MAO proposes to 

offer more than two plans of the same 

plan type in a service area. Even if only 

two plans of a given type are offered, 

they would, under our proposal, have to 

have meaningful differences relative to 

one another. For example, if two MA 

plans included a Part D benefit, we 

would require that there also be 

significant differences between these 

plans’ Part D benefits in terms of 

premiums, cost-sharing or other 

benefits. 

If the proposed new requirement is 

implemented, we would require that 

plans be dropped that do not offer 

meaningful choices for beneficiaries. In 

making determinations about what is a 

meaningful choice of plan type, we 

could view a PPO and an HMO with a 

POS benefit as being similar plan 

offering if the POS benefit covered all A 

and B services out of network. 

Similarly, a network private FFS plan 

and a PPO plan could also be viewed as 

similar plan offerings given the 

similarity in the access to services rules 

between these two MA plan types. 

With respect to Part D plans, we 

would continue to focus our analysis on 

whether there are significant differences 

in proposed beneficiary out-of-pocket 

costs as a result of the deductible 

amounts (for example, $0 deductible 

versus a $310 deductible) and cost share 

or coinsurance (for example, a $20 cost 

share versus a $45 cost share for 

preferred brand drugs). We also would 

evaluate plan formularies (for example, 

a 25 percent difference in the number of 

unique generic entities offered on the 

plans’ formularies). These factors are the 

most significant considerations that are 

applicable to all benefit types. We 

solicit comment on how big the 

differences between plan offerings need 

to be in order to be ‘‘meaningful’’ to 

beneficiaries. For example, is there a 

meaningful difference between an 

enhanced plan with a $0 deductible and 

no coverage in the gap versus an 

enhanced plan with a $0 deductible and 

coverage of 50 generic drugs in the gap? 

Additional benefit offerings such as 

free first fill programs and brand-name 

only deductibles may also be considered 

for the appropriate benefit types. In 

addition to the current considerations of 

formulary depth and breadth we may 

also consider the overall percent of 

utilization management applied to drugs 

and the specific types of utilization 

management (for example, prior 

authorization and step therapy). It is 

important to note that, even though a 

sponsor may submit different 

formularies for different plan offerings, 

all submitted formularies must be 

sufficiently robust to pass our rigorous 

formulary reviews and be determined 

not to discourage enrollment by certain 

types of beneficiaries. Based on our 

experience and given statutory actuarial 

equivalency requirements, we do not 

expect that, absent substantial 

differences in approved formularies, 

sponsors can demonstrate substantial 

differences between plans offering basic 


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prescription drug coverage. It is also our 

experience that sponsors typically must 

offer substantial coverage in the 

coverage gap as a supplemental benefit 

in order to demonstrate that one 

enhanced alternative plan design is 

substantially different from another. 

We are proposing that, in our review 

process, we would provide particular 

scrutiny in those market areas where 

multiple MAOs or Part D sponsors offer 

multiple plans. Specifically, we would 

particularly target our resources to our 

review for ‘‘meaningful differences’’ in 

areas where the elimination of 

duplicative plans would still leave a 

large number of plan options. For 

example, in the highly competitive 

Miami-Dade county market area, we 

might particularly focus our review on 

multiple HMO offerings from the same 

MAO in areas where additional HMO 

plans are not adding meaningful new 

choices for prospective enrollees. 

Similarly, we would particularly 

scrutinize Part D plan offerings from the 

same Part D sponsors for meaningful 

differences in regions where multiple 

plans with multiple benefit types (for 

example, enhanced alternative coverage, 

coverage in the gap) already exist. 

As we continue to accumulate 

program experience negotiating with 

MA organizations and Part D plan 

sponsors regarding bid submissions, it is 

our intent to apply these ‘‘lessons 

learned’’ both to our bid submission 

requirements and to our bid negotiation 

protocols. We expect to continue to 

determine whether there are substantial 

differences in plan types and benefit 

packages by looking at factors such as 

health plan benefit packages, costsharing, and deductibles, substantial 

formulary differences, and coverage in 

the coverage gap. We are soliciting 

comments on our proposed changes to 

the bid submission process. 

As discussed more fully in section 

II.B.5. of this proposed rule, we are also 

interested in building additional checks 

into our process to ensure that, in 

structuring bids that are sufficiently 

different from any other bid they may 

propose, MAOs and Part D sponsors do 

not design benefit packages that have 

the effect of discriminating against 

certain types of Medicare beneficiaries. 

This is consistent with our statutory 

authority in sections 1852(d)(1)(A) and 

1860D–11(e)(2)(D)(i) of the Act, which 

provide that we may disapprove a bid 

if we find that a plan’s proposed benefit 

design substantially discourages 

enrollment in that plan by certain 

Medicare-eligible individuals. 

In the context of the MA program, we 

are especially concerned about costsharing for certain high-cost services 

and would caution plans to ensure that 

when crafting plan packages with 

meaningful differences, they do not 

create discriminatory cost-sharing 

structures. We have the authority, under 

section 1852(b)(1) of the Act 

(implemented at § 422.110), to reject 

bids that we determine to be 

discriminatory. With respect to Part D 

sponsors, a plan that is considering an 

additional benefit package that is both 

nondiscriminatory and substantially 

different from its basic or enhanced 

alternative PDP offering(s) might choose 

to bid on enhanced alternative coverage 

that includes coverage of both some 

brand and generic drugs in the coverage 

gap. Depending on how this enhanced 

alternative coverage were structured, 

such a design could meet the threshold 

of being substantially different from a 

benefit package offering basic 

prescription drug coverage and/or an 

enhanced alternative benefit package 

that only offers coverage of certain 

excluded drugs, as provided in 

§ 423.104(f)(1)(ii)(A). 

2. Bid Review Process (§ 422.256 and 

§ 423.272) 

In order to further ensure that the 

benefit packages and plan cost 

structures offered by an MAO or Part D 

sponsor are meaningfully different, 

consistent with the preceding 

discussion, we propose to add 

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

to provide that we will only approve a 

bid submitted by an MAO or Part D 

sponsor if we find its plan benefit 

package to be substantially different 

from the plan benefit packages reflected 

in that sponsor’s other submitted bids in 

terms of key plan characteristics such as 

premiums, cost-sharing, formulary 

structure, or benefits offered. 

3. Transition Process in Cases of 

Acquisitions and Mergers (§ 422.256 

and § 423.272) 

Based on several years of program 

operational experience, we have also 

learned that when an MAO or Part D 

sponsor (or a parent organization to the 

sponsor) purchases another MAO or 

PDP sponsor, the result can be that the 

single parent organization offers plans 

through multiple subsidiaries of that 

same parent that are not substantially 

different from one another. In this 

specific situation, plan options may be 

designed by a subsidiary that has no 

incentive to compete against plans 

offered by other subsidiaries, which 

may result in multiple plan offerings by 

one sponsor or parent organization that 

do not represent substantial or truly 

meaningful choices to beneficiaries. 

In the 2008 Call Letter for Medicare 

health plans and PDPs, we announced 

a policy under which PDP sponsors or 

parent organizations with new 

acquisitions would be afforded a period 

of 3 years to transition their plan 

offerings to meet the goal of ensuring 

that the sponsor’s offerings were 

substantially different from one another. 

For example, a PDP sponsor (or its 

parent organization) completing an 

acquisition of another sponsor in 

November 2009 would not be subject to 

requirements for offering substantially 

different bids until the 2013 contract 

year (that is, bids would be due in June 

2010 for the 2011 program year; 

transition would occur during 2011 and 

2012; and the plan sponsor or parent 

would need to ensure that in June 2012, 

when it submits its bids for program 

year 2013, all of its 2013 bids are for 

substantially different plans). 

Consistent with existing policy, we 

propose adding a new paragraph 

§ 423.272(b)(3)(ii) providing for a 2-year 

transition period in the case of a merger 

of Part D plan sponsors or the 

acquisition of a Part D plan by another 

Part D plan sponsor or parent 

organization. We believe a 2-year 

transition period strikes a balance 

between allowing sponsors (or their 

parent organizations) with recent 

acquisitions sufficient time to 

streamline their operations after 

completion of an acquisition with the 

need to streamline and simplify 

beneficiary plan selection. We are 

proposing the 2-year transition instead 

of our current policy of 3 years based on 

our experience with Part D sponsors 

that have merged with or acquired other 

sponsors. Based on our experience, we 

believe that a 2-year period permits 

sponsors ample time to ensure that all 

plans offered represent significant 

differences, especially because, as 

indicated in the sample bidding cycle 

outlined above, we do not count the 

year of the merger or acquisition as part 

of the 2-year period. 

After a transition period of 2 years, we 

would only approve a bid submitted by 

a PDP sponsor, or a parent organization 

to that PDP sponsor, if the benefits or 

plan cost structure represented by that 

bid was substantially different from any 

other bid submitted by the same Part D 

sponsor (or parent organization to that 

Part D sponsor) in terms of key plan 

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

We are also proposing to make a 

similar change so that MA plans 

acquired through purchase or merger 

offered by same MAO or parent 

organization reflect meaningful 

differences after a 2-year transition 


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period. We propose to codify this policy 

at § 422.256(b)(4)(ii). 

We request comments regarding the 

adequacy of our proposed transition 

period length of 2 years in both the MA 

and Part D contexts. 

4. Non-Renewing Low-Enrollment Plans 

(§ 422.506(b)(1)(iv) and 

§ 423.507(b)(1)(iii)) 

We are proposing to revise the Part C 

and Part D nonrenewal regulations to 

include, as a specific ground for 

nonrenewal, a finding that a plan has 

failed to attract a significant number of 

enrollees over a sustained period of 

time. We believe that, absent special 

circumstances, which we discuss below, 

a plan that has failed, over a sustained 

period, to attract enrollees is being 

operated in a manner ‘‘inconsistent with 

the efficient and effective 

administration’’ of the Part C or Part D 

programs, within the meaning of section 

1857(c)(2)(B) of the Act, which is 

incorporated into Part D by section 

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

would be subject to termination. 

In the 2010 Call Letter, we announced 

that MA organizations and PDP 

sponsors should terminate or 

consolidate low-enrollment Part C and 

D plans. In advance of the 2010 contract 

year, we have contacted MAO sponsors 

with enrollments of 100 beneficiaries or 

fewer for 2 or more years, conveying our 

expectation that the organization 

consolidate or terminate such plans. We 

now propose to add continuously low 

enrollment to the specific regulatory 

grounds for nonrenewal by CMS of an 

MA plan or PDP. We note that this 

requirement would be independent of 

the current requirement in § 422.514(a) 

and § 423.512(a) that MAOs and Part D 

sponsors meet minimum enrollment 

requirements at the organization level 

for purposes of entering into a contract 

with us. Those requirements apply to all 

enrollees of the organization, not 

enrollees in a particular plan. 

Although low enrollments often 

reflect lack of beneficiary interest in a 

plan, there are instances when low 

enrollment is a function of the type of 

beneficiaries served, geographic 

location, or other circumstance. 

Instances in which we would consider 

a waiver of the proposed requirements 

include but are not limited to a chronic 

care SNP offering health care services 

especially tailored to this category of 

beneficiaries not available elsewhere, or 

an employer group health plan offering 

benefits augmenting those of an MA 

plan to employees of a small business. 

If a case can be made that low 

enrollment is justified and the absence 

of such a plan would significantly limit 

beneficiary health care options in a 

service area, consistent with effective 

and efficient administration of the Part 

C or Part D benefit, we would not 

nonrenew that plan. Similarly, although 

we believe an enrollment of 100 or 

fewer beneficiaries for 2 or more years 

was a reasonable threshold for scrutiny 

under our 2010 assessment of MA plan 

enrollments, this number could 

fluctuate. As a result we are not 

proposing to revise our regulations to 

specify a specific threshold. If, using the 

principles described above, we identify 

an alternative threshold for scrutiny, we 

will include this information in our 

annual Call Letter. We solicit comment 

on this approach and whether we have 

provided sufficient clarity on how we 

will determine whether a lowenrollment plan will not be renewed. 

D. Changes To Improve Payment Rules 

and Processes 

This section addresses four payment 

issues under Part C. The first proposal 

outlines a new proposed dispute and 

appeal rights process for risk adjustment 

data validation audit findings that result 

in payment errors. The second proposal 

would require an actuarial certification 

for Part C bids. The third proposal 

under this section would clarify how 

health care prepayment plans (HCPP) 

and cost plans authorized under section 

1876 of the Act must determine 

acceptable administrative costs. Finally, 

the last proposal would update our 

regulations to eliminate a 2 percent 

minimum update for all rate 

calculations, other than end-stage renal 

disease (ESRD), for reasons we set forth 

below. These provisions are outlined in 

Table 4. 

TABLE 4—IMPROVING PAYMENT RULES AND PROCESSES

Provision 

Part 417/422 Part 417/422 Part 423 Part 423 

Subpart Section Subpart Section 

Risk Adjustment Data Validation Appeals .................... Subpart G ......................... Various sections of Part 

422.

N/A ............... N/A. 

Payments to Medicare Advantage Organizations—Actuarial Valuation.Subpart F .......................... § 422.254 .......................... N/A ............... N/A. 

Determination of Acceptable Administrative Costs by 

Cost Contract and Health Care Prepayment Plans 

(HCPPs).

Subpart O ......................... § 417.564 .......................... N/A ............... N/A. 

Calculation of the Minimum Percentage Increase 

under Part C.

Subpart G ......................... § 422.306 .......................... N/A ............... N/A. 

1. Risk Adjustment Data Validation 

Appeals (§ 422.310) 

a. Background 

Subpart G of the MA regulations at 

part 422 describes how payment is 

made to MA organizations. These 

payment principles are based on 

sections 1853, 1854, and 1858 of the 

Act. Subpart G also sets forth the 

requirements for making payments to 

MA organizations offering local and 

regional MA plans, including 

calculation of MA capitation rates. 

Section 1853(a)(3) of the Act requires 

that we risk adjust our payments to MA 

organizations. Risk adjustment 

strengthens the Medicare program by 

ensuring that accurate payments are 

made to MA organizations based on the 

health status plus demographic 

characteristics of their enrolled 

beneficiaries and ensures that MA 

organizations are paid appropriately for 

their plan enrollees (that is, less for 

healthier enrollees expected to incur 

lower health care costs and more for less 

healthy enrollees expected to incur 

higher health care costs). Accurate 

payments to MA organizations also help 

ensure that providers are paid 

appropriately for the services they 

provide to MA beneficiaries. In general, 

the current risk adjustment 

methodology relies on enrollee 

diagnoses, as specified by the 

International Classification of Disease, 

currently the Ninth Revision Clinical 

Modification guidelines (ICD–9–CM) to 

prospectively adjust capitation 

payments for a given enrollee based on 

the health status of the enrollee. 


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Diagnosis codes determine the risk 

scores, which in turn determine the risk 

adjusted reimbursement. As a result, 

physicians and providers must focus 

attention on complete and accurate 

diagnosis reporting according to the 

official ICD–9–CM coding guidelines 

(that is, coding diagnoses accurately and 

to the highest level of specificity). 

The current risk adjustment model 

employed in adjusting MA plan 

payments is known as the CMS 

Hierarchical Condition Category (CMS– 

HCC) model. It functions by categorizing 

ICD–9–CM codes into disease groups 

called Hierarchical Condition 

Categories, or HCCs. Each HCC includes 

diagnosis codes that are related 

clinically and have similar cost 

implications. The CMS–HCC model is 

recalibrated approximately every 2 years 

to reflect newer treatment and coding 

patterns in Medicare FFS. In 2007, a 

demographic data-only payment method 

was completely phased-out for MA 

plans, and 100 percent of payment was 

risk-adjusted. The statute continues to 

provide us the authority to add to, 

modify, or substitute for risk adjustment 

factors if the changes will improve the 

determination of actuarial equivalence. 

b. Risk Adjustment Data Validation 

Initiatives 

MA enrollee HCCs are assigned based 

on risk adjustment diagnoses from FFS 

claims and from risk adjustment data 

submitted to us by MA organizations via 

the Risk Adjustment Payment System 

(RAPS). The CMS–HCCs contribute to 

an enrollee’s risk score, which is used 

to adjust a base payment rate. 

Essentially, the higher the risk score for 

an enrollee, the higher the expected 

health care cost for the enrollee. The 

HCC data that MA organizations submit 

to CMS via the RAPS system is selfreported by the MA organization and 

does not go through a validation review 

before being incorporated into a given 

beneficiary’s risk-profile. Since there is 

an incentive for MA organizations to 

potentially over-report diagnoses so that 

they can increase their payment, the 

Agency audits plan-submitted diagnosis 

data a few years later to ensure they are 

supported by medical record 

documentation. 

Verifiable medical record 

documentation is the key to accurate 

payment and successful data validation. 

We annually select MA organizations 

for risk adjustment data validation 

(RADV) audits. RADV audits are 

intended to confirm the presence of risk 

adjustment conditions (that is, 

diagnoses that map to HCCs) as reported 

by MA organizations for their enrollees 

and confirmed via medical record 

documentation. RADV audits occur after 

the final risk adjustment data 

submission deadline for the MA 

contract year. We validate the HCC data 

submitted by MA organizations by 

reviewing hospital inpatient, hospital 

outpatient, and physician/practitioner 

provider medical records. The focus of 

this medical record review activity is on 

diagnoses related to the enrollee’s HCC 

profile. Risk adjustment discrepancies 

are identified when the enrollee’s HCCs 

used for payment (based upon MA 

organization-submitted data) differ from 

the HCCs assigned based on the medical 

record, pursuant to the RADV audit 

process. Risk adjustment discrepancies 

can be aggregated to determine an 

overall level payment error. In turn, 

payment error for a sample of contract 

enrollees can be extrapolated to 

calculate a contract-level payment error 

estimate. 

From 1999 until 2003, our payment 

validation activity for the M+C program 

had both an educational and audit focus 

and was intended to improve the 

accuracy of the risk adjustment data that 

was being submitted to CMS for 

payment. Payment adjustments were 

limited to enrollee-level adjustments for 

those enrollees sampled in the payment 

validation audit. At the time, only 10 

percent of the MA payment amount was 

risk adjusted. As a result, payment 

recovery amounts for the small number 

of plans audited was very small. Since 

payment year 2004 was the first year for 

which MA payments were based on the 

current HCC risk adjustment model, we 

considered payment years 2004 through 

2006 as pilot years for the purpose of 

RADV and no payment recovery activity 

occurred. For payment year 2007, we 

began conducting payment adjustments 

based on statistical RADV MA contractlevel payment error audit findings. The 

existence of contract-level RADV audits 

is intended to enable us to make 

contract-level payment adjustments 

rather than simply adjusting payments 

for specific enrollees from an audit 

sample as we have done previously. 

On July 17, 2008, we announced a 

pilot program to more extensively audit 

MA organizations for payment year 

2007 based on calendar year 2006 

payment data. In this notice, we 

announced its plans to make contractlevel payment adjustments using 

payment error findings from a sample of 

enrollees from each of the selected 

contracts. This was a major change to 

our RADV audit approach in that it 

signaled for the first time the Agency’s 

intent to recover MA organization 

contract-level payments. As a 

consequence, this would result in 

substantially larger payment error than 

the previous enrollee-level audits. In 

2009, we expanded its RADV audits to 

randomly selected MA organizations 

and MA organizations targeted because 

of the results of an earlier coding 

intensity study. Both the random and 

targeted RADV audits were intended to 

generate statistically valid contract-level 

payment error estimates based on 2007 

payments. 

c. RADV Error-Rate Calculation 

Disputes and Reconsiderations 

Neither the MMA nor existing 

Medicare Advantage regulations 

expressly provide for an administrative 

appeals process that would apply to 

RADV-related disputes involving MA 

organizations undergoing RADV audits. 

Until 2008, because RADV audit 

payment adjustments were limited to 

sampled beneficiary-level findings only, 

the overall impact of these payment 

adjustments on MA organizations was 

relatively small. Nevertheless, affected 

MA organizations requested that we 

provide some type of appeal remedy for 

disputing RADV audit results. In 

response to this request, for the RADV 

audit activity that occurred for payment 

year 2005, MA organizations that 

disputed our RADV audit findings were 

permitted to do so via an administrative 

process known as documentation 

dispute. Under documentation dispute, 

MA organizations selected for RADV 

audit could dispute enrollee-level HCC 

findings based on the application of the 

ICD–9–CM guidelines. This 

documentation dispute process allowed 

MA organizations to submit new 

medical record documentation and 

clarifying documentation. Our medical 

record review contractors reviewed this 

clarifying documentation via the 

documentation dispute process and if 

this documentation overturned the 

initial discrepancy determination, the 

contractor would recalculate the MA 

organization’s payment error estimate 

and make payment adjustments based 

upon the revised payment error 

estimate. 

d. Proposed Addition of Medicare 

Advantage Organization Risk 

Adjustment Data Validation—Dispute 

and Appeal Procedures 

Our experience to date in conducting 

RADV audits has led us to propose 

affording MA organizations undergoing 

RADV audits the formal dispute and 

appeal rights as possible remedies for 

RADV audit findings that result in 

payment errors. Since neither the statute 

nor existing MA program regulations 

specify RADV dispute or appeal 

requirements, we are, under our 

authority to establish MA program 


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standards by regulation at section 

1856(b)(1) of the Act, proposing 

additions to part 422, subpart G at new 

§ 422.311, to specify RADV dispute and 

appeal rights for MA organizations. 

Specifically, we propose allowing MA 

organizations that have undergone 

RADV audit(s) to—(1) submit physician 

and other practitioner signed 

attestations for physician and other 

outpatient medical records with missing 

or illegible signature and/or credentials 

that could result in a payment error; (2) 

dispute certain other types of medical 

record review-related errors through the 

use of a documentation dispute process; 

and (3) appeal our RADV payment error 

calculation. By availing themselves of 

these RADV dispute and appeal 

processes, MA organizations may be 

able to reduce their RADV payment 

error and thereby, reduce their overall 

estimated MA payment error. Therefore, 

we are proposing the following 

provisions under part 422: 

• At § 422.2, we provide definitions 

of six terms that pertain to Risk 

Adjustment Data Validation (RADV) 

activities and thereby, relate to our 

proposals for implementing RADV 

dispute and appeal processes. 

• At § 422.311, we propose adding a 

new section to Subpart G—RADV audit 

dispute and appeal processes— 

describing procedures that we would 

implement to afford MA organizations 

undergoing RADV audits the 

opportunity to have certain potential 

RADV payment errors addressed in 

advance of RADV-audit-related payment 

error determinations being made, and 

other types of confirmed payment errors 

overturned. At § 422.311(a) and (b), we 

summarize the procedures that we 

undertake to conduct RADV audits of 

MA organizations. Beginning with 

§ 422.311(c), we propose implementing 

three RADV-related dispute and appeal 

procedures that MA organizations could 

undertake to reduce their RADV 

payment error to include— 

• Physician/practitioner 

attestation(s); 

• Documentation dispute; and 

• RADV payment error calculation 

appeal. 

Analysis of data originating from 

medical records submitted by MA 

organizations that have undergone 

RADV audit indicates that a substantial 

percentage of medical record-related 

payment error determinations are due to 

missing or illegible signature or 

credentials on medical records. 

Medicare program rules dictate the 

necessity of physician signatures on 

medical records, and MA risk 

adjustment requirements dictate that 

risk adjustment diagnosis data be 

accepted from health services that were 

conducted by certain physician 

specialties. Therefore, RADV 

requirements dictate that in addition to 

the presence of diagnosis information 

that would support HCCs submitted by 

MA organizations, physician signatures 

and credentials must be present on 

medical records. Medical records with 

missing or illegible signatures and/or 

credentials are scored as errors under 

RADV audit procedures. We estimate 

that if given the opportunity to do so, 

many physicians and other practitioners 

that provided the diagnosis information 

on RADV-reviewed medical records 

would in fact attest that they 

documented the information in these 

medical records, even though signatures 

and credentials were missing. The 

presence of a signature or credential 

attestation to accompany these medical 

records would in our opinion, provide 

justification for preventing both 

contract-level and national-level RADV 

payment errors that may otherwise 

originate from medical record signature 

and/or credential discrepancies only. 

They would not, however, be acceptable 

to address any issues outside the RADV 

audit process. 

Therefore, under our authority to 

establish MA program standards by 

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

Act and the authority at section 

1853(a)(3) of the Act to risk adjust 

payments for MA organizations, at 

newly established § 422.311(c)(1), we 

are proposing to implement a process 

that would allow MA organizations to 

voluntarily submit CMS attestations 

(that is, only attestations developed and 

pre-populated by CMS). These 

attestations would be signed by 

physicians/practitioners who would 

attest responsibility for conducting and 

documenting the health services in the 

physician and outpatient medical 

record(s) being submitted for RADV 

audit. We specify at § 422.311(c)(1)(ii) 

and (iii) that MA organizations would 

be eligible to use attestations to address 

signature and/or credential-related 

discrepancies only from physician or 

outpatient medical records; attestations 

would not be allowed to address 

signature and/or credential-related 

discrepancies found on inpatient 

medical records. We do not believe it is 

necessary to permit attestations for 

inpatient medical records. The proposed 

use of an attestation would not in any 

way supplant the medical record, nor 

would it permit attesting physicians/ 

practitioners to alter the existing 

medical record. 

Based on our recent RADV 

experience, the percentage of payment 

error associated with signature and 

credentials for inpatient medical records 

is relatively small. Furthermore, MA 

organizations would not be permitted to 

use attestations as a vehicle for 

introducing new HCCs for payment 

consideration. 

At § 422.311(c)(1)(C)(iv), we indicate 

that we would prospectively notify MA 

organizations that if their one best 

medical record necessary to validate an 

audited HCC was missing a physician/ 

practitioner signature or credential, the 

MA organization would be permitted to 

submit a CMS RADV attestation along 

with the medical record, to fulfill the 

requirement that medical records 

contain physician/practitioner 

signatures and credentials. 

We describe the process that we 

would jointly undertake to review 

attestations submitted for our review at 

§ 422.311(c)(1)(iv) and (v). Only CMSgenerated attestations that meet certain 

requirements described at 

§ 422.311(c)(1) and (d) are eligible for 

consideration. Failure to meet these 

requirements would result in us not 

reviewing submitted attestations. CMS 

attestations that have been altered or 

amended (for example, striking out prepopulated words and replacing them 

with hand-written replacement words) 

without instruction or written 

confirmation by CMS will not be 

accepted. Attestations must accompany 

the medical record at the same time that 

the medical record is submitted to CMS 

for RADV audit. MA organizations may 

not submit attestations before or after 

submission of their RADV medical 

records. Attestations must originate 

from the physician/practitioner whose 

medical record accompanies and 

corresponds to the attestation. We will 

not accept attestations or medical 

records from any party other than the 

MA organization. Organizations may not 

submit attestations during the 

documentation dispute or RADV 

reconsideration processes described at 

§ 422.311(c)(2 and 3). At 

§ 422.311(c)(1)(iv), we describe the 

process that we would undertake to 

review attestations and notify appellant 

MA organizations of the results of these 

attestation reviews. Our attestation 

review determinations would be final 

and binding upon both parties and 

would otherwise not be eligible for 

further appeal. 

We believe this proposal benefits both 

MA organizations and the Government. 

First, MA organizations will be 

provided an opportunity to prevent 

substantially high RADV payment errors 

that would otherwise be associated with 

signature and/or credential errors. 

Second, we benefit by being able to 

report RADV payment errors that 


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originate primarily from the lack of 

diagnosis data necessary to justify 

submitted HCCs rather than missing 

signatures and/or credentials or the lack 

of legible signature and/or credentials. 

We believe that this is an important 

distinction given the underlying 

principles of the risk adjustment 

payment model—a model that pays MA 

organizations less for healthy enrollees 

and more for less-healthy enrollees 

based upon the existence of diagnostic 

data in enrollee medical records. 

We further propose affording MA 

organizations the option of disputing 

other non-signature or credential-types 

of RADV-related medical record 

diagnosis coding discrepancies via a 

proposed documentation dispute 

process that we describe in new 

paragraph § 422.311(c)(2) et seq. This 

proposal is based upon our authority to 

establish MA program standards by 

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

Act and the authority at section 

1853(a)(1)(G) of the Act to risk adjust 

payments for MA organizations. In order 

to be eligible for documentation dispute, 

MA organizations must submit their one 

best medical record to us in accordance 

with RADV medical record submission 

deadlines established by CMS during 

the RADV medical record request 

process. 

At § 422.311(c)(2)(a), we specify the 

types of RADV-related errors that would 

be eligible for the documentation 

dispute process. The documentation 

dispute process will apply only to the 

errors that arise out of operational 

processing of medical records selected 

for RADV audit and submitted to CMS 

by established deadlines. In this 

context, errors that arise from 

operational processing mean errors that 

arise from the collection and processing 

of medical records for RADV audit. For 

example, if an MA organization submits 

a two-page medical record that 

inadvertently becomes separated into 

‘‘two’’ medical records upon receipt by 

the CMS Medical Record Review 

Contractor—we would permit the MA 

organization to resubmit the two-page 

medical record so that the record can be 

reviewed in its intended two-page 

format. At § 422.311(c)(2)(ii), we specify 

the limitations that we would impose 

upon the documentation dispute 

process, namely that MA organizations 

would not be permitted to dispute any 

medical record coding discrepancies, 

nor would MA organizations be 

permitted to submit altogether new 

medical records in place of previously 

submitted medical records. Payment 

errors that resulted from missing 

medical records will not be eligible for 

documentation dispute. A missing 

medical record means that no medical 

record documentation was submitted by 

the formal CMS-established deadline. 

MA organizations would not be 

permitted to use the documentation 

dispute process as a mechanism for 

establishing new HCCs for payment 

consideration. In this context, the term 

‘‘new HCC’’ means an HCC that was not 

previously assigned to an enrollee, 

because no associated risk adjustment 

diagnosis data was submitted to CMS 

for payment. 

At § 422.311(c)(2)(iii) and (iv), we 

indicate that we would prospectively 

notify MA organizations of RADV 

payment errors that would be eligible 

for documentation dispute, describe the 

documentation dispute process that we 

would undertake, along with the 

process that we will undertake to notify 

MA organizations of the results of 

documentation dispute reviews. As 

described at § 422.311(c)(2)(v), our 

documentation dispute review 

determination would be final and 

binding upon both parties and would 

not otherwise be eligible for further 

administrative appeal. 

We believe affording MA 

organizations the ability to dispute the 

operational processing of those medical 

records that are submitted timely offers 

MA organizations and CMS a balanced 

approach for disputing a significant 

portion of RADV errors. It also does so 

in a manner that benefits both MA 

organizations and the Government. 

Allowing MA organizations to dispute 

CMS’ operational processing errors 

provides MA organizations an 

opportunity to overturn certain types of 

RADV payment errors and thereby 

reduce their overall RADV payment 

error. However, the approach we 

recommend here that limits MA 

organizations to disputing only certain 

types of errors ensures that the integrity 

of the CMS’ RADV audit process 

remains intact. We believe this is an 

important consideration in developing 

an RADV dispute process that balances 

the desires of the MA industry and the 

program integrity interests of the 

Federal Government. To date, some MA 

organizations that have undergone 

RADV audit have been dissatisfied with 

our medical record review processes 

and have petitioned CMS to allow 

additional opportunities to validate 

HCCs selected for audit. Given the rigor 

of our existing RADV audit procedures 

generally and multi-faceted medical 

record review procedures specifically, 

we believe this is unnecessary. Indeed, 

we believe that it is important to 

understand that while the RADV 

medical record review process is 

intentionally a rigorous procedure that 

is carried out by several independent 

CMS contractors, we have structured the 

overall medical record review process 

so that MA organizations can 

successfully submit requested medical 

records necessary to validate diagnoses 

that were sent to us for determining 

payments under risk adjustment. 

The rigor surrounding the RADV 

medical record review process is well 

established and has been known to the 

MA industry for several years. For 

purposes of clarity and context, we 

summarize that process here. To 

validate the CMS–HCCs selected for 

audit, MA organizations need only 

submit medical record documentation 

for each enrollee CMS–HCC requested 

by CMS for the specified audit time 

frame. The medical record must reflect 

a date of service that occurred during 

the respective audit period. We instruct 

each MA organization to select and 

submit the one best medical record 

necessary to support each enrollee 

CMS–HCC being validated. 

Furthermore, we provide each MA 

organization undergoing RADV audit 12 

weeks to submit the one best medical 

record for validation. Once requested 

medical records have been received, for 

any identified RADV errors, we conduct 

two rounds of medical record review by 

two independent contractors. Medical 

record review contractors employ 

certified coders to review medical 

records. The purpose of the second 

independent medical record review is to 

confirm discrepancies found in the 

initial review. To ensure the integrity of 

the medical record review process and 

the accuracy of the medical record 

review findings, the second medical 

record review contractor is blind to the 

findings from the first medical record 

review contractor when it examines 

medical records that the first medical 

record review contractor determined 

were discrepant. Further, all discrepant 

records with coding discrepancies are 

reviewed twice. First they are reviewed 

by a primary coder and then they are 

forwarded to a senior-level expert coder 

for review confirmation. As needed, 

consultation from physicians is also 

provided. Finally, we undertake robust 

medical record coder inter-rater 

reliability (IRR) testing to ensure that 

medical record review activity is 

consistent and the application of CMS 

RADV coding guidelines are applied 

uniformly and fairly. 

Together in its entirety, we believe the 

RADV medical record review process is 

thorough and it affords MA 

organizations ample opportunity to 

successfully meet RADV audit 

standards. We believe that affording MA 

organizations additional opportunities 


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for attestation and documentation 

dispute to meet CMS’ RADV medical 

record documentation standards, 

beyond those specified at proposed 

§ 422.311(c)(1) and(2) et seq., would be 

an unnecessary use of government 

resources that is unlikely to result in 

any meaningful change in RADV audit 

results. 

Pursuant to our authority to establish 

MA program standards by regulation at 

section 1856(b)(1) of the Act and the 

authority at section 1853(a)(1)(G) of the 

Act to risk adjust payments for MA 

organizations, we are adding 

§ 422.311(c)(3) to establish an appeals 

process whereby RADV payment error 

calculations may be subject to appeal. 

Unlike our proposed attestation process 

described at § 422.311(c)(1) and 

proposed documentation dispute 

process describe at § 422.311(c)(2) 

which afford MA organizations the 

opportunity to dispute aspects of our 

medical record review process, the 

RADV payment error calculation appeal 

process is specifically designed to afford 

MA organizations the opportunity to 

appeal our contract-level RADV 

payment error calculation. Under the 

proposed RADV payment error 

calculation appeal process, we are 

establishing a three-level appeal process 

whereby MA organizations may— 

• Seek reconsideration; 

• Appeal the reconsideration decision 

to an independent CMS hearing officer; 

and 

• Appeal the decision of the 

independent CMS hearing officer to the 

CMS Administrator. 

Unlike the proposed attestation and 

documentation dispute processes 

described in our proposed regulations at 

§ 422.311(c)(1) and (c)(2), our proposed 

RADV payment error calculation appeal 

process has several layers of appeal 

available to MA organizations. Our 

proposed dispute processes described at 

§ 422.311(c)(1) and (c)(2) afford MA 

organizations only one level of dispute 

consideration because the RADV 

medical record audit process already 

provides multiple layers of strong and 

overlapping review and independence. 

These measures ensure robust layers of 

internal checks and balances that help 

maintain the integrity of the medical 

record review process. Therefore, we do 

not believe that the attestation or 

document dispute processes require 

additional levels of dispute. Given the 

complexity of RADV audits in general, 

and the calculation of RADV-related 

error rates in particular, we do believe 

it’s prudent to afford appellate MA 

organizations multiple-layers of RADVrelated payment error appeal. 

At § 422.311(c)(3)(ii) we specify that 

MA organizations may not under the 

RADV payment error calculation appeal 

process appeal medical record review 

errors nor may MA organizations seek 

formal appeal of physician or 

practitioner signature or credentialrelated review errors. Medical record 

review-related issues will be resolved as 

a result of the rigorous medical record 

review process and the proposed 

attestation and documentation dispute 

processes described earlier in this 

proposed regulation. In accordance with 

our proposed regulation at 

§ 422.311(c)(3)(i), the RADV payment 

error calculation appeals process only 

applies to errors identified in the RADV 

payment error calculation. MA 

organizations cannot utilize the 

payment error calculation appeal 

process as a method for submitting any 

medical records for consideration in the 

calculation of the payment error. In 

order to be eligible for RADV payment 

error calculation appeal, MA 

organizations must adhere to 

established RADV audit requirements, 

including the submission of medical 

records in the manner and by the 

deadlines specified by CMS. 

Furthermore, MA organizations 

cannot appeal the CMS’ payment error 

calculation methodology. Our 

justification for excluding 

methodological appeals is two-fold. 

First, the methodology that we employ 

to calculate RADV payment errors is 

methodologically sound and 

academically defensible. We intend to 

ensure that all MA organizations 

understand the RADV payment error 

calculation methodology by providing 

annual notice to all MA organizations of 

the methodology that will be employed 

for calculating Part C payment errors. 

MA organizations that object to CMS’ 

RADV payment error calculation 

methodology will be given an 

opportunity to provide comment to us 

under the Agency’s annual notice of 

RADV audit methodology. Second, in 

addition to providing an annual notice 

of RADV audit methodology, we will 

provide an expanded explanation of 

methodology as part of each audit report 

of findings that we send to MA 

organizations that undergo RADV audit. 

Included in this expanded explanation 

of methodology will be RADV payment 

error calculation factors unique to each 

audited MA organization that will 

enable the MA organization to 

independently calculate its own RADV 

payment error. 

At § 422.311(c)(3)(iii) and (v), we 

specify that MA organizations will be 

notified of their RADV payment error 

calculation appeal rights at the time 

CMS issues a RADV audit report to that 

organization. MA organizations will 

have 30 days from the date of this notice 

to submit a written request for 

reconsideration of its RADV payment 

error calculation. A request for 

reconsideration must specify the issues 

with which the MA organization 

disagrees, the reasons for the 

disagreements and explain why the 

organization believes the issues are 

eligible for reconsideration. The request 

for reconsideration may include 

additional documentary evidence that 

the MA organization considers material 

to the reconsideration, though MA 

organizations are prohibited from 

submitting medical record-related 

evidence such as new or previously 

submitted medical records or physician 

or practitioner attestations and from 

appealing any issues pertaining to the 

methodology applied in any part of the 

RADV audit. At § 422.311(c)(3)(iv), we 

further specify that the MA organization 

bears the burden of proof to demonstrate 

that CMS’ RADV payment error 

calculation was clearly incorrect. 

We describe the proposed conduct of 

a RADV payment error calculation 

reconsideration, the decision of the 

reconsideration official and the effect of 

the CMS reconsideration decision 

official at § 422.311(c)(3)(e) and (f). 

At § 422.311(c)(3)(v) and (vi), we 

describe the first level of RADV 

payment error calculation appeal, the 

request for reconsideration of our RADV 

payment error calculation. Under this 

process a CMS official or our contractor 

not otherwise involved in error-rate 

calculation activity reviews our RADV 

payment error calculation and any 

written evidence submitted by the MA 

organization that pertains to CMS’ 

RADV payment error calculation, 

recalculates the payment error utilizing 

our RADV payment error calculation 

methodology as specified in our 

standard operating procedures, and 

renders a determination whether the 

RADV payment error calculation is 

accurate. This CMS official or CMS 

contractor (not otherwise involved in 

RADV error-rate calculation activity) 

may calculate and arrive at a different 

RADV payment error. Whether the 

official or contractor agrees with our 

payment error calculation or overturns 

this calculation and establishes a new 

RADV payment error, this party’s RADV 

payment error calculation determination 

is issued to a CMS reconsideration 

official. The CMS reconsideration 

official reviews their analysis and makes 

a determination whether to accept or 

reject the findings of the CMS official or 

CMS contractor that recalculated the 

RADV payment error. In instances when 


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the CMS official or contractor 

recommends overturning CMS’ RADV 

payment error calculation and the 

reviewing CMS reconsideration official 

agrees with the newly calculated RADV 

payment error, we issue a 

reconsideration decision which informs 

the appealing MA organization in 

writing of its reconsideration decision, 

in effect, notifying the MA organization 

of its new RADV payment error. If the 

reconsideration official upholds the 

decision of the CMS official or 

contractor to sustain our initial RADV 

payment error calculation, the 

reconsideration official similarly 

notifies the appellant MA organization 

of its determination. In either instance, 

the decision of the reconsideration 

official is final and binding unless a 

request for hearing is filed by CMS or 

the appellant MA organization. 

At § 422.311(c)(4), we propose to 

allow CMS or MA organizations that are 

dissatisfied with the decision of the 

CMS reconsideration official described 

at § 422.311(c)(3) et seq., to request a 

second level of RADV payment error 

calculation appeal, a hearing on their 

RADV payment error calculation 

determination. CMS or MA 

organizations choosing to pursue a 

hearing must file a request for hearing 

within 30 days of the date the MA 

organization receives our written RADV 

payment error calculation 

reconsideration decision as described at 

§ 422.311(c)(3)(vi). CMS or MA 

organizations requesting a hearing must 

do so in writing, include a copy of the 

CMS reconsideration official’s decision 

to either uphold or overturn our RADV 

payment error calculation, and specify 

the findings or issues in that 

reconsideration decision that they 

disagree with and why they disagree 

with them. The hearing will be 

conducted by the CMS Office of 

Hearings and presided over by a CMS 

Hearing Officer who neither receives 

testimony nor accepts any new evidence 

that was not presented with the request 

for reconsideration of the RADV 

payment error calculation. The hearing 

will be held on the record, unless the 

parties request, subject to the hearing 

officer’s discretion, a live or telephonic 

hearing. The hearing officer may also 

schedule a live or telephonic hearing 

upon their own motion. The CMS 

hearing officer is limited to the review 

of the record that was before us when 

we made both our initial RADV 

payment error calculation and our 

reconsidered RADV payment error 

calculation. 

The hearing officer has full power to 

make rules and establish procedures, 

consistent with the law, regulations, and 

CMS rulings. These powers include the 

authority to take appropriate action in 

response to failure of an organization to 

comply with such procedures. 

As described at proposed 

§ 422.311(c)(4)(iv), the CMS hearing 

officer reviews and decides whether the 

reconsideration official’s decision was 

correct and notifies CMS and the MA 

organization in writing of his/her 

decision, explaining the basis for the 

decision. In effect, the CMS hearing 

officer’s ruling either upholds or 

overturns the RADV payment error 

calculation. The Hearing Officer does 

not recalculate the error and offer either 

party an alternative RADV payment 

error. In instances where the hearing 

officer overturns the RADV payment 

error calculation, the hearing officer 

issues their written determination to 

CMS and the MA organization, in effect, 

notifying both parties that we must 

recalculate the organization’s RADV 

payment error. If the Hearing Officer 

upholds the decision of the CMS 

reconsideration official regarding the 

RADV payment error calculation, the 

Hearing Officer similarly notifies CMS 

and the MA organization of his/her 

determination. The Hearing Officer’s 

decision is final and binding, unless the 

decision is reversed or modified by the 

CMS Administrator in accordance with 

§ 422.311(c) (5). 

The third level of RADV payment 

error calculation appeal that MA 

organizations can request is 

discretionary review by the CMS 

Administrator. We describe this 

proposed process at § 422.311(c)(5) et 

seq. At this level of appeal, CMS or the 

MA organization can appeal the 

decision of the CMS Hearing Officer by 

requesting that the CMS Administrator 

review the CMS Hearing Officer’s 

determination. Parties requesting CMS 

Administrator review would have to 

request the review within 30 days of 

receipt of the CMS Hearing Officer’s 

determination. If the Administrator 

agrees to review the case, the 

Administrator reviews the Hearing 

Officer’s decision as well as any other 

information included in the record of 

the Hearing Officer’s decision and 

determines whether to uphold, reverse, 

or modify the CMS Hearing Officer’s 

decision. The Administrator’s 

determination is final and binding. 

Based on our experience with appeals 

of MA and Medicare Part D program 

contract determinations, we have 

determined that it is necessary for us to 

establish a ‘‘compliance date’’ to use as 

a reference point in issuing a ruling 

regarding RADV audit findings. By way 

of this proposed regulation at 

§ 422.311(b)(2), we are requiring that the 

compliance date for meeting Federal 

regulations requiring MA organizations 

to submit medical records for the 

validation of risk adjustment data, 

(§ 422.310(e)) also be the due date when 

MA organizations (or their contractor(s)) 

selected for RADV audit, must submit 

medical records to CMS. We will inform 

an MA organization in writing regarding 

selection for RADV audit including the 

due date for submission of medical 

records. Without a specific date as a 

reference point for evaluating 

compliance, MA organizations could 

choose to assert that while they were 

unable to meet RADV audit 

requirements on the date we specified 

as the due date for medical record 

submission, they were later able to do 

so. Under this scenario, organizations 

would be free to assert the right to 

submit medical records in place of, or 

in addition to, records that were, or, 

were not, as the case may be, submitted 

to us by the RADV audit due date. 

Accordingly, if we proceeded to 

conduct our RADV audit, issue a report 

of findings, and attempt to collect any 

identified overpayments, affected MA 

organizations could counter that while 

they did not have medical records to 

justify a particular HCC-level payment 

at the time due, they now have such 

records. Therefore, we should re-open 

the audit, review the new medical 

records and adjust our report of findings 

accordingly. The medical record review 

process could continue ad-infinitum, 

preventing us from closing out RADV 

audits and collecting any identified 

overpayments. 

We welcome comments on all aspects 

of these proposed rules. 

2. Payments to Medicare Advantage 

Organizations—Actuarial Valuation 

(§ 422.254) 

We propose to amend the regulation 

to expressly require an actuarial 

certification for Part C bids. 

Operationally, we require an actuarial 

certification to accompany every bid, for 

both Parts C and D. A qualified 0actuary 

who is a Member of the American 

Academy of Actuaries (MAAA) must 

complete the certification. The objective 

of obtaining an actuarial certification is 

to place greater responsibility on the 

actuary’s professional judgment and to 

hold him/her accountable for the 

reasonableness of the assumptions and 

projections. This requirement is already 

set forth in the part D regulations at 

§ 423.265(c)(3). This proposed change in 

the part C regulation text will bring the 

part C regulation at § 422.254(b)(5) in 

line with current requirements and Part 

D. 


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3. Determination of Acceptable 

Administrative Costs by Cost Contracts 

and Health Care Prepayment Plans 

(§ 417.564) 

Our requirements for the 

apportionment and allocation of 

administrative and general costs for 

health care prepayment plans (HCPPs) 

authorized under section 1833(a)(1)(A) 

of the Act and cost contractors 

authorized under section 1876 of the 

Act are set forth at § 417.564. As 

provided under § 417.802(a), with 

limited exceptions, allowable costs for 

HCPP reimbursement are the same as 

those for reasonable cost HMOs and 

CMPs as specified in Subpart O of Part 

417. Both section 1833(a)(1)(A) of the 

Act (for HCPPs) and section 1876(h)(2) 

of the Act (for cost HMOs and CMPs) 

incorporate the definition of 

‘‘reasonable cost’’ in section 1861(v) of 

the Act, which used to govern 

reimbursement to providers of services 

under Part A prior to the enactment of 

Prospective Payment Systems (PPS). 

Because that definition was originally 

established with respect to Original 

Medicare providers, we believe that it is 

appropriate to interpret and apply the 

principles in section 1861(v) in the 

managed care context. We accordingly 

propose to revise the regulations 

governing payments to HCPPs and cost 

HMOs/CMPs to clarify how we believe 

the reasonable cost principles in section 

1861(v) should apply to HCPPs and 

HMOs/CMPs by specifying the 

methodologies that must be used in 

determining the different allowable 

administrative costs for both such 

entities. 

We have noted in recent audits of 

HCPP and section 1876 cost contractors 

uncertainty regarding what constitutes a 

‘‘reasonable’’ level of administrative 

costs incurred by these entities. In 

conducting audits, we have not always 

been able to confirm that HCPP and cost 

contractors authorized under section 

1876 of the Act were calculating their 

administrative costs in a manner that 

has allowed us to verify that they have 

followed appropriate practices. 

In order to remove any uncertainty on 

the part of HCPP and cost contractors 

authorized under section 1876 of the 

Act, we propose revising § 417.564(b)(2) 

to clarify how HCPP and cost 

contractors authorized under section 

1876 of the Act must determine 

‘‘reasonable’’ administrative costs. As 

proposed at § 417.564(b)(2)(iii), 

personnel costs claimed in 

administering both HCPP and cost 

contracts authorized under section 1876 

of the Act must be linked to the specific 

administrative function performed by 

persons, at a specific rate of pay, for a 

specified period of time. We also 

propose to clarify that this level of 

information must be available to CMS 

upon request or in the course of a 

review. Additionally, we propose 

revising § 417.564 by adding a new 

paragraph (c) that specifies that, in order 

for costs to be considered ‘‘reasonable 

costs’’ within the meaning of section 

1861(v) of the Act, which expressly 

excludes ‘‘incurred cost found to be 

unnecessary in the efficient delivery of 

needed health services,’’ the following 

costs must be excluded when 

computing reimbursable administrative 

costs: 

• Donations. 

• Fines and penalties. 

• Political and lobbying activities. 

• Charity and courtesy allowances. 

• Spousal education. 

• Entertainment. 

• Return on equity. 

Because we are simply clarifying our 

reporting and recordkeeping 

requirements, by clarifying what costs 

an HCPP may report in its cost report as 

administrative costs for reimbursement 

by the government, we do not believe 

this provision would increase burden or 

costs for plan sponsors. However, we 

solicit comment on our assumptions. 

4. Calculation of the Minimum 

Percentage Increase Under Part C 

(§ 422.306) 

Section 5301 of the DRA added 

section 1853(k) of the Act to create a 

single rate book for calculating MA 

payments and applicable adjustments. 

The DRA also modified the 

methodology for updating the MA 

payment rates by adding section 

1853(k)(1)(B) of the Act. Beginning in 

2007, the statute requires for purposes 

of calculating the minimum percentage 

increase rate that the previous year’s 

benchmarks be updated annually using 

only the national per capita MA growth 

percentage as described in section 

1853(c)(6) of the Act. Prior to 2007 the 

minimum percentage increase rate was 

the greater of 102 percent of the MA 

capitation rate for the preceding year or 

the MA capitation rate for the preceding 

year increased by the national per capita 

MA growth percentage for the year. 

Since the statute, as revised by the 

DRA, no longer provides for the 2 

percent minimum update, we can no 

longer apply it to the MA rates. The 2 

percent minimum update still applies to 

the end stage renal disease MA update 

because the statute at section 

1853(a)(1)(H) of the Act provides that 

ESRD rates are to be calculated in a 

manner consistent with the way those 

rates were calculated ‘‘under the 

provisions of [section 1853 of the Act] 

as in effect before the date of enactment 

of the MMA.’’ The pre-2003 version of 

section 1853 of the Act included the 2 

percent minimum update. Therefore, we 

propose to revise § 422.306 to eliminate 

the 2 percent minimum update for all 

rate calculations other than ESRD. 

E. Changes To Improve Data Collection 

for Oversight and Quality Assessment 

This section of the rule outlines four 

proposals related to improving Part C 

and D data collection for oversight and 

quality assessment. The first proposal 

addresses quality improvement projects 

and data on quality and outcomes 

measures under Part C. As part of this 

proposal, we would use data collected 

by Quality Improvement Organizations 

for MA quality improvement and 

performance assessment purposes. 

The second proposal addresses 

payment for beneficiary surveys. We 

would require, consistent with other 

surveys under the MA program that MA 

and Part D sponsoring organizations pay 

for the data collection costs of the 

Consumer Assessment of Healthcare 

Providers and Systems (CAHPS) annual 

survey beginning in 2011. 

Under our third proposal, we propose 

to require that each Part C and Part D 

sponsor be subject to an independent 

yearly audit of Part C and Part D 

measures (collected pursuant to our 

reporting requirements) to determine 

their reliability, validity, completeness, 

and comparability in accordance with 

specifications developed by us. 

Finally, the last proposal would 

amend our rules on the collection and 

use of prescription drug event data for 

nonpayment-related purposes. 

Previously our rules addressed only the 

collection of the original 37 data 

elements for non-payment related 

purposes. In this rule, we are proposing 

to collect all data elements included on 

the drug event record for non-payment 

purposes. We also propose to provide 

for the limited release of plan identifiers 

to certain government grantees. 

For the reasons set forth below, we 

believe each of these proposals is 

necessary to ensure continued quality 

improvement in the Part C and D 

programs. 


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TABLE 5—IMPROVE DATA COLLECTION FOR OVERSIGHT AND QUALITY ASSESSMENT

Provision 

Part 422 Part 423 

Part 480 

Subpart Section Subpart Section 

Requirements for Quality Improvement Programs under Part C.Subpart D ..... § 422.152, ...................

§ 422.153 ....................

N/A ............... N/A ............................. § 480.140. 

Require that Sponsors pay for the Consumer 

Assessment Health Plan Survey (CAHPS).

Subpart D ..... § 422.152(b)(5) ........... Subpart D ..... § 423.156 .................... N/A. 

Require validation of reporting requirements .. Subpart D ..... § 422.516, § 423.514 .. Subpart D ..... § 423.514 .................... N/A. 

Allow collection of all PDE data elements to 

be collected for non-payment purposes.

N/A ............... N/A ............................. Subpart D ..... § 423.505 .................... N/A. 

1. Requirements for Quality 

Improvement Programs Under Part C 

(§ 422.152, § 422.153, and § 480.140) 

Section 1851(d)(4)(D) of the Act 

requires us to make available to MA 

eligible individuals’ information 

comparing MA plan options, including 

information on plan quality and 

performance indicators to the extent this 

information is available. Separately, 

section 1852(e)(1) of the Act requires 

that each MA organization have an 

ongoing quality improvement program 

for the purpose of improving the quality 

of care provided to enrollees in each 

MA plan offered by the MA 

organization. Section 1852(e)(3)(A) of 

the Act requires that, as part of this 

quality improvement program, MA 

organizations collect, analyze, and 

report data that permits the 

measurement of health outcomes and 

other indices of quality as part of their 

quality improvement program for their 

coordinated care plans. To the extent 

that local PPO, regional PPO, PFFS, and 

MSA plans have a network of contracted 

providers, these plan types must meet 

the same quality improvement 

requirements as other coordinated care 

plans. 

Section 1852(e)(3)(B)(i) of the Act 

generally limits the collection of data on 

quality, outcomes, and beneficiary 

satisfaction under section 1852(e)(3)(A) 

to facilitate consumer choice and 

program administration to ‘‘the types of 

data’’ that were collected as of 

November 1, 2003, however, section 

1852(e)(3)(B)(ii), titled ‘‘Changes in 

Types of Data,’’ provides for the 

Secretary to ‘‘change the types of data 

that are required to be submitted under 

subparagraph (A) after submitting to 

Congress a report on the reasons for 

such changes that was prepared in 

consultation with MA organizations and 

private accrediting bodies.’’ Section 

1852(e)(3)(B)(iii) also makes clear that 

the limitation in section 1852(e)(3)(B)(i) 

shall not be construed as ‘‘restricting the 

ability of the Secretary to carry out the 

duties under section 1851(d)(4)(D)’’ to 

provide beneficiaries with ‘‘available’’ 

quality information on MA plans. 

a. Quality Improvement Programs 

The requirement for MA organizations 

to have ongoing quality improvement 

programs is codified at § 422.152(a). 

Under § 422.152(a)(1), MA plans are 

required to include a chronic care 

improvement program (CCIP) as part of 

their quality improvement program that 

meets the requirements set forth in 

§ 422.152(c). As specified under 

§ 422.152(a)(2), MA organizations are 

also required to include quality 

improvement projects as part of their 

quality improvement program that are 

expected to have a favorable effect on 

enrollee health outcomes and enrollee 

satisfaction, and meet requirements 

established in § 422.152(d). Under our 

current regulations at § 422.152(c) and 

§ 422.152(d), MA organizations have 

flexibility to develop criteria for CCIPs 

and initiate any quality improvement 

project that focuses on clinical and nonclinical areas based on the needs of their 

enrolled population. 

Based on our continued experience 

with the MA program and due to 

inconsistent methods used across 

organizations, we are concerned that 

relying on MA organizations to establish 

their own CCIPs and quality 

improvement projects may not lend 

itself to effectively compare plans by 

beneficiaries and to manage and report 

projects. More importantly, we have 

concerns that these projects are not 

addressing quality improvement areas 

that we believe reflect beneficiary 

needs. For example, some projects may 

be designed to improve processes only 

without linking the processes to clinical 

outcomes. For example, improving the 

timeliness and effectiveness of referrals 

to specialists, as measured by process 

measures, may have little or no impact 

on improved health outcomes for 

beneficiaries. We are interested in MA 

organizations focusing on individual as 

well as population specific health risk 

needs (for example, MA organizations’ 

use of data sources internal to their 

organizations to identify clinical 

outcomes that not only fail to meet 

national averages, but also jeopardize 

the overall health and quality of life of 

the beneficiary). 

As a result of our concerns, we are 

proposing to revise § 422.152(a)(1) and 

§ 422.152(a)(2) to require that MA 

organizations conduct CCIPs in patient 

populations and quality improvement 

projects in areas identified by CMS 

based on our review of data collected 

from MA organizations and the 

population served by the plans. We 

propose to determine what areas would 

most benefit from quality improvement 

and will provide guidance on specific 

quality improvement projects for MA 

organizations to implement, either 

based on that organization’s specific 

quality improvement needs, or quality 

improvement needs for MA plans 

generally. We also will suggest methods 

and processes by which to manage a 

quality improvement project as 

appropriate. 

Using the HPMS, Medicare Managed 

Care Manual, and other means of 

communication that CMS determines to 

be appropriate, we will annually inform 

MA organizations individually and/or 

generally which patient populations and 

areas we have determined would benefit 

most from a CCIP and quality 

improvement project, respectively. 

b. New Quality Measures 

As we strengthen our oversight of 

quality improvement programs 

implemented by MA organizations, we 

believe that there is also a need for us 

to collect additional data on quality and 

outcomes measures in order to better 

track plan performance. We currently 

collect from MA organizations data on 

quality, outcomes, and beneficiary 

satisfaction under Healthcare 

Effectiveness Data and Information Set 

(HEDIS®), Health Outcome Survey 

(HOS), and Consumer Assessment 

Health Providers Survey (CAHPS®). We 

anticipate additional collection and 

reporting of the same types of data on 

health outcomes and quality measures 


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that we currently collect as part of these 

processes. 

We believe that the collection of these 

data is consistent with our authority 

under section 1852(e)(3)(A) of the Act, 

and do not believe that the limitation 

described under section 1852(e)(3)(B) of 

the Act limits this proposed additional 

data collection because the data 

collected would be of the same ‘‘type’’ 

of data that we currently collect as part 

of the HEDIS®, HOS, and CAHPS® 

processes. Examples of additional areas 

on which we plan to collect data are 

post-surgical infections or patient falls. 

Therefore, we are proposing to modify 

§ 422.152(b)(3) and § 422.152(e)(2) to 

require MA plans to collect, analyze, 

and report quality performance data 

identified by CMS that are of the same 

type of data that plans are currently 

required to collect and report to CMS. 

Consistent with the Paperwork 

Reduction Act, we will provide the 

public at least two opportunities for 

public comment before imposing 

additional quality-related collection and 

reporting requirements. 

c. Use of Quality Improvement 

Organization Review Information 

The mission of the Quality 

Improvement Organization Program, as 

authorized under section 1862(g) and 

Part B of title XI of the Act, is to 

improve the effectiveness, efficiency, 

economy, and quality of services 

delivered to Medicare beneficiaries. We 

contract with one organization in each 

state, as well as the District of Columbia, 

Puerto Rico, and the U.S. Virgin Islands, 

to serve as that state/jurisdiction’s 

Quality Improvement Organization 

(QIO) contractor. QIOs are private, 

mostly not-for-profit organizations, 

which are staffed by professionals, 

mostly doctors and other health care 

professionals, who are trained to review 

medical care and help beneficiaries with 

complaints about the quality of care and 

to implement improvements in the 

quality of care available throughout the 

spectrum of care. Over time, QIOs have 

been instrumental in advancing national 

efforts to motivate providers in 

improving the quality of Medicare 

services, and in measuring and 

improving outcomes of quality. 

Data collected by QIOs to accomplish 

their mission represent an important 

tool for CMS in our efforts to improve 

quality under the MA program. QIOs 

collect survey, administrative, and 

medical records data in order to monitor 

and assess provider performance. These 

data are frequently required by scope of 

work contracts administered by CMS to 

assess whether or not QIOs are meeting 

performance goals. 

Certain QIO data could be used to 

develop a standardized core set of 

clinical and non-clinical quality and 

performance measures that could be 

applied to all MA plans in order to 

allow beneficiaries to make better 

comparisons across all MA plan types 

and make an informed decision when 

selecting a plan. These measures could 

be used to rate plans according to their 

performance. To support efforts to 

provide meaningful information to 

beneficiaries when selecting an MA 

plan, we also plan to develop minimum 

performance levels and requirements 

that address clinical and non-clinical 

areas. In addition to tracking plan 

performance, these data could also be 

used to ensure plan compliance with 

MA contract requirements and support 

compliance or enforcement actions 

against plans that are poor performers 

on certain quality and performance 

measures. These data would also allow 

us to create a competitive value-based 

purchasing program based on quality of 

care. 

Therefore, we plan to use one 

particular type of information already 

collected by QIOs and retool the data 

elements to make them specific to 

beneficiaries enrolled in MA plans. This 

information is quality review study 

(QRS) information, which is defined in 

42 CFR 480.101(b). A QRS is ‘‘an 

assessment, conducted by or for a QIO, 

of a patient care problem for the 

purpose of improving patient care 

through peer analysis, intervention, 

resolution of the problem and followup.’’ QRS information means all 

documentation related to the QRS 

process. We intend to collect from the 

QIO only the data that relates to MA 

plan beneficiaries, providers, 

practitioners, and services. We could 

then aggregate the data to the applicable 

MA plan based on beneficiary 

enrollment. Accordingly, we are 

proposing to add a new § 422.153 to 

indicate that we will collect from the 

QIOs and use quality review study 

information that is generated, collected, 

or acquired by QIOs under part 42 CFR 

480. We intend to use these data for the 

following functions: Enabling 

beneficiaries to compare health coverage 

options and select among them, 

measuring performance under the plan, 

ensuring compliance with plan 

requirements under Part 422, and other 

purposes related specifically to MA 

plans, as specified by CMS. We will not 

disclose any beneficiary identifiable 

information. In addition, we are 

proposing to amend § 480.140 to add a 

new paragraph (g), authorizing CMS’s 

use of quality review study information 

solely for the purposes specified in 

§ 422.153. 

2. CAHPS Survey Administration Under 

Parts C and D (§ 417.472, § 422.152, and 

§ 423.156) 

In accordance with the 1997 Balanced 

Budget Act mandate to collect quality 

assessment data about health plans, we 

began collecting data in 1998 for the 

Consumer Assessment of Healthcare 

Providers and Systems (CAHPS) survey 

of enrollees in Medicare Advantage 

(MA) plans (then called 

Medicare+Choice plans). In addition, 

cost contractors under section 1876 of 

the Act have also been participating in 

the CAHPS survey process with respect 

to their enrollees. We have continued to 

conduct this annual CAHPS survey at 

no cost to MA organizations or section 

1876 cost contractors. After passage of 

the Medicare Modernization Act 

(MMA), we began administering a Part 

D version of this survey in 2007 to 

Prescription Drug Plans (PDPs) and 

Medicare Advantage-Prescription Drug 

Plans (MA–PDs) in accordance with 

§ 423.156 and § 422.152. 

Under sections 1857(e) (1) and 

1860D–12 of the Act, the Secretary may 

add additional terms to the contracts 

with MA organizations and Part D 

sponsors as deemed necessary and 

appropriate. Similarly, in the case of 

cost contracts under section 1876, such 

new contract terms may be added under 

section 1876(i)(3)(D). As explained 

below, we are proposing on the basis of 

this authority, that MA, Part D, and 

section 1876 cost contracts will be 

amended to require MA organizations, 

Part D sponsors, and cost contractors to 

pay for the data collection costs of the 

annual CAHPS survey beginning in 

2011. 

In the 2010 Call Letter to Part C and 

D sponsoring organizations, we 

indicated that all MA and Part D 

contracts with at least 600 enrollees as 

of July 1 of the prior calendar year 

would be required to pay for the data 

collection costs of the CAHPS survey 

starting with the administration of the 

2011 annual CAHPS survey. This 

proposal is intended to codify this 

requirement in the Part C and Part D 

regulations at § 423.156 and § 422.152, 

and for cost contractors in § 417.472. 

The proposal to require MA 

organizations, Part D sponsors, and 

section 1876 cost contractors to pay for 

the data collection costs of the CAHPS 

survey would apply only to contracts 

with 600 or more enrollees. For reasons 

of statistical precision, a target 

minimum of 300 or more completed 

Medicare CAHPS Surveys must be 

received for each contract. In order to 


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obtain 300 or more completed surveys, 

we believe plans must have 600 or more 

enrollees because some enrollees will 

not be eligible to receive the survey, 

such as institutionalized enrollees, and 

not all enrollees selected to be surveyed 

will respond to the survey. 

It is important to note that we conduct 

other Medicare quality surveys, such as 

the Hospital CAHPS and the Medicare 

Health Outcomes Survey (HOS) for 

which the MAOs are responsible for the 

cost of the data collection. This model 

for data collection is standard industry 

practice. For example, FEHB plans pay 

for the administration of the CAHPS 

survey to their members. The data 

collection model that we are proposing 

for CAHPS survey process would use 

the same model that MAOs currently 

follow for HOS. The National 

Committee for Quality Assurance 

(NCQA) certifies vendors to conduct the 

HOS survey on behalf of CMS. In 2009, 

MAOs chose from a list of six approved 

vendors for HOS. We have been moving 

toward this model for all of our data 

collection efforts for beneficiary 

satisfaction surveys. We propose to use 

a similar model for the Medicare 

CAHPS survey where Part C & D 

contractors and section 1876 cost 

contractors would select a vendor from 

a CMS list of approved vendors to 

conduct the survey on their behalf. 

While this proposal would shift the 

cost of data collection to the eligible 

Part C and D contractors for the 

Medicare CAHPS survey (section 1876 

cost contractors would be able to claim 

these costs on their cost reports), with 

this change the sponsoring 

organizations will have the flexibility of 

adding their own questions to the 

Medicare CAHPS survey. The flexibility 

to add questions will allow them to get 

feedback about any contract specific 

issues. 

Under this proposal, the following 

types of contracts would be amended to 

include a requirement to administer the 

CAHPS survey— 

• All Coordinated Care contracts, 

including local and regional preferred 

provider organizations (PPOs) and 

contracts with exclusively Special 

Needs Plans (SNPs) benefit packages; 

• Cost contracts under section 1876 of 

the Act; 

• Private-Fee-For Service (PFFS) and 

Medical Savings Accounts (MSA) 

contracts; and 

• Prescription Drug Plans contracts 

(PDPs). 

All plans under Programs of All 

Inclusive Care for the Elderly (PACE), 

HCPP—1833 cost plans, and employer/ 

union only (PDP and PFFS) contracts 

are excluded from this CAHPS 

administration. 

Under this proposal, the first survey 

using the new model of data collection 

would be conducted in early 2011. 

Contracts that were in effect on or before 

January 1, 2010, would use the number 

of enrollees in a plan as of July 1, 2010 

to determine whether they are required 

to conduct the 2011 CAHPS survey. In 

late 2010, all MA and Part D contracts 

that are subject to the CAHPS survey 

requirement in 2011 would need to 

select an approved Medicare CAHPS 

survey vendor to administer the survey. 

We note that, in addition to approving 

a list of survey vendors to conduct the 

survey on behalf of all MA and Part D 

contracts, we would select the sample of 

enrollees to be surveyed for each 

contract, approve survey vendors, 

provide oversight of survey vendor 

activities, analyze the CAHPS data for 

plan ratings, and produce individuallevel reports for quality improvement 

use by MA and Part D contracts. 

Vendors will be trained by us to collect 

and submit data within specified 

timeframes. If we decide to implement 

this proposal, we will provide further 

information regarding access to the 

listing of approved vendors for the 

CAHPS survey. 

3. Validation of Part C and Part D 

Reporting Requirements (§ 422.516 and 

§ 423.514) 

Under sections 1857(e) and 1860D–12 

of the Act, we have the authority to 

establish information collection 

requirements with respect to MA 

organizations and Part D sponsors. 

Under section 1857(e)(1) of the Act, MA 

organizations are required to provide 

the Secretary with such information as 

the Secretary may find necessary and 

appropriate. Section 1857(e)(1) of the 

Act applies to PDPs as indicated in 

section 1860D–12. Pursuant to our 

statutory authority, we codified these 

information collection requirements in 

regulation at § 422.516 and § 423.514, 

respectively. 

Consistent with our regulatory 

authority to collect information, we 

developed specific MA and Part D 

reporting requirements to assist in 

monitoring the Part C and D programs 

and to respond to questions from 

Congress, oversight agencies, and the 

public. These inquiries include 

questions about costs, availability of 

services, beneficiary use of available 

services, patient safety, grievance rates, 

and other factors pertaining to MAOs 

and PDPs. We began collecting Part D 

information at the inception of the 

program. Data collected under the Part 

D reporting requirements currently 

include seventeen measures ranging 

from access to extended day supplies at 

retail pharmacies to drug benefit 

analyses. Over time, we have modified 

the data elements collected as we gained 

more experience with the program. The 

current Part D reporting requirements 

(OMB 0938–0992) may be accessed at 

http://www.cms.hhs.gov/

PrescriptionDrugCovContra/08_

RxContracting_ReportingOversight.asp. 

We also require routine reporting of 

specific data elements by MA 

organizations. Beginning in January 

2009, MA organizations are required to 

report information across 13 measures 

ranging from benefit utilization to agent 

training and testing. Similar to the Part 

D reporting requirements, these 

measures are designed to enable us to 

monitor plan performance and to 

respond to inquiries. The current Part C 

reporting requirements (OMB 0938– 

1054) may be accessed at http:// 

www.cms.hhs.gov/HealthPlansGenInfo/ 

16_ReportingRequirements.asp. 

In order for us to use the data 

provided by MA organizations and PDP 

sponsors, the data must be accurate, 

valid, reliable, and comparable across 

plans. Because we have received data of 

questionable validity from some Part D 

sponsors, we stated in the 2010 Call 

letter (http://www.cms.hhs.gov/ 

prescriptiondrugcovcontra) that the 

agency ‘‘has received many inquiries 

from Congress, oversight agencies, and 

the public about costs, availability of 

services, beneficiary use of available 

services, patient safety, grievance rates, 

and other factors pertaining to MAOs 

and PDPs. However, to date, we have 

not been able to address many of these 

inquiries due to either an absence of 

data with respect to MAOs or, despite 

collecting over three years’ worth of 

data, data of questionable validity 

submitted by Part D sponsors.’’ 

Accordingly, to meet the goals of data 

validity reliability, and comparability, 

we indicated in the Call Letter that, ‘‘to 

better enable CMS to respond to 

inquiries and manage our programs, 

sponsoring organizations should 

undertake a data validation audit on 

reported Part C and Part D data effective 

for CY2010.’’ Given the importance of 

the new Part C and Part D data reporting 

requirements, we are proposing to 

require MAOs and Part D sponsors to 

undertake an independent data 

validation audit in accordance with 

CMS specifications on reported Part C 

and Part D data that would be effective 

for CY2011. We believe that only an 

independent data validation audit 

conducted by an external entity under 

contract to the MAO or PDP sponsoring 

organization would ensure that the 


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results of the audit are in accordance 

with CMS specifications, that data used 

to develop plan performance measures 

are credible to other stakeholders, and 

that information used to respond to 

Congressional and public inquiries are 

reliable. We therefore propose to amend 

§ 422.516 and § 423.514 to state that 

each Part C and Part D sponsor be 

subject to an independent yearly audit 

of Part C and Part D measures (collected 

pursuant to our reporting requirements) 

to determine their reliability, validity, 

completeness, and comparability in 

accordance with specifications 

developed by CMS. 

We note that we are working with a 

contractor to develop data validation 

specifications to ensure that the goals of 

reliability, validity, completeness, and 

comparability are met at the conclusion 

of the data validation audit. These 

specifications will focus on how 

organizations and sponsors compile 

numerators and denominators, take into 

account appropriate data exclusions, 

and verify calculations, computer code, 

and algorithms. In addition, they will be 

used to inform how the MAOs, cost 

plans, and Part D sponsors collect, store, 

and report data. We expect that these 

specifications will be utilized by the 

auditors hired by MAOs and Part D 

sponsors to conduct the data validation 

audits, the results of which will be 

forwarded to us. We expect to make 

these specifications available on our 

website for public comment early next 

year. We solicit comment on this 

approach. 

4. Collection of Additional Part D 

Claims’ Elements for NonpaymentRelated Purposes (§ 423.505) 

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

which incorporates section 1857(e) of 

the Act provides the Secretary with 

authority to include in Part D sponsor 

contracts any terms or conditions the 

Secretary deems necessary and 

appropriate, including requiring the 

organization to provide the Secretary 

with such information as the Secretary 

may find necessary and appropriate. 

Under this authority, on May 28, 2008 

we published a final rule that allowed 

the Secretary to collect Part D ‘‘claims’’ 

data from the prescription drug event 

(PDE) record and use the information 

gathered for non-payment purposes (73 

FR 30664). However, this rule limited 

what data (hereinafter referred to as PDE 

elements) we may collect and use for 

non-payment purposes. The rule also 

described circumstances under which 

we may disclose the data to other 

government and external entities, and 

the limitations associated with any such 

release. 

In 2006 and 2007 there were 37 PDE 

elements. In 2008 the number of PDE 

elements collected was expanded from 

the original 37 elements to 39 elements. 

The additional PDE elements are 

‘‘Estimated Rebate Amount Applied to 

the Point-of-Sale Price’’ and ‘‘Vaccine 

Administration Fee.’’ The ‘‘Estimated 

Rebate Amount applied to the Point-ofSale Price’’ is the estimated amount of 

a rebate that the plan sponsor has 

elected to apply to the negotiated price 

as a reduction in the drug price made 

available to the beneficiary at the point 

of sale. The ‘‘Vaccine Administration 

Fee’’ is the amount that is charged for 

the administration of a vaccine separate 

from the actual vaccine. 

In the 2010 Call Letter to sponsoring 

organizations we noted that we were 

planning to add a new (40th) element to 

the PDE record, referred to as the 

‘‘Prescription Origin Code.’’ (at http:// 

www.cms.hhs.gov/ 

PrescriptionDrugCovContra/Downloads/ 

CallLetter.pdf). The prescription origin 

code is designed to capture the 

frequency with which providers use eprescribing. 

The original Part D claims data 

proposed rule published on October 18, 

2006 (71 FR 61447) did not address the 

collection, for purposes other than 

payment, of any additional elements 

that might be added to the original 37 

elements. Rather, in the proposed rule, 

we only included a discussion of the 37 

elements that then comprised the PDE 

record and proposed that we would 

collect these 37 PDE elements under 

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

a result, as noted in the May 28, 2008 

final rule (73 FR 30667) on Part D 

claims data, interested parties were not 

afforded an opportunity to comment on 

whether new elements that were added 

to the PDE record for 2008 (or any PDE 

elements that might be added in the 

future) should be collected under 

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

and, consequently, used or disclosed to 

other parties for non-payment related 

purposes. 

In this rule, we are now proposing to 

collect all additional PDE elements 

beyond the original 37 elements under 

the same authority described in the May 

28, 2008 final rule on Part D claims data 

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

Act). As a result, we would be able to 

use these data for non-payment related 

purposes. Similarly, under this 

proposal, we would be able to release 

these elements to governmental and 

external entities, under the authority of 

section 1106 of the Act, using the same 

process that we now use to release the 

original 37 elements as described in the 

May 28, 2008 final rule, and as updated 

by the September 18, 2008 interim final 

rule that incorporated changes made as 

a result of section 181 of MIPPA. Thus, 

in this rule, we propose that the release 

of any additional PDE data elements 

collected using our authority under 

section 1860D–12(b)(3)(D) of the Act 

would continue to be subject to our 

minimum necessary data policy, our 

data sharing procedures, and the 

encryption of certain identifiers and 

aggregation of cost data to protect 

beneficiary confidentiality and 

commercially sensitive data of Part D 

sponsors. 

This proposal would allow us to 

collect and use for non-payment-related 

purposes any data obtained as a result 

of the addition of new elements to the 

PDE record without undertaking 

rulemaking for each additional element 

added in the future. We believe that the 

May 28, 2008 of Part D Claims Data final 

rule (73 FR 30664) resolved any 

statutory ambiguity surrounding our 

broad authority to collect PDE data 

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

Act. Accordingly, we may use this same 

authority to collect additional elements 

that have been added to the PDE since 

2007. Once data have been collected 

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

Act, we may use these data for nonpayment related purposes and may 

release PDE data consistent with our 

minimum necessary policy and our data 

procedures. 

Elements such as rebates applied at 

the point-of-sale, vaccine 

administration, and prescription origin 

code represent claim-level information 

that once accessed and analyzed, could 

provide useful insight into operations of 

the Part D prescription drug benefit 

program. For example the prescription 

origin code could be studied to identify 

how often electronic prescribing is used 

in practice, and serve as background for 

policy proposals to further support this 

practice in the industry. Accordingly, 

we believe it is appropriate that these 

elements should be collected under 

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

For the same reason, we believe it 

would be appropriate to use our 

authority under section 1860D– 

12(b)(3)(D) of the Act to collect for nonpayment purposes all elements that may 

be added to the PDE record in the 

future. We believe that the ability to 

analyze new claims-related elements 

added to the PDE record would increase 

both specific and general knowledge of 

Medicare beneficiaries’ healthcare and 

the operation of the Part D program and 

would aid our ability to conduct 

program oversight, support operational 

tasks, and provide more information for 

use in internal and external healthcare 


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research studies. Moreover, we would 

not be required to undertake a separate 

rulemaking and public comment 

process each time new elements are 

added to the PDE record, but rather 

would automatically begin collecting for 

non-payment purposes elements added 

to the PDE record using our authority 

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

Act and § 423.505(f)(3) of the 

regulations. As a result, we would have 

the ability to analyze these data for 

nonpayment related purposes in order 

to identify operational problems or to 

support future policy proposals without 

delay. Moreover, because we do not 

propose to modify our data sharing 

processes or our minimum necessary 

data policy with this proposal, any 

release of these new elements would be 

subject to the same protections that 

currently apply to all other Part D PDE 

data. Thus, we will continue to— 

• Ensure that beneficiary, prescriber, 

or pharmacy identifiers are not released 

unless absolutely necessary for a project 

(for example, to link to another 

database); 

• Encrypt Part D plan identifiers and 

aggregate cost data elements (ingredient 

cost, dispensing fee, and sales tax) when 

sharing PDE data with external 

requesters; and 

• Subject each request to our data 

sharing procedures which includes 

ensuring that requestors have the 

appropriate experience and are working 

for, or on behalf of, a reputable 

institution and that, when appropriate, 

make their project results public. 

External requests concerning beneficiary 

identifiable data would continue to be 

reviewed by the CMS Privacy Board, 

and would require the requestor to sign 

a data use agreement. 

Accordingly, for the aforementioned 

reasons, we are proposing to amend 

§ 423.505(f)(3) to include all data 

elements included in all drug claims for 

purposes deemed necessary and 

appropriate by the Secretary and 

consistent with the Paperwork 

Reduction Act. 

In the May 28, 2008 final rule we 

deemed it necessary to protect various 

Part D elements when responding to 

external research requests (as discussed 

above). Accordingly, beneficiary ID, 

plan ID, prescriber ID, and pharmacy ID 

are encrypted prior to release to external 

entities. However, in the case of 

beneficiary ID, prescriber ID, and 

pharmacy ID, this information may be 

provided in an unencrypted format 

when needed to link to another data set. 

In contrast, under the current rule, there 

is no exception to the requirement that 

plan identifiers be encrypted for all 

external research requests. Under the 

current regulation, grantees of HHS 

agencies are treated as external entities 

and may not access plan identifiers. In 

contrast, contractors acting on behalf of 

HHS are not considered to be external 

entities and may receive unencrypted 

plan identifiers when necessary for a 

particular project, due to the provision 

in § 423.505(m)(iii)(A) that ‘‘all elements 

on the claim are available to HHS.’’ 

Subsequent to publication of the Part 

D data rule, we have been made aware 

by some HHS agencies that a number of 

their grantees are having difficulty 

conducting some studies without a Plan 

ID (for example, studies which examine 

the extent to which plan choice is 

influenced by a plan’s name could only 

be determined using actual plan 

identifiers). These concerns have arisen 

at time when healthcare costs and 

patient outcomes under existing 

healthcare delivery systems are under 

great scrutiny, necessitating more 

research on cost-effective alternatives 

for healthcare delivery. 

We are proposing to revise 

§ 423.505(m)(iii)(C) to permit CMS 

disclosure to HHS grantees of 

unencrypted plan identifiers when 

certain conditions are met. We believe 

these conditions will mitigate the risk of 

any unauthorized use or disclosure of 

commercially sensitive plan 

information. The conditions we propose 

be met include— 

• The plan identifier is essential to 

the study and there is no other source 

of CMS data that would substitute for 

plan identifiers in order to carry out the 

study; 

• The study is key to the mission of 

the sponsoring agency; 

• The study provides significant 

benefit to the Medicare program; and 

• The requestor attests that any 

public findings or publications will not 

identify plans or plan sponsors. 

In evaluating requestors’ proposals to 

determine whether these conditions are 

met, we propose the following 

evaluation standards: 

• Plan identifier, to evaluate the 

requestor’s rationale to determine 

whether an encrypted plan identifier 

would be sufficient for the study design 

or if the real identifier is necessary for 

the study. 

• Agency mission, we propose to 

review the requestor’s agency’s rationale 

for the study and how the study would 

help the agency achieve its mission. 

• Medicare program benefit, we 

propose to review the requestor’s 

rationale for the importance of study 

findings to the Medicare program. 

• Public reporting, we propose to 

require an attestation from the requestor 

that the requestor will not identify 

specific plans or plan sponsors in any 

public reporting. 

We are proposing to provide access to 

unencrypted plan identifiers to HHS 

grantees for several reasons. First, some 

HHS agencies accomplish their mission 

through grants, rather than contracts, 

and hence cannot rely on the access that 

is provided to HHS contractors, which 

means that HHS agencies have 

differential access to prescription drug 

event data. In addition, we believe that 

research performed by HHS grantees 

will advance the interests of Medicare 

beneficiaries, who may also be served 

by other HHS programs. A number of 

HHS agencies, such as the National 

Institutes of Health (NIH) and the 

Agency for Health Care Research and 

Quality (AHRQ), provide grants for 

research on topics such as the 

utilization, adherence, safety, and 

effectiveness of medications in the 

elderly and disabled populations which 

are of key interest to the Medicare 

program. We anticipate that such 

studies will assist health care providers 

in improving medication use in 

Medicare beneficiaries over time. 

Although our proposal is limited to 

HHS grantees, we also request 

comments on whether it would be 

appropriate to extend this proposal to 

permit grantees of other Federal 

agencies to have access to plan 

identifiers when this access may be 

necessary for a particular research 

project and that project otherwise meets 

the conditions described above. 

F. Changes To Implement New Policy 

This section addresses two policy 

proposals. In the area of Part D 

formulary policy, we propose new 

regulatory requirements affecting the 

inclusion of protected drug categories 

and classes on Part D formularies, 

following the enactment of MIPPA, 

which made a number of changes to the 

Part C and D programs., Under Part C, 

we propose to revise our rules to allow 

beneficiaries who elect MSAs as a type 

of health insurance plan to pay only a 

pro-rated deductible if their MSA 

deposit is pro-rated because they enroll 

after January 1. These revisions are 

detailed in Table 6. 


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TABLE 6—REVISIONS TO IMPLEMENT NEW POLICY

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Clarify the MIPPA 176 ‘‘Protected Classes’’ formulary provision.N/A ............. N/A ............................................. Subpart C .. § 423.120(b)(2)(v). 

Pro-rating the Plan Deductible for Part C MSA Enrollments Occurring During an Initial Coverage 

Election Period.

Subpart C .. § 422.103 ................................... N/A ............. N/A. 

1. Protected Classes of Concern Under 

Part D (§ 423.120(b)(2)(v)) 

As noted previously, the MIPPA was 

enacted on July 15, 2008. Prior to the 

passage of MIPPA and before the start of 

the program, we directed Part D 

sponsors to include on their formularies 

all or substantially all drugs in six drug 

categories (that is, antidepressant; 

antipsychotic; anticonvulsant; 

immunosuppressant for transplant 

rejection; antiretroviral; and 

antineoplastic categories or classes). 

This directive was aimed at ensuring a 

smooth transition of the approximately 

6 million dual eligible beneficiaries who 

were converting from Medicaid drug 

coverage to Medicare drug coverage at 

the start of the Part D program. 

Although section 1860D–11(i) of the Act 

prohibits us from establishing a 

‘‘national formulary,’’ we have 

interpreted our obligation under section 

1860D–11(e)(2)(D)(i) of the Act not to 

approve discriminatory benefit designs 

as providing the authority to set 

standards for review of formularies. In 

developing our formulary policy, we 

have sought to build on a careful 

balance between ensuring access to 

drugs for vulnerable populations, while 

at the same time allowing Part D 

sponsors the ability to implement drug 

utilization management processes to 

achieve cost containment. These 

standards are contained in Chapter 6 of 

the Medicare Prescription Drug Benefit 

Manual located at http:// 

www.cms.hhs.gov/ 

PrescriptionDrugCovContra/downloads/ 

R2PDBv2.pdf. 

Section 176 of MIPPA added a new 

section 1860D–4(b)(3)(G)(i) to the Act 

requiring, effective plan year 2010, that 

the Secretary establish certain categories 

or classes of drugs that meet two 

specific statutory specifications: (1) 

Restricted access to the drugs in the 

category or class would have major or 

life threatening clinical consequences 

for individuals who have a disease or 

disorder treated by drugs in such 

category or class; and (2) There is a 

significant need for such individuals to 

have access to multiple drugs within a 

category or class due to unique chemical 

actions and pharmacological effects of 

the drugs within a category or class. In 

addition, the MIPPA provides the 

Secretary with the discretion to 

establish exceptions permitting Part D 

sponsors to exclude from their 

formularies, or to otherwise limit access 

to (including utilization management 

restrictions or prior authorization), 

certain Part D drugs from the protected 

categories and classes. 

In the January 16, 2009 Federal 

Register (74 FR 2881), we published the 

Medicare Advantage and Prescription 

Drug Programs MIPPA Drug Formulary 

and Protected Classes Policies interim 

final rule with comment period that 

revised the regulations governing the 

Medicare Part D formularies as a result 

of MIPPA. We codified the MIPPA 

provision requiring the inclusion of all 

drugs from identified ‘‘protected 

categories and classes’’ on Part D 

sponsor formularies at 

§ 423.120(b)(2)(v). We also noted in the 

preamble of the January 16, 2009 IFC 

that the timing of Part D formulary 

submissions for 2010 will preclude us 

from making identification in time for 

the 2010 contract year. As such, we 

noted that Part D sponsors must 

continue to provide coverage of the six 

classes of clinical concern in contract 

year 2010, consistent with the policy 

already in place since 2005. For contract 

years 2011 and subsequent contract 

years, we indicated in the preamble that 

we plan to conduct a comprehensive 

analysis to— 

• Determine which categories and 

classes of drugs, including which 

existing six classes of clinical concern, 

meet the MIPPA requirements for 

protected categories and classes; and 

• Identify any potential exceptions to 

the requirement that all drugs from 

protected categories or classes be 

included on Part D sponsor formularies. 

We also specifically noted in the 

preamble that we are planning a 

multilevel review process to identify 

protected categories and classes that 

would include the following: 

• An initial data-driven analysis of 

widely used treatment guidelines and 

Part D utilization data; and 

• A secondary review by a clinical 

review panel that will serve to validate 

the findings of the initial analysis. 

We also stated that the second-level 

expert panel would be ‘‘consensus 

driven’’ and that ‘‘information regarding 

the independence, potential conflicts of 

interest, expertise, and balance of the 

individuals chosen for this panel would 

be made publicly available.’’ 

We received 30 public comments on 

the January 16, 2009 IFC. Some 

commenters suggested an expansion of 

the current six classes of clinical 

concern policy, either through the 

removal of current exceptions or 

through processes that might broaden 

the number of protected classes beyond 

six. Other commenters suggested that 

the MIPPA was passed in order to 

codify the current six classes of clinical 

concern. Still other commenters 

suggested limiting the protected classes, 

stating that plans and pharmaceutical 

benefit managers can only limit 

beneficiary cost increases through use of 

formulary and drug utilization 

management tools. These commenters 

stated that CMS must carefully weigh 

increased beneficiary costs against any 

additional protections that derive from 

the establishment protected drug 

classes. Several commenters requested 

further clarification of terms, such as 

what we meant by our review of 

‘‘widely used treatment guidelines’’ and 

what is meant by the MIPPA definition 

of ‘‘access to multiple drugs,’’ with 

many suggesting different 

interpretations. Finally, many 

commenters focused on our process 

outlined in the January 2009 IFC, with 

some questioning whether members of 

the validation review panel would be 

solicited from experts outside the 

government under a Federal Advisory 

Committee Act (FACA) process, 

whether the representation would 

include the perspective of beneficiaries, 

especially groups that advocate for 

beneficiaries living with specific 

diseases prevalent among Medicare 

beneficiaries, and whether the panel 

would include practicing physicians 

and specialists with documented 


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experience in treating Medicare patients 

in the therapeutic areas under review. 

Based on the comments received on 

the January 16, 2009 IFC, we have 

decided to revisit section 176 of MIPPA 

and the ‘‘protected classes’’ for further 

interpretation and review. While some 

commenters and a few outside parties 

have suggested that the Congress’ 

intention behind section 176 of MIPPA 

was to codify our preexisting ‘‘6 class’’ 

policy, we do not believe that the plain 

reading of the statute supports such an 

interpretation because the six classes are 

not expressly identified in the MIPPA. 

Rather, we continue to believe that 

various analyses are needed to 

determine which drug classes meet the 

MIPPA criteria. Furthermore, varied and 

conflicting public comments we 

received on the January 16, 2009 IFC 

persuade us that the MIPPA criteria are 

not self implementing and, moreover, 

the process envisioned in the January 

16, 2009 IFC may be unduly 

burdensome and too unwieldy to permit 

timely changes in reaction to medical 

and pharmacological advances. As a 

result, we are engaging in notice and 

comment rulemaking to further interpret 

section 176 of MIPPA. 

We believe that the critical policy 

decision at hand, based on the 

comments received, is how broadly or 

narrowly we interpret specific terms in 

the MIPPA provisions. Interpreted 

broadly, the provisions in section 176 of 

MIPPA might easily encompass many 

classes of drugs and significantly 

increase costs to the Part D program by 

eliminating the need for manufacturers 

to aggressively rebate their products for 

formulary placement. However, a 

narrow interpretation of these criteria 

would reduce the number of classes that 

are ‘‘protected’’. 

We believe that the plain reading of 

section 176 of MIPPA does not remove 

or otherwise revise our transition and 

coverage determination protections 

outlined in subparts C and M of part 

423, and further explained in Chapters 

6 and 18 of the Medicare Prescription 

Drug Benefit Manual at http:// 

www.cms.hhs.gov/ 

PrescriptionDrugCovContra/ 

12_PartDManuals.asp#TopOfPage. 

These existing protections require Part 

D sponsors to establish a transition 

process, consistent with our 

requirements (which we propose to 

codify elsewhere in this rule), for issues 

associated with coverage of nonformulary drugs. They also require a 

Part D sponsor to establish an 

exceptions and appeals process, 

including an expedited request process 

in urgent situations that allows a 

beneficiary the right to request a 

coverage determination for a nonformulary Part D drug on the basis of 

medical necessity. Our requirements 

further include the right of review of a 

sponsor’s negative determination by an 

independent review entity in cases of 

both a standard and expedited appeal. 

We believe that it is critically 

important that section 176 of MIPPA be 

read in the context of the other 

protections inherent in the Part D 

program in order to avoid establishing 

unnecessary duplicative protections. 

The current protections already serve as 

an underlying foundation to ensuring 

access to needed Part D drugs that do 

not appear on a Part D plan’s formulary. 

We therefore propose to amend the 

regulatory language at § 423.120(b)(2)(v) 

that was added by the January 16, 2009 

IFC in order to reflect the MIPPA 

protected categories and classes 

provision in the context of these 

protections. Specifically, we are 

proposing to interpret several of the 

statutory terms in section 176 of MIPPA 

to better define the scope of the 

protections under this section of 

MIPPA. To that end, we are proposing 

several new definitions at § 423.100. 

In order to read section 176 of MIPPA 

in the context of the existing Part D 

program, we believe there is a need to 

interpret the meaning of the term 

‘‘restricted access’’ under the first 

MIPPA criterion in section 1860D– 

4(b)(3)(G)(i) of the Act, which refers to 

‘‘restricted access to the drugs in the 

category or class [having] a major or life 

threatening clinical consequences for 

individuals who have a disease or 

disorder treated by drugs in such 

category or class.’’ In theory, lack of 

access to any drug that is medically 

necessary could result in serious or lifethreatening clinical consequences. 

Thus, one could argue that all 

prescribed Part D drugs are medically 

necessary and therefore should be 

protected. However, we believe that is 

more appropriate to interpret the MIPPA 

criteria more narrowly, both to avoid 

duplicative protections, as mentioned 

above, as well as to preserve one of the 

key aspects of the Part D program— 

namely, that Part D sponsors have the 

ability to undertake cost containment 

efforts through formulary design. For 

this reason, we believe it makes sense to 

interpret the statutory criteria that will 

be used to identify protected categories 

or classes of drugs with these 

parameters in mind, while seeking to 

ensure that the protections afforded 

under section 176 of MIPPA are 

meaningful. Under this interpretation, 

therefore, we intend the criteria to apply 

in those circumstances wherein a short 

time delay that results from the 

application of existing procedures will 

result in the exacerbation of the 

enrollee’s underlying disease to an 

extent that it would cause persistent or 

permanent damage. For example, a short 

delay in access to an 

immunosuppressant to prevent 

transplant rejection would be more 

likely to meet the statutory criteria than 

a short delay in access to a drug 

intended to increase bone density or 

treat hyperlipidemia. 

Given these considerations, we 

believe that in light of existing 

beneficiary protections under Part D, 

‘‘restricted access’’ should be construed 

to occur in the case of someone who, 

but for the protected classes provision, 

urgently requires a Part D drug but is 

waiting for an expedited 

redetermination by a Part D plan or our 

independent review entity with respect 

to coverage of that drug. It is during this 

period of time—where the beneficiary 

may urgently need the drug but does not 

yet have access to it—that is most likely 

to result in a major or life threatening 

clinical consequence for beneficiaries 

who require treatment of a chronic 

condition or disease and who are going 

without such medications while 

awaiting the redetermination. 

Accordingly, we believe that we must 

identify drug classes and categories to, 

in part, address this situation. 

To understand how our proposed 

definition of restricted access fits in 

context with the rest of the first MIPPA 

criterion, we believe it is important to 

have a consistent interpretation of the 

phrase ‘‘major or life threatening 

clinical consequences.’’ In thinking 

about how to define this term, we 

considered a definition developed by 

the FDA for new drug and biological 

products that are being studied for their 

safety and effectiveness in treating lifethreatening or severely debilitating 

diseases. The definition of lifethreatening in that context reads as: (1) 

Diseases or conditions where the 

likelihood of death is high unless the 

course of the disease is interrupted; and 

(2) diseases or conditions with 

potentially fatal outcomes, where the 

endpoint of clinical trial analysis is 

survival (21 CFR 312.81(a)). However, 

we concluded that this definition is too 

restrictive for our purposes. Seciton 176 

of MIPPA contemplates ensuring 

enrollee access to drugs where restricted 

access ‘‘would have major or life 

threatening clinical consequences’’ 

(emphasis added). Thus, an 

interpretation that potentially could 

exclude ‘‘major’’ clinical consequences 

that were non-life-threatening would be 

insufficient. Instead, we believe that the 

definition of a similar term, ‘‘serious 


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reaction,’’ found at World Health 

Organization’s Web site at http:// 

www.who.int/medicines/areas/ 

quality_safety/safety_efficacy/ 

Annex1GlossaryofTerms.pdf is more 

instructive and more appropriate for 

addressing the circumstances in which 

Part D enrollees may face restricted 

access to medically necessary drugs 

without a protected class requirement 

because unlike the FDA definition, it is 

not limited life-threatening situations, 

but rather encompasses both major and 

life-threatening clinical consequences. 

Therefore, we propose to define major 

or life threatening clinical consequences 

in a manner similar to the WHO 

definition. Specifically, we propose to 

define ‘‘major or life threatening clinical 

consequences’’ to mean serious clinical 

events that arise as a result of not taking 

a drug that leads to patient 

hospitalization, or a persistent or 

significant disability or incapacity, or 

that result in death. 

We note that our proposed definitions 

with respect to the first criterion of 

section 176 of MIPPA are intended to 

provide protection against major or life 

threatening consequences at a time 

when other beneficiary protections still 

would result in a delay in access. We 

believe that only categories or classes of 

drugs for which a delay could cause a 

major or life threatening clinical 

consequences based on the definitions 

described above establish the most 

logical standard for the Part D program 

given existing beneficiary protections 

while avoiding potential increased 

program costs associated with adding 

duplicative protections. 

The second MIPPA criterion requires 

that ‘‘[t]here is a significant need for 

such individuals to have access to 

multiple drugs within a category or 

class due to unique chemical actions 

and pharmacological effects of the drugs 

within the category or class, such as 

drugs used in the treatment of cancer.’’ 

To understand how this criterion 

intersects with the first criterion, one 

has to understand the meaning of the 

phrase ‘‘significant need for access to 

multiple drugs.’’ We believe that this 

phrase can be interpreted in only two 

ways: (1) To infer that the statutory 

phrase means simultaneous use of 

multiple drugs; or (2) to infer that the 

phrase means the sequential use of 

drugs due to a significant likelihood of 

failure of a specific drug in a class 

leading to the substitution of another 

drug or drugs in the same class. To 

ensure beneficiary protection, we 

propose to define the term ‘‘significant 

need for access to multiple drugs’’ to 

include both readings. Thus, we 

propose to define the term to mean 

instances in which— 

• There is a need for simultaneous 

use of multiple drugs within a drug 

grouping because such drugs work in 

combination with each other; or 

• There is a strong likelihood of 

sequential use of drugs within a class or 

category within a short period of time 

due to a significant likelihood of failure 

of a specific drug in a class leading to 

the substitution of another drug or drugs 

in the same class. In other words, there 

is a strong likelihood that a different 

drug in the same category or class will 

be needed in a short period of time if 

the first drug failed due to the unique 

effects that the drug type may have on 

an individual. For example, there is a 

strong likelihood that noncurative 

chemotherapy will require multiple 

different drug substitutions as the 

cancer goes in and out of remission. 

Second, with respect to duration, we 

propose that a ‘‘short period of time’’ is 

a short time frame delay that will result 

in exacerbation of underlying disease to 

an extent that persistent and permanent 

damages will occur. 

We propose to define the term 

‘‘multiple drugs’’ to mean two or more 

drugs, and we propose to define the 

phrase ‘‘category or class’’ for purposes 

of determining compliance with the 

rules for protected categories and 

classes of section 176 of MIPPA as the 

identification of a drug grouping that is 

reasonable to identify the applicable 

drug product. We do not believe this 

identification is necessarily tied to a 

specific drug classification system, but 

rather represents the most specific 

grouping that is reasonable to identify 

the applicable drug products. For 

example, it may include drug groupings 

based on the USP Model Guidelines, the 

American Hospital Formulary Service 

(AHFS) classification, another drug 

classification system, or some 

combination thereof to define 

reasonable groupings of drugs. 

Finally, consistent with the statutory 

authority for the Secretary to identify 

exceptions to the provision in section 

176 of MIPPA, we propose to specify 

some of the exceptions to the MIPPA 

provision to include on formulary ‘‘all’’ 

Part D drugs meeting the two conditions 

set forth in section 1860D–4(b)(3)(G)(i) 

of the Act. As we stated in the January 

16, 2009 IFC (74 FR 2881) and in our 

January 28, 2005 Part D final rule (70 FR 

4260), inclusion of ‘‘all covered Part D 

drugs’’ on formulary from a protected 

class or category does not extend to 

inclusion of all brand-name drugs and 

generic versions of the covered drug in 

question. Under our longstanding 

interpretation of the term ‘‘covered Part 

D drug,’’ and based upon scientific 

evidence and medical standards of 

practice, Part D sponsors will only be 

required to include on their formularies 

all chemically distinct drugs from the 

protected classes or categories in order 

to the meet the provision in section 176 

of MIPPA. Thus, two drug products that 

are determined to be therapeutic 

equivalents by the FDA and identified 

as such in the FDA’s Orange Book are 

considered to be the same Part D ‘‘drug’’ 

and would not be required on all 

formularies. 

We also believe that it is important to 

consider safety and general drug and 

population applicability issues in the 

context of the new protections under 

section 176 of MIPPA. Although, as 

noted above, we believe that section 176 

of MIPPA is intended to provide 

additional beneficiary protections, we 

believe it would be imprudent to 

interpret these new protections in such 

a way that they interfere with existing 

protections intended to promote safety 

and efficacy. For example, we believe 

that it is appropriate for Part D sponsors 

to establish edits for safety and that our 

policies not interfere with basic drug 

utilization management edits that 

sponsors apply at point-of-sale to ensure 

that adverse events do not occur. Such 

edits must be consistent with FDA 

labeling to ensure that they are based on 

scientific evidence and medical 

standards of practice. Indeed, we 

believe that any interpretation of section 

176 of MIPPA that interferes with a 

plan’s ability to impose safety edits 

would defeat the very purpose of 

section 176 of MIPPA. 

In order to minimize confusion about 

the scope of the protections under 

section 176 of MIPPA, we clarify that 

the formulary requirements set forth in 

section 1860D–4(b)(3)(G)(ii) of the Act 

apply only to Part D drugs; therefore, 

drugs that are not Part D drugs need not 

be included on a plan’s formulary, even 

if a particular non-Part-D drug might 

otherwise be included in a protected 

class or category under section 176 of 

MIPPA. In other words, the MIPPA 

protections do not apply to non-Part D 

drugs and their exclusion from the 

formulary requirements is not based on 

our exceptions authority under section 

1860D–4(b)(3)(G)(iii) of the Act. Further, 

we do not require now as part of our six 

class policy, and would not require 

under the authority of section 176 of 

MIPPA, the inclusion of drugs that have 

been historically paid for under Part B 

(for example, ‘‘incident to’’ drugs 

supplied and administered by 

physicians during patient visit and paid 

for under Part B) or whose regulatory 

status under the definition of a Part D 


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drug at § 423.100 is not known. Given 

the fact that these drugs are not covered 

under Part D today, we believe their 

lack of presence on plan formularies 

would not disrupt access. We further 

believe that requiring the inclusion of 

these drugs on the formulary when they 

are not payable under Part D would lead 

to beneficiary confusion, particularly 

with respect to drugs with an unknown 

approval status. For these reasons, we 

are proposing to exclude drugs with 

very limited applicability to the 

Medicare Part D population and nonPart D drugs from the formulary 

requirements under section 176 of 

MIPPA. 

Therefore, we have added a new 

paragraph to § 423.120(b)(2) to clarify 

exceptions to the inclusion of all drugs 

meeting the criteria under section 176 of 

MIPPA. Under § 423.120(b)(2)(vi), 

exceptions would include the following: 

• Drug products that are determined 

to be therapeutic equivalents under the 

FDA’s Orange Book; 

• Edits that limit the quantity of 

drugs due to safety; and 

• Other drugs that we may specify 

through a process that is based upon 

scientific evidence and medical 

standards of practice (and, in the case of 

antiretroviral medications, is consistent 

with the Department of Health and 

Human Services Guidelines for the Use 

of Antiretroviral Agents in HIV–1– 

Infected Adults and Adolescents) and 

which permits public notice and 

comment. 

We welcome comment on these 

proposed definitions and clarifications. 

As noted previously, we now believe 

that the process outlined in the January 

16, 2009 IFC may be too burdensome to 

pursue. One practical concern with that 

process is one of timing. We no longer 

consider it feasible by contract year 

2011 to complete the process outlined 

in the January 16, 2009 IFC, in which 

we would—(1) contract with an 

organization to complete a data-driven 

analysis to identify possible protected 

classes and exceptions under the 

MIPPA; (2) decide on the composition, 

independence, expertise, potential 

conflicts of interest, and balance of 

individuals chosen to participate in the 

second-level validation panel that 

would arrive a consensus-driven set of 

recommendations; and (3) complete 

notice-and-comment rulemaking to both 

identify the protected categories or 

classes and to establish exceptions. 

Additionally, periodic updates and 

adjustments to the protected categories 

and classes, as well as to the exceptions, 

would take longer to implement if the 

process contemplated in the preamble 

were followed every year or some 

periodic timeframe thereafter. 

We continue to believe that the best 

way to determine which drug classes 

meet the MIPPA criteria is through a 

data-driven process, which includes an 

analysis of prescription drug event data, 

a review of widely used treatment 

guidelines, validation of the results by 

a expert committee of clinicians, and 

acceptance by the Secretary. By widely 

used treatment guidelines, we mean 

clinical literature that we consider to 

represent best practices. We envision 

these would include references in such 

sources as the Cochrane database and 

the AHRQ National Guideline 

Clearinghouse (NGC), and to include 

literature referred to in the Part D 

statutory compendia. (For more 

information on the Cochrane database 

and the NGC are see their Web sites at 

http://www.cochrane.org/reviews and 

http://www.guideline.gov/, 

respectively.) Therefore, it is our 

expectation that we will undertake the 

following multilevel process, which we 

again state is critical to any future 

identification of protected formulary 

classes under the Part D program: 

• Commence an initial data-driven 

analysis of widely used treatment 

guidelines and Part D utilization data to 

identify the following: 

++ Possible categories and classes of 

drugs, including those of the existing six 

classes of clinical concern, that meet the 

requirements for protected categories 

and classes; and 

++ Any potential exceptions to the 

requirement that all drugs from 

protected categories or classes be 

included on Part D sponsor formularies. 

We note that a review of treatment 

guidelines along with the review of the 

prescription drug event data will 

provide us with the necessary data to 

make informed decisions on the 

identification of MIPPA protected 

classes to present to the Secretary. 

• Arrange for a secondary review by 

a group of government clinicians that 

will serve to validate the findings of the 

initial analysis. We believe that an 

expert Government panel will best assist 

us in appropriately weighing the data 

derived from the initial analysis against 

the statutory requirements to identify 

protected categories or classes of drugs 

in which ‘‘access to multiple drugs 

within a category or class’’ is needed 

because ‘‘major or life threatening 

clinical consequences’’ may arise if 

access is restricted. Furthermore, we 

believe the expert panel will be well 

positioned to consider the data that may 

suggest possible exceptions and 

consider this data in light of the 

protected categories or classes in order 

to identify exceptions that are based 

upon available scientific evidence and 

medical standards of practice. 

Moreover, an expert panel of 

government physicians and pharmacists 

will obviate any problems surrounding 

independence of clinical judgment and 

potential conflicts of interest. 

• Present recommendations to the 

Secretary of HHS of the drug classes or 

categories, and any recommended 

exceptions. 

We note that the main difference 

between these data-driven process 

described here and the process outlined 

in the January 16, 2009 IFC is the 

composition of the clinical committee 

that will serve a validation review. As 

we noted above, an expert panel 

composed solely of government 

physicians and pharmacists would 

obviate any problems surrounding 

independence of clinical judgment and 

potential conflicts of interest, and 

would simplify the process compared to 

an external panel commissioned under 

the FACA. 

With regard to the designation of the 

drug classes themselves and the manner 

in which they are announced, we 

believe there are two options and solicit 

comment on which option the public 

believes will allow us to make timely 

determinations in a transparent manner. 

Option 1: Announce protected classes 

through subregulatory guidance (for 

example, the Call Letter) that provides 

a notice and comment process but does 

not entail full notice and comment 

rulemaking. 

One option would be to promulgate 

regulations that set forth the criteria we 

would use to identify the protected 

classes and to apply those criteria as 

part of the data analysis and validation 

process described above, but to 

announce the protected classes that 

result from this process through 

subregulatory guidance, such as CMS’s 

annual Call Letter to Part D plans, or 

alternatively through a separate Federal 

Register notice. Under either vehicle, 

we would invite comment prior to the 

final announcement of the protected 

classes and exceptions thereto, and 

prior to finalizing any changes to the 

protected classes or exceptions. We 

believe this approach represents a more 

simplified and streamlined process. We 

further believe that this simplified and 

streamlined process would provide 

ample opportunity for public input and 

adequate protection of the public 

interest in the determination of the 

protected classes and any exceptions 

thereto. 

Furthermore, we believe that this 

process also is consistent with other 

processes we use to make similar 


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determinations. For example, under 

Medicare Part B, coverage of off-label 

use of anticancer therapies may include 

uses that are supported by certain drug 

compendia. In the CY 2008 Medicare 

Physician Fee Schedule final rule, we 

implemented a new process to make 

changes to the list of Part B-accepted 

compendia. This process involves 

posting materials on the CMS website, 

soliciting comment, and announcing 

final decision through nonregulatory 

means. 

Option 2—Announce the protected 

classes through formal notice and 

comment rulemaking. 

A second option would be to 

undertake the clinical and data driven 

review process described above and 

after promulgating regulations 

addressing the criteria for identifying 

the protected classes, implement the 

proposed protected classes themselves 

through notice and comment 

rulemaking, consistent with our 

proposal in the January 16, 2009 IFC. 

We welcome comments on these two 

approaches for soliciting public 

comment and announcing the protected 

categories or classes of drugs required 

for inclusion on Part D sponsor 

formularies. We note that, given the 

implementation timeframes discussed 

above, as well as the need to ensure 

consistency in formulary coverage as we 

complete our analysis to implement the 

requirements of section 1860D– 

4(b)(3)(G)(i) of the Act, we will retain 

our existing six classes of clinical 

concern contained in Chapter 6 of the 

Medicare Prescription Drug Benefit 

Manual (section 30.2.5) for contract year 

2010. We further note that any decisions 

with respect to the retention of these 

classes for the 2011 contract year will be 

made either through a separate 

rulemaking that identifies the MIPPA 

protected classes and any exceptions 

thereto and/or as part of the 2011 Call 

Letter to Part D plans. 

2. Pro-rating the Plan Deductible for Part 

C MSA Enrollments Occurring During 

an Initial Coverage Election Period 

(§ 422.103) 

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

establishes Medicare Medical Savings 

Account (MSA) plans as a type of health 

insurance plan that combines both a tax 

advantaged savings account and a highdeductible health insurance policy. 

Under this MA plan option, Medicare 

pays the MA organization offering the 

MA plan the premium amount charged 

by the organization for a highdeductible insurance policy and the 

remainder of the MA payment amount 

is deposited in the enrollee’s savings 

account. If an individual enrolls in such 

a plan mid-year, a pro-rated share 

corresponding to the number of months 

remaining in the calendar year is placed 

into the individual’s savings account. 

As provided under § 422.103(d), 

however, beneficiaries newly eligible for 

Medicare who enroll in MSAs midyear 

pursuant to an initial coverage election 

period (ICEP) are currently required to 

pay a full deductible for the calendar 

year. For example, an enrollee whose 

65th birthday is in May and who 

chooses to enroll May 1 will be given 8/ 

12ths of the deposit that has been 

approved for the plan for the year, but 

this enrollee is required to pay the full 

deductible approved for the plan for the 

entire calendar year. An enrollee whose 

65th birthday is later in the year could 

enroll, for example, on September 1 and 

would receive a pro-rated deposit 

representing only 4/12ths of the year; 

however, this enrollee would also be 

required to pay the full calendar year 

deductible. 

We are proposing to interpret the 

deductible requirement as implicitly 

applying only for the number of months 

in which a beneficiary is enrolled in the 

MSA plan, and accordingly are 

proposing to revise § 422.103(d) to allow 

beneficiaries who enroll during the year 

as ICEP enrollments to pay only a prorated deductible consistent with the 

pro-rated deposit they receive. This rule 

would also apply to disabled enrollees 

under age 65 who become eligible for 

Medicare during the year. Interested 

beneficiaries may inquire with potential 

MSA plans about their options prior to 

enrollment, and, upon enrollment, 

would receive a confirmation of 

enrollment letter that would inform 

them of both their pro-rated deposit 

amount and their pro-rated deductible. 

G. Changes To Clarify Various Program 

Participation Requirements 

We have worked with sponsoring 

organizations to implement and 

operationalize the Medicare Advantage 

and Prescription Drug Benefit Programs 

over the past 4 years. As part of this 

partnership, we have implemented 

operational and/or policy guidance via 

HPMS memoranda or manual 

instruction to assist sponsoring 

organizations in ensuring the proper 

and efficient administration of the Part 

C and D programs. The proposed 

regulations in this section either 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 7. 

TABLE 7—CLARIFICATIONS OF VARIOUS SPONSOR PROGRAM PARTICIPATION REQUIREMENTS

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Clarify what we mean by uniform benefits ............. Subpart C .. § 422.100(d) ............................... Subpart C .. § 423.104. 

Ensure security of personal health information and 

other personally identifiable information.

Subpart K .. § 422.504 ................................... Subpart K .. § 423.505. 

Require plans to report other payer information to 

support coordination of benefits (COB).

Subpart C .. § 422.108 ................................... Subpart C .. § 423.464. 

Visitor/Traveler Benefit under Part C for the Purpose of Extending Enrollment up to 12 Months.Subpart B .. § 422.74 ..................................... N/A ............. N/A. 

Codify authority to establish (MTM) Program requirements.N/A ............. N/A ............................................. Subpart D .. § 423.153(d). 

Clarify Pharmacy & Therapeutics (P&T) Committee requirements.N/A ............. N/A ............................................. Subpart C .. § 423.120. 

Generic equivalent disclosure ................................ N/A ............. N/A ............................................. Subpart C .. § 423.132. 

Application of access standards at application 

level.

N/A ............. N/A ............................................. Subpart C .. § 423.120. 

Standard Timeframe for coverage requirements ... N/A ............. N/A ............................................. Subpart M .. § 423.568. 

Clarify Novation requirements ................................ N/A ............. N/A ............................................. Subpart L ... § 423.551. 


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TABLE 7—CLARIFICATIONS OF VARIOUS SPONSOR PROGRAM PARTICIPATION REQUIREMENTS—Continued 

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Cost Contract Program revisions: Appeals and 

Marketing Requirements.

Subpart O .. § 417.428 ...................................

§ 417.492 ...................................

§ 417.494 ...................................

§ 417.500 ...................................

§ 417.640 ...................................

N/A ............. N/A. 

1. Uniform Benefits Under Parts C and 

D (§ 422.100(d) and § 423.104) 

Section 1852(d)(1)(A) of the Act 

requires a Medicare Advantage (MA) 

organization offering a plan to select the 

providers from whom the benefits under 

the plan are provided so long as the 

organization makes such benefits 

available and accessible to each 

individual electing the plan within the 

plan’s service area with reasonable 

promptness and in a manner which 

assures continuity in the provision of 

benefits. Section 1860D–2(a) of the Act 

defines qualified prescription drug 

coverage to mean access to standard or 

actuarially equivalent prescription drug 

coverage and access to negotiated prices 

(in accordance with section 1860D–2(d) 

of the Act). We codified these sections 

in our regulations at § 422.100(d) and 

§ 423.104(b). 

Both sections currently require that 

either an MA organization or PDP 

sponsor offering a plan must offer that 

plan to all eligible beneficiaries residing 

in the plan’s service area, or for MA 

organizations, a subset of the plan’s 

service area. We further interpret 

section 1860D–2(a) of the Act as 

requiring the provision of uniform 

premiums and benefits. 

We have provided guidance to Part D 

sponsors on several occasions indicating 

that varying cost-sharing or premiums, 

including waiving cost-sharing or 

premiums, violates the uniform benefit 

requirements at § 423.104(b) because 

doing so results in the Part D sponsor’s 

plan not providing uniform premiums 

and benefits to all eligible beneficiaries 

within its service area. We have further 

informed Part D sponsors that their 

failure to collect cost-sharing at the time 

the service is provided or to attempt to 

collect cost-sharing or bill cost-sharing 

to the appropriate party (either a 

beneficiary or another payer) after the 

fact is in violation of the uniform benefit 

provisions set forth in the current 

regulation at § 423.104(b). 

However, we believe that § 423.104(b) 

is not clear in regard to the PDP 

sponsor’s imposition of uniform 

premiums and cost-sharing. Therefore, 

we propose to revise § 423.104(b) to 

mirror the language at § 422.100 to 

specify that Part D sponsors apply 

uniform premiums and cost-sharing. 

2. Ensuring the Security of Personal 

Health Information and Other 

Personally Identifiable Information 

(§ 422.504 and § 423.505) 

In the contract provisions sections of 

subpart K of parts 422 and 423, we 

specify that MAOs and Part D sponsors 

must permit access to their facilities by 

the Secretary or his or her designee. 

Access to facilities must be granted in 

connection with the Secretary’s right to 

evaluate through audit, inspection, or 

other means MAO and Part D sponsor 

compliance with Medicare contract 

requirements, including the quality, 

appropriateness, and timeliness of 

services. 

We interpret the Secretary’s right to 

audit or inspect compliance with MA 

and Part D program regulations to 

include evaluation of compliance with 

CMS requirements for maintaining the 

privacy and security of personal health 

information and other personally 

identifiable information of Medicare 

enrollees. In order to clarify our policy 

that beneficiaries’ personal health 

information and other personally 

identifiable information must remain 

secure, we propose to revise § 422.504 

and § 423.505 to make this 

interpretation explicit. In a related 

change, we propose to clarify that we 

interpret the term ‘‘facilities’’ to include 

an MAO’s or Part D sponsor’s computer 

or other electronic systems. We would 

implement these proposed changes at 

§ 422.504(e)(1)(ii) and § 423.505(e)(1)(ii). 

We are also proposing conforming 

changes to the contract requirements 

related to downstream entities at 

§ 422.504(i)(2)(i) and § 423.505(i)(2)(i), 

respectively. Note that while we do not 

believe our authority extends to 

accessing the facilities of downstream 

entities, we may review systems and 

computer-generated information from 

downstream entities for compliance 

with privacy and security requirements. 

Such information includes, but is not 

limited to, backup tapes, print outs of 

screen shots, CDs, and similar 

information. 

We encourage the use of 

computerized and electronic systems by 

MAOs and Part D sponsors. We are 

aware, however, of the additional 

potential for security and privacy 

breaches in a computerized/electronic 

context. Our proposed changes are 

designed to ensure that beneficiaries’ 

protected health information and 

personally identifiable information 

associated with their enrollment remain 

private and secure. 

3. Requirement for Sponsoring 

Organizations Under Parts C and D To 

Report Other Payer Information to the 

Coordination of Benefits Contractor 

(§ 422.108 and § 423.464) 

Section 1852(a)(4) of the Act provides 

that an MA organization may charge or 

authorize a provider to seek 

reimbursement for services from a 

beneficiary or third party to the extent 

that payment is made secondary under 

section 1862(b)(2) of the Act. Section 

1860D–2(a)(4) of the Act extends the 

Medicare secondary payer (MSP) 

procedures applicable to MA 

organizations under section 1852(a)(4) 

of the Act to Part D sponsors and their 

provision of qualified prescription drug 

coverage. This authority is implemented 

for MA organizations in § 422.108 and 

for Medicare PDPs in § 423.462, as well 

as in CMS manuals. 

MA organizations are responsible for 

identifying payers that are primary to 

Part C of Medicare, determining the 

amounts payable by those payers, and 

for coordinating the benefits the plan 

offers with the benefits of such payers. 

Additionally, MA organizations must 

take into account Part C costs that could 

have been recovered or avoided due to 

MSP when determining costs in the base 

period. MA organizations must account 

for Part C MSP amounts in one of three 

ways. MA organizations must— 

• Recover from liable third parties; 

• Avoid Part C costs by directing 

providers to bill liable third parties 

directly; or 

• Account for Part C costs that could 

have been recovered or avoided, but that 

were actually not recovered or avoided, 


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by not including them in Part C base 

period costs. 

MA organizations and PDPs are 

required to follow the same rules 

regarding— 

• Their responsibilities under the 

MSP statutory and regulatory 

provisions; 

• Collection of payment from 

insurers, group health plans and large 

group health plans, the enrollee, or 

other entities for covered Part D drugs; 

and 

• The interaction of MSP rules with 

State laws. 

Sections 1860D–23 and 1860D–24 of 

the Act also require a Part D sponsor to 

coordinate with SPAPs, as well as other 

drug plans, including Medicaid 

programs, group health plans, FEHBP, 

military coverage, and other plans or 

programs providing prescription drug 

coverage. To support the required 

benefit coordination, section 1860D– 

2(b)(4)(D)(ii) of the Act permits Part D 

sponsors to request information on third 

party insurance from beneficiaries. The 

authority for COB, as well as for 

information collection from 

beneficiaries is implemented for 

prescription drug sponsors in § 423.464 

and in the Coordination of Benefits 

chapter of the Medicare Prescription 

Drug Benefit Manual. 

The growing number of CMS data 

sharing agreements with other payers 

has improved the volume and quality of 

other payer information available to MA 

organizations and prescription drug 

sponsors on the COB data file from 

CMS. New mandatory insurer reporting 

of MSP group health plan coverage, 

liability insurance, no-fault insurance 

and workers’ compensation, required by 

section 111 of the Medicare, Medicaid, 

and State Children’s Health Insurance 

Program (SCHIP) Extension Act of 2007 

(Pub. L. 110–173), will further expand 

the other payer information available for 

MA organization and PDP MSP 

procedures and for Part D sponsor 

coordination of benefits. (See 42 U.S.C. 

1395y(b)(7) and (8).) Most insurers will 

need to report their own coverage 

already. It is only when an MA 

organization becomes aware of coverage 

that is primary to Medicare offered by 

another insurer that it will need to 

report under this rule. In addition to 

these advances, we continue to seek 

improvements to the quality of the MSP 

and COB information we report to MA 

organizations and Part D sponsors. We 

believe the best means to accomplish 

this is to rely primarily on the most 

reliable sources of other coverage 

information. Based on our experience, 

these sources tend to be the other 

insurers. 

However, MA organizations and PDP 

sponsors will on occasion continue to 

receive information about other 

coverage from their enrollees, as well as 

other sources. While our MA program 

policy does not currently include 

reporting requirements, Part D 

subregulatory policy guidance, reflected 

in section 50.2 of the Coordination of 

Benefits chapter of the Prescription 

Drug Benefit Manual, requires that PDP 

sponsors submit other coverage 

information that is brought to their 

attention within 30 days of receipt to 

the CMS COB Contractor for verification 

and application of the verified data to 

our data systems. 

Given the importance of the other 

payer information to MA organization 

and PDP MSP procedures and for 

prescription drug program coordination 

of benefits, we propose to require the 

reporting of other coverage information 

in § 422.108 for MA organizations and 

§ 423.462 and § 423.464 for PDP 

sponsors. Given concerns regarding the 

quality of the information, we propose 

to limit the information reported to that 

which is reported to the sponsor as 

being inconsistent with existing 

information on the COB file. 

Specifically, we propose to include in 

regulatory text the requirement that MA 

organizations and Part D sponsors, upon 

being notified of credible new 

information regarding other payers or 

changes to existing other payer 

information, report this information to 

the CMS COB Contractor in accordance 

with the processes and timeframes 

established by CMS. By ‘‘credible’’ we 

mean information that is consistent with 

conventions for how group health 

insurance coverage is identified, for 

instance including the name and 

address of the insurance company and 

the policy identification number. We 

also propose to extend the reporting 

requirements to MA organizations as 

they relate to other primary payers. We 

note that Medicare MA organizations 

and Part D sponsors should never be 

reported to CMS as a ‘‘primary’’ payer. 

In the absence of another (that is, nonMedicare) primary payer, the MA 

organization or Part D plan is always 

primary. This is not to say that if an 

enrollee has primary individual or 

employer group coverage through the 

same insurer or organization through 

which they also have MA or Part D 

coverage, such primary coverage should 

not be reported. In fact, such coverage 

must be reported. However, reporting 

Medicare itself as primary serves no 

purpose and merely causes confusion. 

The proposed changes described in 

this section of the proposed rule would 

impose a new requirement on MA 

organizations but would not change 

current MSP and coordination of 

benefits policy for the prescription drug 

program. 

4. Visitor/Traveler Benefit Under Part C 

for the Purpose of Extending Enrollment 

Up to 12 Months (§ 422.74) 

Under our authority to establish 

special rules for the enrollment of 

beneficiaries in MA plans at section 

1851(b) of the Act, we had previously 

described in the Medicare Advantage 

regulations a visitor/traveler (V/T) 

benefit. Specifically, § 422.74(d)(4)(iii) 

established an exception to our 

disenrollment requirements, under 

which a plan member must be 

disenrolled when out of the service area 

for more than 6 months. Under this 

exception, MA plans may offer their 

enrollees extended enrollment in the 

plan when they are out of the plan 

service area, but within the United 

States, from 6 to 12 months if the plan 

covers services other than emergent, 

urgent, maintenance and post 

stabilization, and renal dialysis services. 

Section 422.74(d)(iii) establishes that an 

MAO can offer a ‘‘visitor’’ or ‘‘traveler’’ 

type program which would allow its 

enrollees to remain enrolled in the plan 

while out of the plan’s service area for 

up to 12 months. We note that 

Medicare-covered services can only be 

covered within the United States. 

Although we stated in the preamble of 

the Medicare+Choice program; Managed 

Care Provisions final rule, published in 

the August 22, 2003 Federal Register 

(68 FR 50848), that the visitor or traveler 

program must cover ‘‘the full range of 

services available to other members,’’ 

we did not specify in regulation text 

what we intended by ‘‘full range of 

services.’’ 

Given the lack of specificity in our 

regulations, we have received a number 

of questions since that time regarding 

what services must be covered through 

a V/T program if an MA plan wishes to 

retain members up to 12 months when 

those members are residing outside the 

service area. We propose to amend 

§ 422.74(d)(4)(iii) to specify that an 

MAO may offer an extended enrollment 

V/T option under an MA plan if that 

plan furnishes all plan covered 

services—that is, Medicare Parts A and 

B services and all mandatory and 

optional supplemental benefits—at innetwork cost-sharing levels consistent 

with Medicare access and availability 

requirements at § 422.112. An MAO 

offering a V/T benefit under an MA plan 

must make the option available to all 

plan enrollees. Specifically, the V/T 

benefit must be available to all plan 

enrollees who are temporarily in the 


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areas where the V/T benefit is offered 

for the 6–12 months the member is in 

the area. 

5. Medication Therapy Management 

Programs Under Part D (§ 423.153(d)) 

Section 1860D–4(c)(1)(c) of the Act 

requires Part D sponsors to establish 

Medication Therapy Management 

programs (MTMP) and section 1860D– 

4(c)(2) of the Act requires MTMPs to be 

designed to ensure, with respect to 

targeted beneficiaries described in 

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

that 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 at § 423.153(d) of the Part D 

regulations. 

Section 423.153(d)(1) requires 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. Section 

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 exceed a predetermined level 

as specified by the Secretary. 

In the original Part D final rule (that 

is, the January 28, 2005 final rule), we 

did not identify specific medication 

therapy management (MTM) 

requirements beyond those contained in 

the Act because there was insufficient 

industry experience and no widely 

accepted standard practices for MTMPs. 

Moreover, we also believed that in the 

future outcomes measures would 

provide the best method for evaluating 

MTMPs and promoting the most 

effective programs. However, given the 

experience garnered from the first few 

years for the Part D program, and as we 

still await further development of 

MTMP outcomes measures that can 

serve the Part D program, we have 

determined that it necessary to have 

more specific Part D MTMP 

requirements for enrollment methods, 

targeting procedures, and MTM 

services. Accordingly, in the 2010 Call 

Letter, we included policy guidance 

regarding the implementation of 

MTMPs. This policy guidance reflects 

common practices among Part D 

MTMPs that were derived from our 

extensive review of MTMP applications, 

plan-reported data, exploratory research 

on MTM, informal interviews with Part 

D sponsors, and other relevant literature 

and data. In this rule, we are proposing 

to codify this policy guidance in 

§ 423.153(d). We believe the proposed 

changes to the MTMP requirements will 

promote greater consistency across the 

Part D program that will allow for better 

evaluation and comparison of MTMPs 

when outcomes measures become 

available. 

Specifically, in accordance with 

sections 1860D–4(c)(1)(C) and 1860D– 

4(c)(2) of the Act, we propose to add the 

following requirements: 

• Part D sponsors shall use only an 

opt-out method for MTMP enrollment; 

• Part D sponsors shall target 

beneficiaries for MTMP enrollment at 

least quarterly during each plan year; 

and 

• Part D sponsors shall offer a 

minimum level of MTM services for 

each beneficiary enrolled in the MTMP 

that includes interventions for both, 

beneficiaries and prescribers, annual 

comprehensive medication reviews, and 

quarterly targeted medication reviews. 

In addition, we are proposing to 

revise the requirements for targeting 

beneficiaries who have multiple chronic 

diseases and take multiple Part D drugs 

by specifying the maximum number of 

multiple chronic diseases and multiple 

Part D drugs that Part D sponsors may 

establish as a minimum threshold for 

satisfying their MTMP targeting criteria. 

We propose adding § 423.153(d)(1)(v) 

to require Part D sponsors to enroll 

beneficiaries in their MTMPs using an 

opt-out method of enrollment only. 

Under this proposal, a beneficiary that 

meets the targeting criteria would be 

auto-enrolled into the MTMP and 

considered to be enrolled unless the he 

or she declines enrollment. This opt-out 

method of enrollment is currently the 

preferred method of enrollment among 

Part D sponsors, used by approximately 

85 percent of current MTMPs, and has 

increased enrollment of targeted 

beneficiaries into MTMPs. As a result, 

we believe that requiring an opt-out 

method of enrollment will provide more 

beneficiaries with access to MTM 

services. 

We also propose adding 

§ 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. 

Currently, more than 95 percent of Part 

D sponsors target beneficiaries for 

enrollment in their MTMPs on a daily, 

weekly, monthly, or quarterly basis. We 

believe that making this a requirement 

for all Part D sponsors will allow more 

Medicare beneficiaries to have access to 

the MTMP earlier in the year. Part D 

sponsors also can promote continuity of 

care by identifying current MTMP 

enrollees towards the end of a plan year 

who will qualify for MTMP enrollment 

in the next plan year. This practice 

would allow the Part D sponsors to have 

such beneficiaries enrolled in their 

MTMP at the beginning of the next plan 

year. 

We also propose adding 

§ 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; annual comprehensive 

medication reviews; and quarterly 

targeted medication reviews. In 2008, 

approximately 90 percent of Part D 

MTMPs provided interventions 

targeting both beneficiaries and 

prescribers. Our proposed requirement 

that MTMPs include interventions for 

both beneficiaries and prescribers does 

not mean, however, that all 

interventions must target both the 

beneficiary and the prescriber. Instead, 

Part D sponsors must determine if the 

beneficiary, prescriber, or both should 

be targeted for any specific intervention 

or interventions. Prescriber 

interventions may be passive (for 

example, faxed or mailed) and should 

be targeted to resolve potential 

medication-related issues or other 

opportunities to optimize medication 

use. 

Furthermore, while Part D sponsors 

may incorporate passive or ‘‘lower 

touch’’ beneficiary interventions, such 

as education newsletters, drug 

utilization review (DUR) edits, refill 

reminders, and medication lists into 

their MTMPs, where appropriate, these 

passive interventions cannot be the sole 

offerings. Part D sponsors must also 

offer MTM services to beneficiaries that 

include an interactive component, 

continued monitoring, and follow-up 

when necessary. In addition, Part D 

sponsors should have procedures in 

place to follow-up with beneficiaries 

that do not respond to initial offers for 

MTM services. 

Under this proposal, Part D sponsors 

would also be required to offer an 

annual comprehensive medication 

review (CMR) to all targeted 

beneficiaries. With the exception of 

targeted beneficiaries in long-term care 

settings, the CMR would be required to 

include an interactive, person-to-person 

consultation performed by a pharmacist 

or other qualified provider. A CMR is a 

review of a beneficiary’s medications 

including prescription medications, 


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over-the-counter (OTC) medications, 

herbal therapies and dietary 

supplements intended to aid in 

assessing medication therapy, and 

optimizing patient outcomes. The 

review of the beneficiary’s medication 

may be performed concurrently with the 

beneficiary consultation or prior to the 

consultation by a qualified provider or 

computerized clinical algorithm. The 

consultation must be a real-time 

interaction that is provided either faceto-face or via an alternative interactive 

method such as the telephone. Finally, 

the beneficiary must receive a written 

summary of the CMR and consultation 

that may include such things as a 

medication record, reconciled 

medication list, action plan, or 

recommendations for monitoring, 

education, or self management. 

In addition to the annual CMR, under 

this proposal, Part D sponsors would be 

required to perform targeted medication 

reviews for all beneficiaries enrolled in 

the MTMP no less often than quarterly. 

These targeted reviews would focus on 

assessing medication use since the CMR 

and determining if any issues that were 

identified during the CMR remain 

unresolved or if any new drug therapy 

issues have arisen. The Part D sponsor 

must assess the findings of these 

reviews to determine if a follow-up 

intervention is necessary with either the 

prescriber or beneficiary. Unlike the 

CMR, these interventions are not 

required to be interactive although it 

should be considered when appropriate. 

Consistent with section 1860D– 

4(c)(2)(ii)(A) of the Act, Part D sponsors 

must target beneficiaries who have 

multiple chronic diseases for MTM 

services. In the original rule, we left the 

determination of ‘‘multiple’’ and 

‘‘chronic disease’’ entirely to the Part D 

sponsors. In 2008, approximately 85 

percent of Part D MTMPs targeted 

beneficiaries with a minimum of two or 

three chronic diseases. Based upon our 

experience with Part D MTMPs since 

the beginning of the Part D program, we 

issued guidance in 2009 to clarify the 

range and types of diseases that will 

satisfy this requirement beginning in 

2010. 

In this rule, we propose to revise 

§ 423.153(d)(2)(i) to specify that the 

minimum number of multiple chronic 

diseases for targeted beneficiaries be no 

more than three. Under the proposed 

revision to § 423.153(d)(2)(i), we would 

require Part D sponsors to define the 

minimum threshold for ‘‘multiple’’ for 

purposes of targeting beneficiaries as no 

more than three chronic diseases. 

Therefore, Part D sponsors would be 

permitted to set their minimum 

threshold at two or three and target 

beneficiaries with at least two chronic 

diseases or at least three chronic 

diseases. 

Under this proposed revision to 

§ 423.153(d)(2)(i), Part D sponsors may 

continue to target any chronic diseases 

or limit MTMP enrollment to enrollees 

having specific chronic diseases. 

However, beginning in 2010, CMS 

guidance specifies, at a minimum, that 

Part D sponsors should target at least 

four of seven core chronic diseases that 

we have identified as prevalent in the 

Medicare population based upon the 

analysis of the RxHCC Risk Adjustment 

model, posing a risk to the Medicare 

Trust Fund, and reflecting the most 

common diseases targeted by Part D 

MTMPs in general. The seven chronic 

diseases are hypertension, heart failure, 

diabetes, dyslipidemia, respiratory 

disease, bone disease-arthritis, and 

mental health diseases such as 

depression, schizophrenia, and bipolar 

disorder. In determining whether a 

beneficiary meets the minimum number 

of multiple chronic diseases to be 

targeted for MTM services, a beneficiary 

could have any combination of the 

chronic diseases targeted by the Part D 

sponsor. 

Consistent with section 1860D– 

4(c)(2)(ii)(II) of the Act, plan sponsors 

must target beneficiaries taking multiple 

covered Part D drugs for MTM services. 

In the original Part D rule, we left the 

determination of ‘‘multiple’’ entirely to 

the Part D sponsors. Based upon our 

experience and extensive analysis of the 

Part D MTMPs since the beginning of 

the Part D program, we issued guidance 

in 2009 to clarify the range that plan 

sponsors should consider in order to 

satisfy the statutory requirement 

beginning in 2010. Specifically, we 

noted that Part D sponsors should 

define ‘‘multiple’’ for purposes of 

satisfying this requirement as no more 

than eight Part D drugs as the minimum 

number of multiple Part D drugs. 

Consistent with this policy guidance, 

we now propose to revise 

§ 423.153(d)(2)(ii) to specify that no 

more than eight multiple Part D drugs 

be established as a minimum for 

targeted beneficiaries. Therefore, Part D 

sponsors would be permitted to set this 

minimum threshold for MTMP 

eligibility at any number equal to or 

between two and eight. 

Under section 1860D–4(c)(2)(ii)(III) of 

the Act, plans must target beneficiaries 

that are likely to incur annual costs for 

covered Part D drugs that exceed a level 

specified by CMS. In the 2010 Call 

Letter, we specified a new, lower three 

thousand dollar threshold. Moving 

forward, we believe that it makes more 

sense to establish a dollar threshold 

based upon a benchmark that is tied to 

the Part D benefit. We believe that the 

initial coverage limit (ICL) for the Part 

D defined standard benefit provides a 

logical benchmark for the MTMP 

because it ensures that Part D sponsors 

will always be able to target enrollees at 

risk of entering the coverage gap. 

Accordingly, in this rule, we propose to 

revise § 423.153(d)(2)(iii) to specify that 

targeted beneficiaries must be likely to 

incur costs for covered Part D drugs that 

exceed the ICL for the Part D defined 

standard benefit for the applicable Part 

D plan year. 

6. Formulary Requirements— 

Development and Revision by a 

Pharmacy and Therapeutics Committee 

(§ 423.120) 

Section 1860D–4(b)(3)(A) of the Act 

requires Part D sponsors to use a 

pharmacy and therapeutics (P&T) 

committee to develop and review the 

formulary if the Part D sponsor uses a 

formulary. In developing and reviewing 

the formulary, section 1860D–4(b)(3)(B) 

of the Act requires the P&T committee 

to base clinical decisions on the strength 

of scientific evidence and standards of 

practice, including accessing peerreviewed medical literature, such as 

randomized clinical trials, 

pharmacoeconomic studies, outcomes 

research data, and on such other 

information as the committee 

determines to be appropriate. The P&T 

committee must also consider whether 

the inclusion of a particular Part D drug 

in a formulary or formulary tier has any 

therapeutic advantages in terms of 

safety and efficacy. We codified these 

requirements at § 423.120(b)(1). 

In the preamble to the January 28, 

2005 final rule (70 FR 4193) and 

subsequent formulary guidance, we 

distinguished between the roles of the 

P&T committee in determining which 

drugs are placed on a formulary versus 

the application of utilization 

management tools that are applied to 

the drugs placed on the formulary. 

Specifically, we said that the P&T 

committee recommendations regarding 

which Part D drugs are placed on a 

formulary are binding on the Part D 

sponsor while recommendations 

regarding utilization management tools 

such as prior authorization (PA), step 

therapy, and quantity limits are 

advisory only and not binding on the 

Part D sponsor. We made this 

distinction because we believed that the 

placement of a drug on the formulary 

was the primary clinical decision in 

developing a formulary while the 

application of utilization management 

tools, although clinically justified, 

required the consideration of additional 


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financial and benefit design criteria that 

went beyond the scope of the P&T 

committee role. Consequently, we 

believed it was only necessary for the 

P&T committee to review for clinical 

appropriateness Part D sponsor policies 

that guide utilization management 

processes and codified this requirement 

in § 423.120(b)(vi). 

We have gained a better 

understanding of the formulary 

development process since the 

beginning of the Part D program and 

now recognize that the application of 

PA criteria, step therapy, and quantity 

limits are as important to the clinical 

soundness of a formulary as the drugs 

that are included. Access to Part D drugs 

may be influenced as much by the 

application of PA criteria, step therapy 

requirements, or quantity limit 

restrictions as it can be by exclusion of 

a Part D drug from a Part D formulary. 

For example, one formulary could list 

twice as many drugs as another 

formulary but if all the additional drugs 

on the second formulary are subject to 

PA requirements, overall access to Part 

D drugs may be the same under both 

formularies. For this reason, our 

formulary review process has not been 

limited to evaluating the number and 

types of drugs on Part D formularies but 

also includes the review of the specific 

PA criteria, step therapy requirements, 

and quantity limit restrictions that are 

applied within the Part D formularies. 

Therefore, in accordance with section 

1860D–4(b)(3)(A) and (b)(3)(B) of the 

Act, we propose adding new paragraph 

§ 423.120(b)(1)(ix) to require Part D P&T 

committees to review and approve all 

clinical PA criteria, step therapy 

protocols, and quantity limit restrictions 

applied to each covered Part D drug. 

PA criteria, step therapy 

requirements, and quantity limits 

directly affect beneficiary access to 

formulary drugs. Because P&T 

committees must review and approve all 

drugs before they may be added to a 

formulary, we also believe it is 

necessary that all PA criteria, step 

therapy protocols, and quantity limits 

be approved by P&T committees prior to 

their application to formulary drugs. We 

continue to recognize that the decision 

to apply such utilization management 

tools is not based solely upon clinical 

considerations and, therefore, remains 

the responsibility of the Part D sponsors. 

However, we believe this new 

requirement adds a necessary 

beneficiary protection by ensuring that 

independent clinical experts have 

reviewed and approved each 

application of these utilization 

management tools for clinical 

appropriateness. It is our understanding 

that this is standard practice for P&T 

committees, and therefore, do not 

believe this requirement creates an 

additional burden. 

Finally, we do not believe it is 

necessary for P&T committees to review 

and approve administrative PA criteria 

such as those used to make ‘‘B vs. D’’ 

determinations. Only PA criteria that 

require clinical information and 

justification require the review and 

approval of the P&T committee. 

7. Generic Equivalent Disclosure Under 

Part D (§ 423.132) 

Section 1860D–4(k)(1) of the Act 

requires a Part D sponsor to have each 

of their network pharmacies inform 

enrollees of any difference between the 

price of the drug(s) they are purchasing 

via the plan and the price of the lowest 

priced therapeutically equivalent 

generic product available to the 

pharmacy. Section 1860D–4(k)(2)(A) of 

the Act requires that this information be 

provided at the time of purchase except 

for purchases delivered by mail when it 

must be provided at the time of 

delivery. Under section 1860D– 

4(k)(2)(B) of the Act the Secretary has 

the authority to waive this requirement 

for certain entities in certain cases as 

specified in § 423.132(c). 

In § 423.132(d), we specified that for 

enrollees in long-term care pharmacy 

settings, the timing portion of the 

disclosure requirement (that is, the 

requirement that the enrollee be 

informed at time of purchase) may be 

waived. Accordingly, sponsors are 

required to disclose the differential (if 

any) in pricing for long-term care 

network pharmacies by requiring that 

this information be provided in the 

explanation of benefits (EOB). 

Over time, we have heard from 

sponsors, as well as pharmaceutical 

benefit managers on behalf of sponsors, 

that providing this information in the 

EOB is unworkable from a plan 

operational standpoint. Primarily, this is 

due to the fact that information on 

generic pricing can—and often does— 

vary day to day; thus, sponsors cannot 

accurately reflect the differential within 

a monthly EOB. Additionally, sponsors 

have pointed out that they would need 

to program the generic equivalent prices 

for all drugs specific to a particular 

LTC’s contracted reimbursement rate 

into their systems to populate 

electronically on the EOB, which 

represents a significant programming 

and financial burden. 

We also believe the generic equivalent 

information provided on the EOB is of 

no value to the long-term care 

beneficiary. In the LTC setting, the 

beneficiary receives the medication after 

the prescription drug claim has been 

submitted by the LTC pharmacy and 

processed by the Part D sponsor. 

Therefore, the ability of the beneficiary 

to make changes at the point-of-service 

based upon information provided on the 

EOB is simply not feasible. Unlike the 

enrollee standing at the retail pharmacy 

counter at time of service, enrollees in 

long-term care institutions have limited 

opportunities to affect a switch to a 

lower-priced generic substitute before 

dispensing. Because of this limitation, 

we have not enforced this regulatory 

requirement and have not included 

model language that addresses this 

requirement in the EOB. 

For the aforementioned reasons, we 

are proposing to revise § 423.132(c) by 

adding long-term care network 

pharmacies to the list of entities for 

which from the public disclosure 

requirement is waived, and revise 

§ 423.132(d) to remove the requirement 

that long-term care network pharmacies 

provide the pricing differential 

information in enrollees’ EOBs. 

8. Access to Covered Part D Drugs 

(§ 423.120) 

The statute at sections 1860D– 

4(b)(1)(C) and 1860D–21(c)(1) of the Act 

establishes the standards for convenient 

access for network pharmacies for PDP 

sponsors and other Part D sponsors. 

This section of the statute requires that 

the sponsor of a PDP shall secure the 

participation in its network of a 

sufficient number of pharmacies that 

dispense (other than by mail order) 

drugs directly to patients to ensure 

convenient access consistent with the 

rules established by the Secretary, and 

as long as they are no less favorable than 

the TRICARE pharmacy access 

standards. 

A TRICARE contractor is required to 

maintain a pharmacy network sufficient 

to meet the following minimum 

beneficiary access standards on an 

overall basis—Urban: a pharmacy 

within 2 miles of 90 percent of the 

beneficiaries; Suburban: a pharmacy 

within five miles of 90 percent of the 

beneficiaries; and Rural: a pharmacy 

within fifteen miles of 70 percent of the 

beneficiaries. We adopted into 

regulation these standards, but instead 

of specifying them at the contract or 

PDP sponsor level, erroneously 

established them at the plan level. 

Specifically, in § 423.120(a) of the 

regulation, which describes the 

requirements to assure pharmacy access, 

we inadvertently used the term ‘‘plans’’ 

instead of the correct terminology of 

PDP sponsor or other Part D sponsors. 

This error is problematic when 

considering the definitions outlined in 


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§ 422.2 (for MA) and § 423.4 (for Part D) 

because the term ‘‘plan’’ is intended to 

mean a specific benefit package offered 

to beneficiaries living in a geographic 

area. For any given service area, Part D 

sponsors frequently offer multiple plans 

under one contract with CMS, and any 

given plan may be offered within a 

subset of the Part D sponsor’s total 

service area. 

Our intention has always been to 

ensure adequate access to Part D 

covered drugs at sponsor level, not at 

the plan level. For one, the statute 

explicitly states that access should be 

ensured at the PDP sponsor level. 

Further, assessing adequacy of 

pharmacy access is one of the most 

critical steps in the Part D application 

review process and determining access 

to Part D covered drugs at the plan level 

is not possible during application 

review. This is because plan service 

areas (potentially subsets of Part D 

sponsor or organization service areas) 

are not determined until the time of the 

bid submission, which occurs after 

applications are reviewed. However, 

sponsor service areas are known at the 

time of application submission. Our 

proposed correction would align our 

regulations with the intent of the statute 

with regard to the level of analysis that 

should be conducted for access to Part 

D drugs, namely at the Part D sponsor 

level, rather than at the plan level. 

We note that as a practical matter and 

consistent with the current drafting of 

the regulation, if the Part D sponsor’s 

entire service area is larger than one 

State, we will continue to ensure access 

at no greater than the State level for 

multi-state regions. This approach is 

necessary to ensure that pharmacies are 

not unduly clustered in one part of the 

region. Accordingly, based on the 

preceding rationale, we are proposing to 

revise the text of the regulation that 

discusses pharmacy access in 

§ 423.120(a)(10 through (a)(7) to refer to 

PDP sponsors, MA organizations 

offering local and regional MA–PD 

plans, and cost contracts rather than 

plans. Additionally, since § 423.120(a) 

(defining access requirements for Part D 

drugs) references a definition provided 

in § 423.112(a) (establishment of PDP 

service areas), it is necessary to correct 

the terminology in that location as well. 

Therefore, we propose to revise 

§ 423.112(a) to specify the establishment 

of service areas for PDP sponsors. 

9. Standard Timeframe and Notice 

Requirements for Coverage 

Determinations Under Part D (§ 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 such requirements 

apply to MA organizations with respect 

to organization determinations and 

reconsiderations. In accordance with 

section 1860D–4(g) of the Act, § 423.568 

establishes the standard timeframe and 

notice requirements for coverage 

determinations. However, that section 

does not explain the method for filing 

such requests. We originally omitted 

these instructions from § 423.568 

because § 422.568 does not dictate the 

method for filing requests for standard 

organization determinations. However, 

elsewhere in this rule, we are proposing 

to revise § 422.568 of the MA 

regulations by adding a new paragraph 

(a) clarifying the method for filing 

requests for standard organization 

determinations. The proposal requires 

MA organizations to accept standard 

organization determination requests 

orally and in writing, except for 

standard requests for payment, which 

must be submitted in writing unless the 

MA organization adopts a voluntary 

policy of accepting oral payment 

requests. Because section 1860D–4(g) of 

the Act requires Part D plan sponsors to 

meet the requirements for Part D 

coverage determinations in the same 

manner as such requirements apply to 

MA organizations for organization 

determinations, we propose to make a 

corresponding change to § 423.568 and 

require Part D plan sponsors to accept 

standard coverage determination 

requests orally and in writing. This 

proposed change would not apply to 

standard requests for payment, which 

must be submitted in writing unless the 

plan sponsor adopts a policy for 

accepting those requests orally. 

In addition to this technical change, 

we propose to revise the timeframe for 

a Part D plan sponsor to notify an 

enrollee of a payment determination in 

§ 423.568(b). The regulation currently 

requires that a plan sponsor notify the 

enrollee of its determination no later 

than 72 hours after receipt of the 

request. We propose to revise the 

provision to require Part D plan 

sponsors to process requests for 

payment no later than 14 calendar days 

after receipt of the request, and also 

make payment no later than 14 calendar 

days after receiving the request when a 

plan sponsor’s decision is partially or 

fully favorable. 

As noted above, section 1860D–4(g) of 

the Act requires Part D plan sponsors to 

meet the requirements for Part D 

coverage determinations in the same 

manner as such requirements apply to 

MA organizations with respect to 

organization determinations. The MA 

regulations under § 422.568 distinguish 

between how requests for benefits not 

yet received and requests for payment 

are processed by MA plans. The rules 

pertaining to requests involving benefits 

not yet received are contained in 

paragraph (a), while paragraph (b) 

contains the rules for processing 

requests for payment. In accordance 

with section 1860D–4(g) of the Act, this 

distinction was carried over to Part D in 

current § 423.568(a) and (b). 

We received a comment on the 

Application of Certain Appeals 

Provisions to the Medicare Prescription 

Drug Appeals Process proposed rule (73 

FR 14342), published in the March 17, 

2008 Federal Register, recommending 

that we revise § 423.568(b) of the 

existing regulations by lengthening the 

timeframe for making standard coverage 

determinations involving requests for 

reimbursement submitted by enrollees. 

Although the comment was outside the 

scope of the Part D appeals-related 

proposals in the March 17, 2008 

proposed rule, we believe the 

commenter’s suggestion merits 

consideration, as discussed in detail 

below. 

The commenter contends that the 

existing 72-hour requirement for making 

a determination on an enrollee’s request 

for reimbursement constitutes an 

unprecedented and overly burdensome 

timeframe, and the only way a Part D 

plan sponsor can meet the regulatory 

timeframe is by making an adverse 

coverage determination (that is, deny 

the request for payment). Thus, the 

existing requirement in effect forces an 

enrollee into the Part D appeals process, 

even though in the vast majority of such 

situations, the claim will eventually be 

paid within the 30-day timeframe for 

effectuating a coverage determination. 

The commenter recommended that we 

revise § 423.568(b) to extend the 

timeframe for making a coverage 

determination on a request for payment 

from 72 hours to 30 days. 

As the commenter indicates, 

§ 423.568(b) sets forth the coverage 

determination and notification 

requirements in situations (generally 

involving non-network pharmacies) 

where an enrollee has already obtained 

a drug and subsequently makes a 

request to the Part D plan sponsor for 

payment. Existing § 423.568(b) requires 

a Part D plan sponsor to make this 

coverage determination and notify the 

enrollee of its determination no later 

than 72 hours after receiving such a 

payment request. Although the 

regulations do not specify a timeframe 

for making payment to the enrollee 

when the plan determines the drug in 


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question should be covered, plans are 

directed by manual guidance that such 

payment should be made within 30 days 

of the request. We note that the 30-day 

effectuation timeframe comports with 

the established requirements in 

§ 423.636 for effectuating 

redeterminations or reconsiderations 

involving requests for payment. It also 

generally parallels the prompt payment 

provisions that apply under § 422.520 

and § 422.568 of the MA program. 

The intent of these provisions was to 

ensure enrollees receive a prompt 

response to requests for payment while 

still giving plans a reasonable amount of 

time to process the payment. However, 

in practice, we agree that the 72-hour 

timeframe for making a coverage 

determination in these situations may 

be quite difficult for Part D plan 

sponsors to meet. Requests for 

reimbursement are generally submitted 

by mail in paper form, and must be 

identified as reimbursement requests, 

transferred from the mailroom to the 

reimbursement processing department, 

and then manually entered and 

adjudicated by Part D plan sponsors 

outside of the usual online real-time 

electronic claims processing procedures. 

We also note that under these 

circumstances, information that Part D 

plan sponsors need to make meaningful 

determinations with respect to a request 

(which is readily available on electronic 

claims) may be missing from the 

member-submitted paper claim. Finally, 

the Part D plan sponsor must notify the 

enrollee of its determination within 72 

hours. Thus, as the commenter asserts, 

in practice the only way to meet the 72- 

hour coverage determination timeframe 

often may be to make a negative 

coverage determination, at least 

initially, which is clearly not in the best 

interests of the enrollee. This initial 

negative determination can be 

particularly confusing to an enrollee in 

situations where a Part D plan sponsor 

subsequently determines that the 

reimbursement request should be paid 

and remits payment to the enrollee, 

frequently within a few days of the 

initial negative determination. 

As previously stated, the current 

regulations do not establish a timeframe 

for effectuating payment, and our 

manual guidance establishes a 30-day 

timeframe for doing so. Thus, even 

when a Part D plan sponsor completes 

the process above and issues a coverage 

determination within 72 hours, it is 

under no obligation to make payment 

any sooner than 30 calendar days after 

receiving the request. While we 

recognize that receiving Part D coverage 

decisions as soon as possible is 

important, an enrollee who is requesting 

reimbursement already has the needed 

prescription drug in hand. Thus, we 

believe it is more important for him or 

her to receive the actual payment as 

soon as possible, rather than simply a 

determination as to whether payment 

will or will not be made. 

Therefore, we believe it would be in 

the best interests of enrollees to modify 

the requirements of § 423.568(b) by 

extending the timeframe for making 

coverage determinations with respect to 

requests for payment in such a way as 

to avoid confusion but also ensure that 

enrollees receive payment as soon as 

possible. Based on our experience and 

previous discussions with Part D plan 

sponsors, we have determined that Part 

D sponsors generally are capable of 

making such payments within a 14-day 

period following receipt of a 

reimbursement request, as opposed to 

the 30-day period recommended by the 

commenter. Therefore, we propose 

revising § 423.568(b) to require Part D 

plan sponsors to take the following 

actions: (1) Make a coverage 

determination on a request for payment 

and notify the enrollee of its 

determination no later than 14 calendar 

days after receipt of a request for 

reimbursement, and (2) for favorable 

coverage determinations, make payment 

no later than 14 calendar days after 

receipt of the reimbursement request. 

We believe these changes will establish 

a more reasonable standard for the 

adjudication of paper claims, as well as 

ensure faster payments to enrollees who 

submit these requests. Thus, this change 

will better serve both plans and their 

members. As a result of changes 

proposed elsewhere in this rule, if 

adopted, these new requirements 

regarding the timeframe for processing 

requests for payment would appear at 

§ 423.568(c) of the regulations. 

Our last proposed change to § 423.568 

involves adding new paragraphs (d) and 

(e), which will explain the form and 

content of favorable coverage 

determination decisions. In 

§ 423.568(d), we propose requiring plan 

sponsors to send written notice of fully 

favorable decisions to enrollees. We also 

propose to allow plan sponsors the 

option of providing the initial notice 

orally so long as a written follow-up 

notice is sent to within 3 calendar days 

of the oral notification. In § 423.568(e), 

we propose to require notice of fully 

favorable decisions to include the 

conditions of the approval in a readable 

and understandable manner. 

Adding further requirements 

regarding the form and content of 

favorable determination decisions to the 

Part D regulations is necessary because 

prescription drugs are often provided to 

beneficiaries on a recurring basis (unlike 

most MA services which are generally 

provided to beneficiaries only once), 

and requiring plans to provide the terms 

of an approval in writing helps ensure 

continuity of care for Medicare 

beneficiaries who receive prescription 

drugs under Part D. The prescription 

may be subject to prior authorization or 

some other rule which needs to be met 

before a prescription can be refilled. 

Also, a prescription may only be 

approved for a specific period of time 

and refills may not be authorized. In 

those situations, it is important for the 

enrollee to know the conditions (for 

example, duration, limitations, and 

coverage rules for refills) of the approval 

before he or she needs to refill the 

prescription, so he or she can work with 

his or her physician to secure prior 

approval for additional refills, obtain an 

exception, or switch to an appropriate 

alternative prescription if necessary. 

Otherwise, the enrollee may experience 

a break in coverage if he or she attempts 

to fill a prescription and is told for the 

first time at the pharmacy that the 

prescription cannot be filled because it 

is subject to a coverage rule or 

additional refills have not been 

authorized. We believe the proposed 

changes to the notice requirements for 

favorable coverage determinations will 

help to ensure that enrollees and their 

physicians or other prescribers have the 

information they need in order maintain 

the continuity of prescription drug 

treatment. 

10. Expediting Certain Coverage 

Determinations (§ 423.570) 

Consistent with the proposed 

revisions to § 423.568, we propose to 

make a technical change to § 423.570 by 

revising the cross reference to 

§ 423.568(a) to § 423.568(b). 

11. Timeframes and Notice 

Requirements for Expedited Coverage 

Determinations (§ 423.572) 

In accordance with section 1860D– 

4(g) of the Act, § 423.572 establishes the 

timeframe and notice requirements for 

expedited coverage determinations. 

Section 423.572(c)(1) requires Part D 

plan sponsors to include the specific 

reasons for any expedited decision 

(whether favorable or adverse) in its 

decision notice, and paragraph (c)(2) 

addresses the content of adverse 

decision notices. However, § 423.572 

does not include any content 

requirements for favorable expedited 

decisions. Consistent with our rationale 

for adding form and content 

requirements for favorable standard 

coverage determination decisions, we 

believe form and content requirements 


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for favorable expedited coverage 

determinations are important 

beneficiary protections that will help to 

ensure that enrollees are able to 

maintain continuity in their 

prescription drug treatment. Therefore, 

we propose to revise § 423.572(b) by 

requiring plan sponsors to send written 

notice of fully favorable expedited 

decisions to enrollees, and allowing 

plan sponsors the option of providing 

the initial notice orally so long as a 

written follow-up notice is sent to the 

enrollee within three calendar days of 

the oral notification. We also propose to 

add paragraph (c)(2), which requires 

notice of a fully favorable expedited 

decision to provide the conditions of the 

approval in a readable and 

understandable manner. 

We are also proposing in 

§ 423.572(c)(2)(i) to require plan 

sponsors to issue adverse expedited 

coverage determination decisions using 

CMS approved language in readable and 

understandable form. Section 

423.568(d) requires plan sponsors to use 

approved notices for adverse standard 

coverage determinations, and a parallel 

instruction for adverse standard and 

expedited coverage determinations is 

contained in subregulatory guidance. 

We developed Form CMS–10146 for use 

when plan sponsors issue adverse 

coverage determinations and, in our 

subregulatory guidance, we instruct 

plan sponsors to use that form when 

issuing adverse standard and expedited 

coverage determination decisions. Our 

proposed change in § 423.572(c)(2)(i) 

would reconcile this discrepancy in the 

regulations. We note that the proposed 

change does not create an additional 

burden for plan sponsors because 

sponsors already submit Form CMS– 

10146 to CMS for approval for adverse 

standard coverage determination 

decisions and, consistent with our 

subregulatory guidance, we expect plan 

sponsors to also use Form CMS–10146 

for adverse expedited coverage 

determination decisions. 

12. Clarify Novation Agreements Under 

Part D (§ 423.551) 

Section 1860D–12(b) (1) of the Act 

provides the Secretary with the 

authority to enter into contracts with 

PDP sponsors. Additionally, section 

1860D–12(b)(3)(B) of the Act grants the 

Secretary the authority to amend or 

modify these contracts in accordance 

with the furtherance of the purpose of 

the Act. 

Consistent with the above-stated 

authority, we have implemented 

contracting regulations including 

§ 423.551 of the Part D regulations, 

which provide for the novation of a PDP 

sponsor contract in the event of a 

change of ownership involving a PDP 

sponsor. A change of ownership 

prompting the execution of a novation 

agreement is appropriate when a PDP 

sponsor is acquired or when it no longer 

can or wants to continue to participate 

in the PDP program. In the latter 

instance, a change of ownership can 

provide both the holder of the contract 

and CMS with an opportunity to 

transfer the ownership of the contract to 

a different entity with little or no 

disruption to the enrolled beneficiaries 

when the original entity faces 

difficulties (for example., financial, 

administrative) in operating its PDP 

contract. A change in ownership of the 

PDP line of business, which is 

recognized by CMS when we agree to a 

novation of the existing PDP sponsor 

contract, in this instance promotes the 

efficient and effective administration of 

the PDP program. 

However, over the past few years 

several PDP sponsors have requested 

CMS approval of transactions that 

involve the sale of a piece of the 

sponsor’s contract with CMS or less 

than the full line of PDP business [all 

PDP contracts held by that PDP 

sponsor]. For example, several PDP 

sponsors who have missed the LIS 

benchmark for a particular region 

requested to novate that portion of their 

contract to another PDP who met the 

benchmark in the region. 

However, our policy goals are not 

served when a sponsor is simply using 

the novation process to pick and choose 

which markets it wishes to serve at any 

given time and to profit from its exit 

from a given PDP region when a simple 

nonrenewal for that region is an option 

available to the sponsor. Novations are 

not intended to be an instrument for 

moving LIS beneficiaries when a 

particular sponsor has missed the 

benchmark. Rather, we have a 

reassignment process for moving LIS 

beneficiaries to sponsors who have met 

benchmark for the new contract year. 

Accordingly, we propose to revise 

§ 423.551 and add new paragraph 

§ 423.551(g) to restrict the situations in 

which we will agree to a PDP sponsor 

contract novation to those transfers 

involving the selling of the sponsor’s 

entire line of PDP business, which 

would include all PDP sponsor 

contracts held by the legal entity. We 

believe that allowing the spin-off of just 

one contract (when the PDP sponsor has 

more than one PDP contract) or pieces 

of a single contract can have a negative 

impact on beneficiary election rights. 

We are recommending becoming more 

prescriptive in this area because our 

experience gained over the first 4 years 

of the program indicates this is 

necessary for the reasons stated above. 

The proposed change would also create 

consistency between the MA program 

and the PDP program, because the MA 

program only allows novations that 

include the entire MA line of business 

(that is, all MA contracts held by a 

single legal entity). We invite comments 

from sponsors and the industry about 

this proposed change, and suggestions 

on other options which would 

accomplish the same policy goals. 

13. Cost Contract Program Revisions: 

Appeals and Marketing Requirements 

(§ 417.428, § 417.494, § 417.500, and 

§ 417.640) 

Although the cost contract program 

authorized under section 1876 of the 

Act and the health care prepayment 

plan (HCPP) programs authorized under 

section 1833 of the Act are based on 

reasonable costs, these programs have 

important elements in common with the 

MA program. As in the case of MA 

coordinated care plans, and unlike 

original Medicare, cost contractors 

authorized under section 1876 of the 

Act and HCPPs employ networks of 

providers and deliver services through a 

managed care model. However, unlike 

MA plans, enrollees under cost 

contracts authorized under section 1876 

of the Act and HCPPs are not ‘‘locked 

in’’ to their plans networks, and can 

always receive any service through 

Original Medicare if they pay original 

Medicare cost sharing. 

In the case of cost contracts 

authorized under section 1876 of the 

Act, the MA statute specifically 

recognized the parallels between 

contracts authorized under section 1876 

of the Act and MA contracts, providing 

in section 1856(b)(2) of the Act that MA 

standards ‘‘shall be based on standards 

established under section 1876 to carry 

out analogous provisions of such 

section.’’ Indeed, many of the original 

Part C regulations borrowed wholesale 

from the provisions in section 1876 of 

the Act and codified in Part 417. Using 

already established programs as the 

basis for new but related programs is 

common practice, one of the most recent 

examples of which is the Part D 

prescription drug benefit program. The 

MMA directed that fundamental aspects 

of the program, such as enrollment and 

payment polices, be similar to those of 

the MA program. 

There are several MA program 

requirements that we believe are 

appropriate to apply to cost contracts. In 

the case of contracts authorized under 

section 1876 of the Act, because section 

1876 of the Act contains similar 

statutory language to that in Part C for 


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MA contracts, this language provides 

clear authority to impose the same 

policies to both types of contracts. We 

have expressly done this in past 

regulations. For example, given the 

similarities between the statutory 

language in sections 1876(c)(5) and 

1852(g) of the Act, and the procedures 

for an independent review entity that 

existed in part 417 before Part C was 

enacted, we revised the part 417 

beneficiary appeals regulations 

governing cost contract appeals 

authorized under section 1876 of the 

Act simply to incorporate the Part C 

beneficiary appeals regulations in part 

422. MA contracts and cost contracts 

authorized under section 1876 of the 

Act similarly have had largely the same 

process concerning appeals of contract 

determinations, sanctions, and civil 

money penalties (CMPs). More recently, 

however, these processes have diverged, 

especially since the publication of final 

regulations revising the contract 

determination, sanctions, and CMP 

processes for MA organizations on 

December 5, 2007 (72 FR 68700 through 

68741). Similarly, the marketing 

requirements for cost contras, which at 

one time largely mirrored the MA 

requirements, have diverged. This is 

especially true since publication of our 

final regulations implementing 

significant changes to marketing 

standards, agent/broker compensation, 

and other marketing changes in 2008. 

As a result, there is sometimes 

confusion over which marketing 

requirements cost contract plans must 

follow. 

Therefore, we are proposing in this 

rule, under the authority under section 

1876(i)(3)(D) of the Act to impose ‘‘other 

terms and condition’’ under contracts 

authorized by the statute that the 

Secretary finds ‘‘necessary and 

appropriate,’’ and in implementation of 

the provisions authorized by section 

1876 of the Act set forth below, to apply 

the following MA program requirements 

to cost contracts authorized under 

section 1876 of the Act: 

• Under the authority in section 

1876(i)(1) of the Act to terminate or 

nonrenew contracts and the authority in 

section 1876(i)(6) of the Act to impose 

intermediate sanctions and CMPs, the 

MA program requirements on appeals 

processes for contract determinations 

and intermediate sanctions. (To the 

extent that the CMP in section 

1876(i)(6)(B) and (C) of the Act differ 

from those under Part C, the penalty 

amounts under section 1876 of the Act 

would continue to control); and 

• Under the authority in section 

1876(c)(3)(C) of the Act to regulate 

marketing of plans authorized under 

section 1876 of the Act and ensure that 

marketing material is not misleading, 

the MA program requirements for 

marketing to cost contract plans. 

We discuss the above proposals for 

cost contracts authorized under section 

1876 of the Act in greater detail in the 

sections that follow. 

14. Appeals Processes for Contract 

Determinations, Intermediate Sanctions, 

and Civil Money Penalties 

The policy reasons we gave in our 

December 2007 final rule for revising 

the contract determination and appeals 

processes for MA plans apply equally to 

cost contracts authorized under section 

1876 of the Act. By extending the MA 

and Part D requirements regarding these 

processes to cost contracts authorized 

under section 1876 of the Act and 

organizations that have both MA and 

contracts authorized under section 1876 

of the Act will also have a more efficient 

and clear path for appealing contract 

determinations, intermediate sanctions, 

and CMPs. 

We are proposing to revise the 

following sections of the current 

contract requirements provisions of Part 

417 authorized at section 1876 of the 

Act to specify that, with respect to 

appeals of contract determinations, 

intermediate sanctions and CMPs, cost 

contracts authorized under section 1876 

of the Act would follow the provisions 

applicable to MA organizations at, 

respectively, Subpart N and Subpart T 

of part 422. With respect to appeals of 

intermediate sanctions, we are 

proposing to revise § 417.500 of the cost 

contracts requirements authorized 

under section 1876 of the Act to make 

these consistent, with the exception of 

some CMP amount provisions, with the 

sanctions processes for MA 

organizations. We discuss the proposed 

changes below. 

a. Contract Determinations (§ 417.492 

and 417.494)) 

Previous to the implementation of the 

contract determination requirements in 

the December 2007 final rule, the cost 

contracts authorized under section 1876 

of the Act and MA plan contract 

determination requirements were very 

similar. Although we did not apply the 

provisions of the December 2007 

regulations to cost contracts authorized 

under section 1876 of the Act at that 

time, we believe that it makes sense to 

do so now for the same reasons we 

made changes to the MA processes at 

that time. 

As a result, we propose in 

§ 417.492(b)(2), concerning notice of 

appeal rights, and § 417.494, concerning 

notice of termination, to require cost 

contract plans to follow the contract 

determination appeal procedures under 

Subpart N of Part 422. 

b. Civil Money Penalties (§ 417.500) 

Currently, the regulations governing 

cost contracts authorized under section 

1876 of the Act do not set forth a formal 

process for appealing CMPs. We 

propose these plans would follow the 

same requirements for CMP appeals that 

MA organizations follow. As a result, 

we propose to revise § 417.500 to 

require cost contracts authorized under 

section 1876 of the Act to follow the MA 

programs requirements for appeals of 

CMPs at Subpart T of Part 422. The 

appeals process for CMPs specified at 

Subpart T allows for a hearing by an 

Administrative Law Judge (ALJ) and a 

review of the ALJ’s decision by the 

Departmental Appeals Board. In 

proposed new paragraph (c), we specify 

that the amount of CMPs a cost contract 

may be assessed is governed by section 

1876(i)(6)(B) of the Act, not by the 

provisions in part 422 of the MA 

program regulations. 

c. Intermediate Sanctions (§ 417.500) 

Our proposed revision to the cost 

contracts regulations authorized under 

section 1876 of the Act would ensure 

that these contracts follow the same 

requirements for intermediate sanctions 

appeals specified in § 422.750 through 

§ 422.764 of the MA program 

regulations (subpart O). 

These sections concern— 

• Types of intermediate sanctions and 

CMPs (§ 422.750); 

• Bases for intermediate sanctions 

and CMPs (§ 422.752); 

• Procedures for imposing 

intermediate sanctions and CMPs 

(§ 422.656); 

• Collection of CMPs (§ 422.758); 

• Settlement of penalties (§ 422.762); 

and 

• Other applicable provisions 

(§ 422.764). 

As noted above, with respect to 

determinations of the amount of CMPs, 

the provisions in section 1876(i)(6)(B) 

and (C) of the Act would govern such 

amounts. 

15. Extending MA Marketing 

Requirements to Cost Program Plans 

(§ 417.428) 

In 2008, we published several 

marketing-related regulations that 

significantly revised the marketing 

requirements for MA organizations and 

Part D sponsors. In the Medicare 

Advantage and Prescription Drug 

Benefit Programs; Final Marketing 

Provisions final rule, published in the 

September 18, 2008 Federal Register (73 


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FR 54208 through 54223), we discussed 

exclusively the marketing and 

established marketing standards 

including prohibiting soliciting door-todoor or through other unsolicited means 

for Medicare beneficiaries. A second 

regulation, the Revisions to the 

Medicare Advantage and Prescription 

Drug Benefit Programs IFC, also 

published in the September 18, 2008 

Federal Register (73 FR 54226 through 

54254), added requirements limiting 

agent and broker commissions. A third 

regulation, the Revisions to the 

Medicare Advantage and Prescription 

Drug Benefit Programs; Clarification of 

Compensation Plans IFC, published in 

the November 14, 2008 Federal Register 

(73 FR 67406 through 67414), clarified 

and augmented the agent broker 

requirements as specified. The new 

marketing regulations resulted in the 

creation of a new subpart V in parts 422 

and 423. Although many of these 

provisions reflect or implement 

statutory provisions applicable only to 

MA plans and Part D plans, many of 

these same provisions were initially 

proposed under our broad authority to 

regulate marketing and impose new 

contract terms. As noted above, under 

this latter authority, we propose to 

amend § 417.428, which governs 1876 

cost contract program marketing 

requirements, to require cost contract 

plans to follow the MA marketing 

requirements in § 422.2260 et.seq. 

(Subpart V). We discuss the proposed 

marketing changes in the sections 

below. 

a. Definitions Concerning Marketing 

Materials (§ 422.2260) 

We are proposing that cost contracts 

authorized under section 1876 of the 

Act follow the same standards as MAOs 

under § 422.2260. Thus, cost contract 

plan marketing materials would include 

any materials which— 

• Promote the cost contract, or any 

cost contract plan offered by the cost 

contract; 

• Inform Medicare beneficiaries that 

they may enroll, or remain enrolled in, 

a cost contract plan offered by the cost 

contract; 

• Explain the benefits of enrollment 

in a cost contract plan, or rules that 

apply to enrollees; and 

• Explain how Medicare services are 

covered under a cost contact plan, 

including conditions that apply to such 

coverage. 

b. Review and Distribution of Marketing 

Materials (§ 422.2262) 

We propose that cost contracts 

authorized under section 1876 of the 

Act plan program marketing materials 

be subject to the same marketing review 

guidelines and timelines as MA plans at 

§ 422.2262. While section 1876(c)(3)(C) 

of the Act, like section 1851(h) of the 

Act, provides that marketing materials 

must be provided to CMS for review 

prior to use, and generally provides that 

such materials may be used after 45 

days if we do not disapprove them, 

section 1876(c)(3)(C) of the Act does not 

include the shorter, 10-day timeframe 

that applies under section 1851(h)(5) of 

the Act in the case of marketing 

materials using model language. 

However, we believe that as long as 

material is submitted to CMS prior to 

use, we can authorize use by an earlier 

timeframe than that provided for under 

the applicable statute, or for use under 

conditions established by CMS for 

‘‘deemed’’ approval under the file and 

use policy or as discussed in section 

II.G.15.d. of this proposed rule. 

Therefore, notwithstanding the 

differences in statutory language 

between sections 1876(c)(3)(C) and 

1851(h) of the Act, we propose that the 

part 417 marketing regulations be 

revised to provide that cost contracts 

plans authorized under section 1876 of 

the Act submit all such marketing 

materials to CMS at least 45 days before 

the date planned for distribution (10 

days if plans use CMS model language, 

without any modifications), and that file 

and use materials, as designated by CMS 

under the MA marketing regulations, 

may be released 5 days following their 

submission to CMS. 

c. Guidelines for CMS Review 

(§ 422.2264) 

In our proposal to apply the same 

standards to cost contract plans as 

currently applied to MAOs at 

§ 422.2264, cost contractors authorized 

under section 1876 of the Act would be 

required to comply with MA regulations 

that specify the information that cost 

contract plans must include in 

marketing materials, and specify that 

the cost contract plan must notify the 

general public concerning the plan’s 

enrollment period. Under section 

1876(i)(3)(D) of the Act, we also propose 

that in markets with a significant nonEnglish speaking population, cost 

contract plans be required to provide 

materials in the language of these 

individuals. 

d. Deemed Approval (§ 422.2266) 

We propose to specify that if we have 

not disapproved the distribution of 

marketing materials or forms submitted 

by a cost contract plan in an area, we 

are deemed not to have disapproved the 

distribution in all other areas covered by 

the cost contract plan and cost contract 

except with regard to any portion of the 

material or form that is specific to the 

particular area, as provided under 

§ 422.2266. 

e. Standards for MA Organization 

Marketing (§ 422.2268) 

MA marketing standards we propose 

to extend to cost contract plans include 

the following provisions at § 422.2268: 

• Plans may not offer gifts to potential 

enrollees, unless the gifts are of nominal 

(as defined in the CMS Marketing 

Guidelines) value, are offered to all 

potential employees without regard to 

whether or not the beneficiary enrolls, 

and are not in the form of cash or other 

monetary rebates. 

• Plans may not market any health 

care-related product during a marketing 

appointment beyond the scope agreed 

upon by the beneficiary, and 

documented by the plan, prior to the 

appointment. 

• Plans may not market additional 

health-related lines of plan business not 

identified prior to an in-home 

appointment without a separate 

appointment that may not be scheduled 

until 48 hours after the initial 

appointment. 

• Plans may not use a plan name that 

does not include the plan type. The plan 

type should be included at the end of 

the plan name. 

f. Licensing of Marketing 

Representatives and Confirmation of 

Marketing Resources (§ 422.2272) 

As is the case currently for MAOs, we 

propose that cost contract plans 

authorized under section 1876 of the 

Act, consistent with § 422.2272: 

• Demonstrate to CMS’ satisfaction 

that marketing resources are allocated to 

marketing to the disabled Medicare 

population as well as beneficiaries age 

65 and over. 

• Establish and maintain a system for 

confirming that enrolled beneficiaries 

have, in fact, enrolled in the plan, and 

understand the rules applicable under 

the plan. 

• Employ as marketing 

representatives only individuals who 

are licensed by the State to conduct 

marketing activities (as defined in the 

Medicare Marketing Guidelines) in that 

State, and whom the cost program has 

informed that State it has appointed, 

consistent with the appointment process 

provided for under State law. 

g. Broker and Agent Requirements 

(§ 422.2274) 

Under section 1876(i)(3)(D) of the Act, 

we propose applying the MA limits on 

independent agent and broker 

compensation at § 422.2274 to 1876 cost 


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contract plans. As with MA plans, 

compensation would be based on a 6- 

year compensation cycle. Agents and 

brokers would receive initial 

compensation (first year of the cycle) 

with compensation over each of the 

successive 5 years to be no more and no 

less than 50 percent of the initial 

aggregate compensation paid for the 

enrollment. If an enrollee moves to plan 

type distinct from the one in which he 

or she is currently enrolled, the agent/ 

broker would receive an initial 

commission and the cycle would begin 

anew. Distinct plan types include MA, 

MA–PD, PDP, and cost contract plans 

authorized under section 1876 of the 

Act. 

H. Changes To Implement Corrections 

and Other Technical Changes 

We propose six technical changes in 

this section outlined below. 

TABLE 8—CHANGES TO IMPLEMENT CORRECTIONS AND OTHER TECHNICAL CHANGES

Provision 

Part 422 Part 423 

Subpart Section Subpart Section 

Applications of Subpart M to Health Care Prepayment Plans.Subpart M .. § 417.840 ................................... N/A ............. N/A. 

Generic Notice Requirements ................................ Subpart M .. § 422.622, § 422.626 ................. N/A ............. N/A. 

Revision to Definition of Gross Covered Prescription Drug Costs.N/A ............. N/A ............................................. Subpart G .. § 423.308. 

Application Evaluation Procedures ......................... Subpart K .. § 422.502(c) through (d) ............ Subpart K .. § 423.503(c) through (d)). 

Intermediate Sanctions ........................................... Subpart O .. § 422.750(a) ............................... Subpart O .. § 423.750(a). 

Basis for Imposing Intermediate Sanctions and 

Civil Money Penalties.

Subpart O .. § 422.752 ................................... Subpart O .. § 423.752. 

1. Application of Subpart M to Health 

Care Prepayment Plans (§ 417.840) 

As part of the January 28, 2005 

Medicare Advantage (MA) final rule, we 

required cost plans (HMOs), including 

HCPPs, established under section 1876 

of the Act (Part E) and regulated under 

Part 417, to follow the MA appeals 

requirements in Subpart M of Part 422. 

While the MA beneficiary appeals 

provisions in section 1852(g) of the Act 

and cost-HMO–CMP beneficiary appeals 

provisions in section 1876(c)(5) of the 

Act do not apply to HCPP enrollees, 

HCPP enrollees retain the general right 

to appeal Medicare coverage decisions 

consistent with section 1869 of the Act. 

In applying the MA appeals procedures 

to HCPPs by regulation, we adapted and 

implemented section 1869 appeal rights 

in the HCPP context. The regulations 

implementing section 1869 for services 

received on a fee-for-service basis 

through original Medicare do not 

address the case of services furnished by 

an HCPP in the managed care context. 

Because HCPPs only provide Part B 

services, in our January 28, 2005 final 

rule (70 FR 4194), we limit the 

applicability of Subpart M to HCPP 

enrollees to only those provisions 

affecting Part B services. However, in 

doing so we inadvertently failed to 

include fast-track appeal rights 

regarding services provided by a (Part B) 

comprehensive outpatient rehabilitation 

facility (CORF). The proposed revision 

corrects this oversight, and ensures that 

HCPP enrollees have access to fast-track 

appeals for CORF services furnished by 

an HCPP. This would also effectuate for 

HCPP enrollees the fast track appeal 

rights provided for under section 1869 

of the Act. 

2. Generic Notice Delivery 

Requirements (§ 422.622 and § 422.626) 

We propose making two technical 

revisions in § 422.622 and § 422.626 to 

ensure that the MA regulations 

accurately state when plans and 

providers are responsible for delivering 

certain notices to enrollees. Section 

422.622, states that when a QIO 

determines that an enrollee may remain 

in an inpatient setting, the MA 

organization must again provide the 

enrollee with a copy of the Important 

Message from Medicare (IM) when the 

enrollee no longer requires inpatient 

hospital care. However, the IM form 

instructions make clear that the IM is 

always delivered by a hospital. 

Similarly, in § 422.626, the current 

regulations make delivery of the Notice 

of Medicare Noncoverage (NOMNC) the 

MA organization’s responsibility. Again, 

the form instructions for the NOMNC 

clearly state that the notice is to be 

delivered by the provider. Accordingly, 

we propose replacing ‘‘MA 

organization’’ with ‘‘hospital’’ in 

§ 422.622, and ‘‘provider’’ in § 422.626. 

3. Revision to Definition of Gross 

Covered Prescription Drug Costs 

(§ 423.308) 

On January 12, 2009, we published a 

final rule (74 FR 1494) that included 

revisions to the definition of ‘‘gross 

covered prescription drug costs’’ in the 

Part D regulations at § 423.308. In 

amending § 423.308, we made a 

technical error in the definition of 

‘‘gross covered prescription drug costs’’ 

(74 FR 1545) by referencing ‘‘negotiated 

prices’’, the prices made available to 

Part D beneficiaries at network 

pharmacies, and not also referencing 

‘‘usual and customary prices’’, the 

prices for drugs purchased at out-ofnetwork pharmacies. When we revised 

the definition of ‘‘gross covered 

prescription drug costs’’ our intent was 

to clarify that Part D sponsors must use 

the amount received by the dispensing 

pharmacy or other dispensing provider 

as the basis for determining the drug 

costs that must be reported to us. The 

use of the term ‘‘negotiated prices’’ as 

defined at § 423.100 (74 FR 1544) in the 

definition of ‘‘gross covered prescription 

drug costs’’ clarifies this requirement 

with regards to covered Part D drugs 

purchased at network pharmacies. 

However, by not also referencing ‘‘usual 

and customary prices’’ for covered Part 

D drugs purchased at out-of-network 

pharmacies, we inadvertently omitted 

from the definition of ‘‘gross covered 

prescription drug costs’’ the share of 

drug costs actually paid by Part D 

sponsors to out-of-network pharmacies. 

Section 1860D–15(b)(3) of the Act 

defines ‘‘gross covered prescription drug 

costs’’ as ‘‘the costs incurred under the 

[Part D] plan, not including 

administrative costs, but including costs 

directly related to the dispensing of 

covered part D drugs * * *.’’ These 

costs include costs incurred for covered 

Part D drugs at out-of-network 

pharmacies, as well as costs incurred at 

network pharmacies. Therefore, we are 

proposing to revise the definition of 

‘‘gross covered prescription drug costs’’ 

to correctly reference both ‘‘negotiated 

prices’’ paid to network pharmacies and 

‘‘usual and customary prices’’ paid to 

out-of-network pharmacies. Specifically, 


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we are proposing to replace the term 

‘‘negotiated price’’ with the term ‘‘actual 

cost,’’ which is defined at § 423.100 as 

‘‘the negotiated price for a covered Part 

D drug when the drug is purchased at 

a network pharmacy, and the usual and 

customary price when a beneficiary 

purchases the drug at an out-of-network 

pharmacy consistent with § 423.124(a).’’ 

Thus, with this correction, the 

definition of gross covered prescription 

drug costs would include ‘‘the share of 

actual costs (as defined by § 423.100 of 

this part) actually paid by the Part D 

plan that is received as reimbursement 

by the pharmacy or other dispensing 

entity* * *.’’ 

4. Application Evaluation Procedures 

(§ 422.502(c) and (d) and § 423.503(c) 

and (d)) 

Section 1857(a) of the Act provides 

the Secretary with the authority to enter 

into contracts with MA organizations, 

and section 1860D–12(b) (1) of the Act 

provides the Secretary with the 

authority to enter into contracts with 

PDP sponsors. Sections 422.502 and 

423.503 provide the evaluation and 

determination procedures for approving 

or denying a contract application. We 

are proposing two amendments to these 

regulations in § 422.502(c) and (d), and 

§ 423.503(c) and (d). 

Currently, § 422.502(c)(3)(iii) and 

§ 423.503(c)(3)(iii) state that if we deny 

the application, it gives written notice to 

the contract applicant indicating the 

applicant’s right to request 

reconsideration. In the December 5, 

2007 final rule, we modified the appeal 

rights for initial applications and 

eliminated the reconsideration process. 

However, in the final regulations we did 

not update § 422.502(c)(3)(iii) and 

§ 423.503(c)(3)(iii) to state that the 

applicant has a right to request a hearing 

and as a result the existing regulations 

incorrectly provide for a right to 

reconsideration. Therefore, at 

§ 422.502(c)(3)(iii) and 

§ 423.503(c)(3)(iii) we are proposing to 

make a technical correction and delete 

the language ‘‘right to reconsideration’’ 

and replace it with ‘‘right to request a 

hearing’’. 

Sections 422.502(d) and 423.503(d) 

currently provide that we have the 

ability to oversee the sponsoring 

organization’s continued compliance 

with the requirements and that if the 

sponsoring organization no longer meets 

those requirements, we will terminate 

the contract in accordance with 

§ 422.510 and § 423.509. This regulation 

is not an appropriate regulation for a 

section dedicated to the evaluation and 

determination procedures for approving 

or denying a contract application. 

Therefore, we are proposing to delete 

§ 422.502(d) and § 423.503(d). The 

deletion of this language should not in 

any way be interpreted as limiting our 

ability to oversee a sponsoring 

organization’s compliance with our 

requirements as outlined at § 422.504 

and § 423.505 or our ability to terminate 

a contract when a sponsoring 

organization no longer meets 

requirements as outlined in § 422.510(a) 

and § 423.509(a). 

5. Intermediate Sanctions (§ 422.750(a) 

and § 423.750(a)) 

Sections 1857(g) and 1860D–12 of the 

Act provide the Secretary the ability to 

impose intermediate sanctions on 

sponsoring organizations. Section 

422.750 and § 423.750 provide the types 

of intermediate sanctions that we may 

impose. Those intermediate sanctions 

are suspension of enrollment, 

suspension of payment, and suspension 

of all marketing activities. We are 

proposing to make technical changes to 

each intermediate sanction regulation to 

more accurately reflect the statute. 

We are first proposing to change 

§ 422.750(a)(1) and § 423.750(a)(1), 

which currently state that we may 

impose an intermediate sanction that 

requires the suspension of enrollment of 

Medicare beneficiaries. This regulation, 

as currently written, does not 

adequately reflect the statutory language 

which specifies that the enrollment 

suspension applies to the sponsoring 

organization’s enrollment of Medicare 

beneficiaries. Therefore, we are 

proposing to amend § 422.750(a)(1) and 

§ 423.750(a)(1) to add language which 

makes it explicit that the suspension of 

enrollment applies to suspension of the 

sponsoring organization’s enrollment of 

Medicare beneficiaries . 

We also are proposing to change the 

language of § 422.750(a)(2) and 

§ 423.750(a)(2), which currently states 

that we may impose a suspension of 

payment to the sponsoring organization 

for Medicare beneficiaries who are 

enrolled in the MA plan. This language 

does not conform to the statutory 

language at section 1857(g)(2)(C) of the 

Act which states suspension of payment 

may be imposed for individuals 

enrolled after the date the Secretary 

notifies the organization of the 

imposition of an intermediate sanction. 

Therefore, we are amending 

§ 422.750(a)(2) and § 423.750(a)(2) to 

add language that specifically states a 

suspension of payment applies to 

Medicare beneficiaries enrolled after the 

date we notify the organization of the 

intermediate sanction. 

We are also proposing changes to 

§ 422.750(a)(3) and § 423.750(a)(3), 

which currently states that we may 

impose an intermediate sanction that 

requires the suspension of all marketing 

activities to Medicare beneficiaries by a 

sponsoring organization for specified 

MA or Part D ‘‘plans.’’ The use of the 

words ‘‘for specified’’ MA or Part D 

‘‘plans’’ does not conform to the 

statutory language that applies 

intermediate sanctions at the 

organization level. Therefore, we are 

amending § 422.750(a)(3) and 

§ 423.750(a)(3) to conform to the 

statutory language by deleting the words 

‘‘for specified MA or Part D plans.’’ 

6. Basis for Imposing Intermediate 

Sanctions and Civil Money Penalties 

(§ 422.752 and § 423.752) 

Sections 1857(g) and 1860D–12 of the 

Act provide a list of bases for 

intermediate sanctions and civil money 

penalties. Existing regulations at 

§ 422.752(a) and § 423.752(a) provide a 

similar list of bases for intermediate 

sanctions and civil money penalties. 

However, the language provided in 

§ 422.752(a)(1), (3), and (4) and 

§ 423.752(a)(1), (3), and (4) does not 

adequately conform to the statutory 

language in section 1857(g)(1)(A), (C), 

and (D) of the Act, respectively. 

Specifically, section 1857(g)(1) of the 

Act states the Secretary may impose an 

intermediate sanction if it determines 

that the sponsoring organization: (A) 

Fails substantially to provide medically 

necessary items and services that are 

required (under law or under the 

contract) to be provided to an individual 

covered under the contract, if the failure 

has adversely affected (or has 

substantial likelihood of adversely 

affecting) the individual; (C) acts to 

expel or to refuse to re-enroll an 

individual in violation of the provisions 

of this part; and (D) engages in any 

practice that would reasonably be 

expected to have the effect of denying 

or discouraging enrollment (except as 

permitted by this part) by eligible 

individuals with the organization whose 

medical condition or history indicates a 

need for substantial future medical 

services. To ensure accuracy, 

consistency and uniformity we are 

making conforming changes to our 

regulation at § 422.752(a)(1), (3), and (4) 

and § 423.752(a)(1), (3), and (4) to more 

accurately reflect the statutory language. 

First, § 422.752(a)(1) states that we 

may impose an intermediate sanction if 

the sponsoring organization fails 

substantially to provide, to a sponsoring 

organization enrollee, medically 

necessary services that the organization 

is required to provide (under law or 

under the contract) to a sponsoring 

organization enrollee, and that failure 


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adversely affects (or is substantially 

likely to adversely affect) the enrollee. 

This language is slightly different than 

the language provided in the statute at 

section1857(g)(1)(A) of the Act. 

Therefore, we are proposing to amend 

§ 422.752(a)(1) and § 423.752(a)(1) to 

conform with the statutory language and 

state that we may impose an 

intermediate sanction if the sponsoring 

organization fails substantially to 

provide medically necessary items and 

services that are required (under law or 

under the contract) to be provided to an 

individual covered under the contract, if 

the failure has adversely affected (or has 

substantial likelihood of adversely 

affecting) the individual 

Second, § 422.752(a)(3) and 

§ 423.752(a)(3) states that we may 

impose an intermediate sanction if the 

sponsoring organization expels or 

refuses to reenroll a beneficiary in 

violation of the provisions of this part. 

This language does not include the 

word ‘‘acts’’ to expel which is 

mentioned in the statute at section 

1857(g)(1)(C) of the Act. Therefore, we 

are proposing to amend § 422.752(a)(3) 

and § 423.752(a)(3) to conform with the 

statutory language and state that we may 

impose an intermediate sanction if the 

sponsoring organization ‘‘acts’’ to expel 

or refuses to re-enroll a beneficiary in 

violation of the provisions of this part. 

Third, § 422.752(a)(4) and 

§ 423.752(a)(4) states that we may 

impose an intermediate sanction if the 

sponsoring organization engages in any 

practice that could reasonably be 

expected to have the effect of denying 

or discouraging enrollment of 

individuals whose medical condition or 

history indicates a need for substantial 

future medical services. This language 

does not match the exact language 

contained in section 1857(g)(1)(D) of the 

Act. Therefore, we are proposing to 

amend § 422.752(a)(4) and 

§ 423.752(a)(4) to conform with the 

statutory language and state that we may 

impose an intermediate sanction if the 

sponsoring organization engages in any 

practice that would reasonably be 

expected to have the effect of denying 

or discouraging enrollment (except as 

permitted by this part) by eligible 

individuals with the organization whose 

medical condition or history indicates a 

need for substantial future medical 

services. 

We are also proposing to make 

conforming changes to § 422.752(c) and 

§ 423.752(c). Currently § 422.752(c)(1) 

and § 423.752(c)(1) state that we may 

impose civil money penalties for any of 

the determinations at § 422.510(a) and 

§ 423.509(a), except § 422.510(a)(4) and 

§ 423.509(a)(4). Also, § 422.752(c)(2)(ii) 

and § 423.752(c)(2)(ii) state that OIG 

may impose civil money penalties for a 

determination made pursuant to 

§ 422.510(a)(4) and § 423.509(a)(4). 

Since we are proposing elsewhere in 

these proposed regulations to 

redesignate § 422.510(a)(4) and 

§ 423.509(a)(4) to § 422.510(a)(2)(iii) and 

§ 423.509(a)(2)(iii), we need to conform 

§ 422.752 and § 423.752 to these 

changes. Therefore, for regulations 

§ 422.752(c)(1), § 422.752(c)(2)(ii), 

§ 423.752(c)(1), and § 423.752(c)(2)(ii) 

we are proposing to delete the reference 

to § 422.510(a)(4) and § 422.509(a)(4) 

and replace them with a reference to 

§ 422.510(a)(2)(iii) and 

§ 423.509(a)(2)(iii). 

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. 

We are soliciting public comment on 

each of these issues for the following 

sections of this document that contain 

information collection requirements 

(ICRs): 

A. ICRs Regarding Basic Contract 

Requirements (§ 417.472) 

Proposed § 417.472(i) states that HMO 

or CMP must comply with the 

requirements at § 422.152(b)(5). 

Proposed § 417.472 states that all 

coordinated care contracts (including 

local and regional PPOs and contracts 

with exclusively SNP benefit packages, 

cost contracts under section 1876 of the 

Act, private fee-for-service contracts, 

and MSA contracts with 600 or more 

enrollees in July of the prior year) must 

contract with approved Medicare 

Consumer Assessment of Healthcare 

Providers and Systems (CAHPS) survey 

vendors to conduct the Medicare 

CAHPS satisfaction survey of MA plan 

enrollees in accordance with CMS 

specifications and submit the survey 

data to CMS. The burden associated 

with the requirement in § 417.472(i) and 

(j) is detailed in our discussion of 

§ 422.152(b)(5). 

B. ICRs Regarding Apportionment and 

Allocation of Administrative and 

General Costs (§ 417.564) 

We are not imposing any new 

reporting requirements. We are simply 

clarifying what costs an HCPP may 

report in its cost report as 

administrative costs for reimbursement 

from the government. We do not believe 

that our proposal will result in 

additional burden on cost plans; 

therefore, we have not incorporated a 

burden increase in the PRA section. 

However, we solicit comment on our 

burden estimates. 

C. ICRs Regarding Medicare Secondary 

Payer (MSP) Procedure (§ 422.108 and 

§ 423.462) 

Section 422.108(b)(3) proposes that 

MA organizations must coordinate 

benefits to Medicare enrollees with the 

benefits of the primary payers, 

including reporting, on an ongoing 

basis, information obtained in 

accordance with requirements in 

paragraphs (b)(1) and (b)(2) of this 

section in accordance with CMS 

instructions. Similarly, § 423.462 

proposed that Part D plan sponsors must 

report creditable new or changed 

primary payer information to the CMS 

Coordination of Benefits Contractor in 

accordance with the processes and 

timeframes specified by CMS. The 

burden associated with this requirement 

is the time and effort necessary to report 

the specified information to CMS on an 

ongoing basis. We estimate that 624 MA 

organizations and 456Part D plan 

sponsors must comply with these 

requirements, a total of 1,080 entities. 

We also estimate that, on average, each 

entity will produce one report thereby 

yielding a total of 1,080 reports annually 

for involved entities. It will take each 

entity an average of 2,885 hours to 

report the required information to CMS. 

The estimated annual burden associated 

with these requirements is 3,115,800 

hours. The cost associated with meeting 

these requirements is $77.9 million. 

D. ICRs Regarding Disclosure 

Requirements (§ 422.111) 

Proposed § 422.111 states that we may 

require an MA organization to selfdisclose to its enrollees or potential 

enrollees, the MA organization’s 

performance and contract compliance 

deficiencies in a manner specified by 

CMS. The burden associated with this 


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requirement is the time and effort 

necessary for an MA organization to 

make the aforementioned disclosures. 

We have not accounted for the burden 

associated with this provision for two 

reasons. First, we may require 

organizations that are under 

enforcement actions to disclose their 

compliance deficiencies in a letter to 

their existing members. However, the 

number of organizations that receive 

enforcement actions per year does not 

exceed the PRA threshold of 10. Based 

on past history and experience, we have 

not imposed intermediate sanctions on 

more than 10 plans in a given year. For 

example, there have been a total of 4 

organizations with intermediate 

sanctions imposed this year which is 

the highest number of intermediate 

sanctions imposed during the past 4 

years. Second, for organizations that are 

not under enforcement action, we may 

require them to disclose compliance and 

performance deficiencies but only in 

their existing marketing or enrollment 

materials sent to current and potential 

enrollees. There will be no requirement 

for them to submit additional materials 

to enrollees. We solicit comment on 

whether these provisions could impact 

10 or more plans and whether these 

burdens should be accounted for under 

the PRA. 

E. ICRs Regarding Quality Improvement 

Program (§ 422.152) 

Proposed § 422.152(b)(3)(ii) states that 

MA coordinated care plans must collect, 

analyze and report quality performance 

data indentified by CMS that are of the 

same type as those specified under 

paragraph (b)(3)(i) of this section. The 

burden associated with these 

requirements is the time and effort 

necessary for an MA coordinated care 

plan to collect, analyze and report 

quality performance data to CMS. We 

estimate that it will require 1,000 hours 

per MA coordinated care plan to comply 

with these requirements. There are 624 

MA coordinated care plans. The 

estimated annual burden associated 

with these requirements is 624,000 

hours. The estimated annual cost 

associated with these requirements is 

$36.9 million. 

Proposed § 422.152(b)(5) requires that 

all coordinated care contracts (including 

local and regional PPOs and contracts 

with exclusively SNP benefit packages, 

cost contracts under section 1876 of the 

Act, private fee-for-service contracts, 

and MSA contracts with 600 or more 

enrollees in July of the prior year) must 

contract with approved Medicare 

Consumer Assessment of Healthcare 

Providers and Systems (CAHPS) survey 

vendors to conduct the Medicare 

CAHPS satisfaction survey of MA plan 

enrollees in accordance with CMS 

specifications, and submit the survey 

data to CMS. The burden associated 

with this requirement is the time and 

effort necessary to conduct the CAHPS 

survey and submit the corresponding 

data to CMS. While this requirement is 

subject to the PRA, the associated 

burden is currently approved under 

OMB control number 0938–0732. 

Proposed § 422.152(e)(2)(ii) states that 

MA organizations offering an MA 

regional plan or local PPO plan must 

collect, analyze and report quality 

performance data identified by CMS 

that are of the same type as those 

described under § 422.152(e)(2)(i). The 

burden associated with these 

requirements is the time and effort 

necessary for an MA organization 

offering an MA regional plan or local 

PPO plan to collect, analyze and report 

quality performance data to CMS. We 

estimate that it will require 54 hours per 

MA organization to comply with these 

requirements; there are 509 

organizations offering an MA regional 

plan or local PPO. The estimated annual 

burden associated with these 

requirements is 27,486 hours. The 

estimated annual cost associated with 

these requirements is $3.1 million. 

F. ICRs Regarding RADV Audit Dispute 

and Appeal Processes (§ 422.311) 

Proposed § 422.311(c)(1) discusses the 

attestation process with regard to the 

RADV audit dispute and appeal 

processes. Specifically, proposed 

§ 422.311(c)(1)(i)(A) states that 

subsequent to the conduct of a RADV 

audit, MA organizations may submit 

CMS-generated attestations from 

physician/practitioner(s) in order to 

dispute signature or credential related 

RADV errors. Proposed 

§ 422.311(c)(1)(iv)(A) states that CMS 

notifies an MA organization of their 

RADV audit status, we will provide the 

attestation forms and submission 

instructions. As stated in proposed 

§ 422.311(c)(1)(iv)(B), MA organizations 

are required to submit the attestation to 

CMS at the same time that the MA 

organization is required to submit 

related medical records for RADV 

audits. 

The burden associated with the 

requirements in this section is the time 

and effort necessary for MA 

organizations to complete the CMSgenerated attestations and to submit the 

related documentation to CMS. While 

these requirements are subject to the 

PRA, we believe the associated burden 

is exempt from the PRA under 5 CFR 

1320.3(h)(1). As stated in 5 CFR 

1320.3(h)(1), information does not 

generally include items in the following 

categories, which include but are not 

limited to affidavits, oaths, affirmations 

and certifications, provided that they 

entail no burden other than that 

necessary to identify the respondent, the 

date, the respondent’s address, and the 

nature of the instrument. Similarly, we 

believe the burden associated with the 

aforementioned information collection 

requirements is exempt from the PRA 

under 5 CFR 1320.4. Information 

collected during the conduct of an 

administrative action or audit is not 

subject to the PRA. 

Proposed § 422.311(c)(2) states that an 

MA organization may choose to dispute 

CMS’ operational processing of RADV 

medical records using a CMSadministered documentation dispute 

process. 

Proposed § 422.311(c)(2)(iii)(B) states 

that MA organizations have 30 days 

from the date of issuance of the RADV 

audit report to request a documentation 

dispute. Proposed § 422.311(c)(2)(iv) 

outlines the documentation dispute 

review and notification procedures. The 

burden associated with the 

requirements in this section is the time 

and effort necessary for an MA 

organization to request a documentation 

dispute. While this requirement is 

subject to the PRA, we believe the 

associated burden is exempt under 5 

CFR 1320.4. Information collected 

during the conduct of an administrative 

action or audit is not subject to the PRA. 

Proposed § 422.311(c)(3) describes the 

RADV payment error appeal process. 

Specifically, proposed 

§ 422.311(c)(3)(iii) states that at the time 

CMS issues its RADV audit report, we 

notify affected MA organizations in 

writing of their appeal rights around the 

RADV payment error calculation. The 

MA organizations have 30 days from the 

date of this notice to submit a written 

request for reconsideration of its RADV 

payment error calculation. The burden 

associated with this requirement is the 

time and effort necessary for an MA 

organization to draft and submit a 

redetermination request that contains 

the content specified in proposed 

§ 422.311(c)(3)(v). While this 

requirement is subject to the PRA, we 

believe the associated burden is exempt 

under 5 CFR 1320.4. Information 

collected during the conduct of an 

administrative action or audit is not 

subject to the PRA. 

Proposed § 422.311(c)(4) states that an 

MA organization that is dissatisfied 

with the written decision of the CMS 

reconsideration official is entitled to a 

hearing as provided in this section. The 

organization’s request for a hearing must 

be made in writing and filed with CMS 


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within 30 days of the date CMS and the 

MA organization receive CMS’ written 

reconsideration decision. The 

reconsideration request must contain 

the information listed in proposed 

§ 422.311(c)(4)(ii). The burden 

associated with this requirement is the 

time and effort necessary for an MA 

organization to draft and submit a 

hearing request. While this requirement 

is subject to the PRA, we believe the 

associated burden is exempt under 5 

CFR 1320.4. Information collected 

during the conduct of an administrative 

action or audit is not subject to the PRA. 

G. ICRs Regarding Application 

Requirements (§ 422.501 and § 423.502) 

Proposed § 422.501(b) and proposed 

§ 423.502(b) require that an organization 

submitting an application under this 

section for a particular contract year 

must first submit a completed Notice of 

Intent to Apply by the date established 

by CMS. We will not accept 

applications from organizations that do 

not submit a timely Notice of Intent to 

Apply. The purpose of these 

requirements is to facilitate CMS 

systems access earlier so that the 

contract number may be given out and 

applications may be submitted 

electronically. While the burden 

associated with the requirements 

contained in proposed § 422.501(b) and 

proposed § 423.502(b), the Notice of 

Intent to Apply, is subject to the PRA, 

the burden associated with these 

requirements is already approved under 

the OMB control numbers for the Part C 

and Part D applications, 0938–0935 and 

0938–0936, respectively. 

Section 422.501(c) and § 423.502(c) 

propose to revise the current regulation, 

making clear the application standards 

for becoming an MA organization or 

Part D plan sponsor. Specifically, 

proposed § 422.501(c) and § 423.502(c) 

would require that applicants complete 

all parts of a certified application. The 

burden associated with the 

aforementioned requirements is the time 

and effort necessary for an applicant to 

complete all parts of a certified Part C 

or Part D application. While the burden 

associated with the requirements 

contained in proposed § 422.501(c) and 

proposed § 423.502(c) is subject to the 

PRA, the burden associated with these 

requirements is already approved under 

OMB control numbers for the Part C and 

Part D applications, 0938–0935 and 

0938–0936, respectively. 

The costs associated with submitting 

the applications approved under 0938– 

0935 and 0938–0936 are $864,600 and 

$655,559, for MA plans and Part D plan 

sponsors, respectively. 

H. ICRs Regarding General Provisions 

(§ 422.503 and § 423.504) 

Section 422.503(b)(4)(vi) and 

§ 423.504(b)(4)(vi) propose to expand on 

the existing requirements by providing 

clarification and additional guidance 

with respect to the requirements for 

developing, implementing and 

maintaining effective compliance 

programs. We believe the requirements 

contained in § 422.503(b)(4)(vi) and 

§ 423.504(b)(4)(vi) will assist sponsoring 

organizations further improving their 

existing compliance programs. While 

these requirements are subject to the 

PRA, we believe the associated burden 

is part of usual and customary business 

practices and thereby exempt under 5 

CFR 1320.3(b)(2). However, we solicit 

comment on our assessment and 

whether these burdens are, in fact, part 

of usual and customary business 

practices. 

I. ICRs Regarding Contract Provisions 

(§ 422.504 and 423.505) 

Proposed § 422.504 and § 423.505 

explicitly state our existing authority to 

find sponsors out of compliance with 

either MA requirements, Part D 

requirements, or both when the 

sponsor’s performance represents an 

outlier relative to the performance of 

other sponsors. Specifically, proposed 

§ 422.504(e)(2) and § 423.505(e)(2) state 

that HHS, the Comptroller General or 

their designees have the right to audit, 

evaluate, and inspect any books, 

contracts, computer or other electronic 

systems, including medical records and 

documentation of the first tier, 

downstream, and related to our contract 

with the MA organization. These 

proposed sections contain 

recordkeeping requirements. The 

burden associated with proposed 

§ 422.504(e)(2) and § 423.505(e)(2) is the 

time and effort necessary for MA 

organizations or Part D sponsors to 

maintain the information on file and 

make it available to CMS upon request. 

While these requirements are subject to 

the PRA, we believe the associated 

burden is exempt under 5 CFR 

1320.3(b)(2). However, we solicit 

comment on our assessment and 

whether these burdens are, in fact, part 

of usual and customary business 

practices. 

J. ICRs Regarding Nonrenewal of 

Contract (§ 422.506 and § 423.507) 

Proposed § 422.506 and § 423.507 

contain notification requirements for 

MA organizations and Part D plan 

sponsors. Section 422.506(a)(2) and 

§ 423.507(a)(2) propose to require that 

when an organization does not intend to 

renew its contract, it must notify each 

Medicare enrollee by mail at least 90 

calendar days before the date on which 

the nonrenewal is effective. An 

organization would also have to provide 

information about alternative 

enrollment options by complying with 

at least one of the requirements 

specified in proposed § 422.506(a)(2)(ii) 

or § 423.507(a)(2)(ii). In addition, 

proposed § 422.506(b)(2) and 

§ 423.507(b)(2) state that an organization 

notify each Medicare enrollee by mail at 

least 90 calendar days before the date on 

which the nonrenewal is effective, or at 

the conclusion of the appeals process if 

applicable. 

The burden associated with the 

aforementioned requirements is the time 

and effort necessary for an organization 

to notify its Medicare enrollees by mail 

at least 90 calendar days before the date 

on which the nonrenewal is effective, or 

at the conclusion of the appeals process 

if applicable. While this requirement is 

subject to the PRA, we are unable to 

accurately quantify the burden because 

we cannot estimate the number of 

organizations that may not renew their 

contracts from year to year. We believe 

that less than 10 contracts will be 

terminated on an annual basis; however, 

we welcome public comments on these 

information collection requirements and 

whether the PRA would apply. We will 

reevaluate this issue in the final rule 

stage of rulemaking. 

K. ICRs Regarding Request for Hearing 

(§ 422.662 and § 423.651) 

With respect to Medicare contract 

determinations and appeals, § 422.662 

and § 423.651 propose the requirements 

for submission methods and time for 

filing requirements for MA 

organizations and Part D plan sponsors 

that want to request a hearing for a 

determination under appeal. The 

request for hearing must be submitted in 

writing and must be filed within 15 

calendar days after the receipt of the 

notice of the contract determination or 

intermediate sanction. The PRA is not 

applicable to this proposal because 

there are no additional requirements for 

sponsoring organizations. This is an 

existing regulation and we are only 

modifying the language ‘‘after receipt of 

the hearing decision’’ to conform to 

other regulations. 

L. ICRs Regarding Time and Place of 

Hearing (§ 422.670 and § 423.655) 

Proposed § 422.670 and § 423.655 

state that CMS, an MA organization or 

a Part D plan sponsor may request an 

extension by filing a written request no 

later than 5 calendar days prior to the 

scheduled hearing. The burden 


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associated with these requirements is 

the time and effort necessary for an MA 

organization or a Part D plan sponsor to 

submit a written extension request to 

the presiding hearing officer. While this 

requirement is subject to the PRA, we 

believe the associated burden is exempt 

from the PRA as stated under 5 CFR 

1320.4. Information collected during the 

conduct of an administrative action is 

not subject to the PRA. 

M. ICRs Regarding Review by the 

Administrator (§ 422.692 and § 423.666) 

Proposed § 422.692 and § 423.666 

state that CMS, an MA organization or 

a PDP plan sponsor that has received a 

hearing decision may request a review 

by the Administrator within 15 calendar 

days after receipt of the hearing 

decision. The burden associated with 

these requirements is the time and effort 

necessary to submit a request for the 

Administrator to review a hearing 

decision. The PRA is not applicable to 

this proposal because there are no 

additional requirements for sponsoring 

organizations. This is an existing 

regulation and we are only modifying 

the language ‘‘after receipt of the 

hearing decision’’ to conform to other 

regulations. 

N. ICRs Regarding Procedures for 

Imposing Intermediate Sanctions and 

Civil Monetary Penalties (§ 422.756 and 

§ 423.756) 

Proposed § 422.756 and § 423.756 

state before CMS imposes intermediate 

sanctions, MA organizations and Part D 

plan sponsors may request a hearing 

before a CMS hearing officer. A written 

request must be received by the 

designated CMS office within 15 

calendar days of the receipt of the notice 

of sanction. The burden associated with 

these requirements is the time and effort 

necessary to draft and submit a hearing 

request to the designated CMS office. 

The PRA is not applicable to this 

proposal because there are no additional 

requirements for sponsoring 

organizations. This is an existing 

regulation and we are only modifying 

the language ‘‘after receipt of the 

hearing decision’’ to conform to other 

regulations. 

O. ICRs Regarding Disclosure of Part D 

Plan Information (§ 423.128) 

Proposed § 423.128 states that we may 

require a Part D plan sponsor to selfdisclose to its enrollees or potential 

enrollees, the Part D plan sponsor’s 

performance and contract compliance 

deficiencies in a manner specified by 

CMS. We believe the burden associated 

with this requirement is the time and 

effort necessary for a Part D plan 

sponsor to disclose the aforementioned 

information. We do not believe the PRA 

is applicable for this proposal for two 

reasons. 

First, we may require organizations 

that are under enforcement actions to 

disclose their compliance deficiencies 

in a letter to their existing members. 

Based on past history and experience, 

we have not imposed intermediate 

sanctions on more than 10 plans in a 

given year. For example, there have 

been a total of 4 organizations with 

intermediate sanctions imposed this 

year which is the highest number of 

intermediate sanctions imposed during 

the past 4 years. We believe the burden 

associated with the requirement is not 

subject to the PRA under 5 CFR 

1320.3(c), which defines the agency 

collection of information subject to the 

requirements of the PRA as information 

collection imposed on 10 or more 

persons within any 12-month period. 

This information collection does not 

impact 10 or more entities in a 12- 

month period. However, we welcome 

public comments on this issue. We will 

reevaluate this issue in the final rule 

stage of rulemaking. 

Second, for organizations that are not 

under enforcement action, we may 

require them to disclose compliance and 

performance deficiencies but only in 

their existing marketing or enrollment 

materials sent to current and potential 

enrollees. 

While we do not believe this 

additional disclosure would increase 

burden or costs to organizations, we 

solicit comment on our burden 

estimates and assumptions. 

P. ICRs Regarding Consumer 

Satisfaction Surveys (§ 423.156) 

Proposed § 423.156 requires Part D 

contracts with 600 or more enrollees as 

of July of the prior year to contract with 

approved Medicare Consumer 

Assessment of Healthcare Providers and 

Systems (CAHPS) survey vendors to 

conduct the Medicare CAHPS 

satisfaction survey of Part D plan enroll 

enrollees in accordance with CMS 

specifications and submit the survey 

data to CMS. The burden associated 

with this requirement is the time and 

effort necessary to conduct the CAHPS 

survey and submit the corresponding 

data to CMS. While this requirement is 

subject to the PRA, the associated 

burden is currently approved under 

OMB control number 0938–0732. 

Q. ICRs Regarding Validation of Part C 

and Part D Reporting Requirements 

(§ 422.516 and § 423.514) 

We propose to amend § 422.516 and 

§ 423.514 to state that each Part C and 

Part D sponsor be subject to an 

independent yearly audit of Part C and 

Part D measures (collected pursuant to 

our reporting requirements) to 

determine their reliability, validity, 

completeness, and comparability in 

accordance with specifications 

developed by CMS. The burden 

associated with this proposed provision 

is the time and effort of the MA 

organizations and Part D sponsors in 

procuring an auditor and in supporting 

the auditor as well as the time and effort 

of the auditor in conducting the yearly 

audit. We estimate that the total yearly 

hourly burden for procuring and 

supporting the auditor is equal to the 

number of sponsors (710) × the average 

estimated hours per sponsor (120). This 

equals 85,200 hours. We estimated that 

the average number of hours for the 

auditor to conduct an audit was 304. 

The total estimated hours to conduct 

audits across all sponsors would then be 

710 × 304 = 215, 840. The total hours 

would be 85,200 + 215,840 = 301,040. 

The estimated annual cost associated 

with these requirements is $45.6 

million. 

R. ICRs Regarding Drug Utilization 

Management, Quality Assurance, and 

Medication Therapy Management 

Programs (MTMPs) (§ 423.153) 

The proposed revisions to § 423.153 

state that Part D plans must offer a 

minimum level of medication therapy 

management services for each 

beneficiary enrolled in the MTMP that 

includes but is not limited to annual 

comprehensive medication reviews with 

written summaries. The comprehensive 

medical review must include an 

interactive, person-to-person 

consultation performed by a pharmacist 

or other qualified provider unless the 

beneficiary is in a long-term care setting. 

Additionally, there must by quarterly 

targeted medication reviews with 

follow-up interventions when 

necessary. 

The burden associated with these 

requirements is the time and effort 

necessary for a Part D sponsors (both 

MA–PDs and PDPs) to conduct the 

medical reviews with written 

summaries. We estimate that each 

medical review will take an average of 

30 minutes to conduct. Similarly, we 

estimate that there will be 1,875,000 

reviews conducted by 456 Part D 

sponsors on an annual basis. The total 

annual burden associated with this 

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S. ICRs Regarding Timeframes and 

Notice Requirements for Standard 

Coverage Determinations (§ 423.568) 

If a Part D plan sponsor makes a 

completely favorable standard decision 

under paragraph (b) of this section, 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 sent within 

3 calendar days of the oral notification. 

The burden associated with the 

requirement proposed in paragraph (d) 

is the time and effort necessary for a 

Part D plan sponsor to notify an enrollee 

(and the prescribing physician or other 

prescriber involved, as appropriate) in 

writing of completely favorable standard 

decision for benefits. We estimate that 

each year, the 456 Part D plan sponsors 

will issue a total of approximately 

760,411 written favorable standard 

notifications for benefits. We further 

estimate that it will take a Part D plan 

sponsor 30 minutes to distribute a single 

notice. The estimated annual burden 

associated with the requirement in 

proposed § 423.568(d) is 380,206 hours. 

The estimated annual cost associated 

with these requirements is $15.2 

million. 

T. ICRs Regarding Timeframes and 

Notice Requirements for Expedited 

Coverage Determinations (§ 423.572) 

If a Part D plan sponsor makes a 

completely favorable expedited decision 

under paragraph (b) of this section, 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 sent within 

3 calendar days of the oral notification. 

The burden associated with the 

requirements listed in § 423.572(b) is 

the time and effort necessary for a Part 

D plan sponsor to notify an enrollee 

(and the prescribing physician or other 

prescriber involved, as appropriate) in 

writing of completely favorable 

expedited decision. We estimate that 

each of the 456 Part D plan sponsors 

will issue an average of 87,103 written 

favorable expedited notifications per 

year. We further estimate that it will 

take a Part D plan sponsor 30 minutes 

to distribute a single notice. The 

estimated annual burden associated 

with the requirement in § 423.572(b) is 

43,552 hours. The estimated annual cost 

associated with these requirements is 

$15.2 million. 

U. ICRs Regarding Access to Covered 

Part D Drugs (§ 423.120) 

Proposed § 423.120(b)(iv) would 

require sponsors to provide enrollees 

with appropriate notice regarding their 

transition process within a reasonable 

amount of time after providing a 

temporary supply of non-formulary Part 

D drugs (including Part D drugs that are 

on a sponsor’s formulary but require 

prior authorization or step therapy 

under a sponsor’s utilization 

management rules). The burden 

associated with this requirement is the 

time and effort necessary for a Part D 

plan sponsor to provide a notice to 

beneficiaries regarding the transition 

process. We estimate this would result 

in 1.35 million notices that would take 

an average of 15 minutes to prepare. We 

then estimate the total burden to be 

337,500 hours. 

Proposed § 423.120(c)(3) would 

require Part D sponsors to contractually 

mandate that their network pharmacies 

submit claims electronically to the Part 

D sponsor or its intermediary on behalf 

of the beneficiary whenever feasible 

unless the enrollee expressly requests 

that a particular claim not be submitted 

to the Part D sponsor or its 

intermediary. Proposed § 423.120(c)(3) 

would require the approximately 28 

pharmacy claims processors currently 

responsible for the electronic 

adjudication of pharmacy benefits to 

change their RxBIN or RxBIN and 

RxPCN combination if such identifiers 

are not already unique to its Medicare 

line of business, and the Part D 

cardholder identification number if it is 

not already unique to each Medicare 

Part D enrollee. We estimate the annual 

hourly burden to be 1,380 hours per 

processor to make the coding changes 

necessary to implement this 

requirement. There are an estimated 28 

processors. At an estimated $150 cost 

per hour for the fully loaded labor of a 

computer programmer, we estimate the 

yearly burden to be 38,640 hours for CY 

2010. This is a one-time only burden for 

programming. 

The estimated annual cost associated 

with requirements associated with the 

transition process is $6.8 million. 

V. ICRs Regarding Timeframes and 

Responsibility for Making 

Redeterminations (§ 423.590) 

Proposed § 423.590(d)(2) states that if 

a Part D plan sponsor first notifies an 

enrollee of an adverse or favorable 

expedited determination orally, it must 

mail written confirmation to the 

enrollee within 3 calendar days of the 

oral notification. The burden associated 

with this requirement is the time and 

effort necessary for a Part D plan 

sponsor to follow up an initial oral 

notification to an enrollee with a written 

notification. We estimate that each of 

the 456 Part D plan sponsors will have 

to distribute approximately 95 notices 

for an estimated annual number of 

43,320 responses. Similarly, we estimate 

that the work will be conducted at a rate 

of $40 per hour. The estimated annual 

cost associated with this requirement is 

$1.733 million. 

W. Annual Information Collection 

Burden 

Table 9 shows our estimates of the 

annual reporting and recordkeeping 

burden based on the discussion detailed 

in sections III.A. through III.V. of this 

proposed rule. 

BILLING CODE 4120–01–P 


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BILLING CODE 4120–01–C 


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If you comment on these information 

collection and recordkeeping 

requirements, please do either of the 

following: 

1. Submit your comments 

electronically as specified in the 

ADDRESSES section of this proposed rule; 

or 

2. E-mail comments to the Office of 

Information and Regulatory Affairs, 

Office of Management and Budget to 

oira_submission@omb.eop.gov or fax 

comments to 202–395–7285. Please 

reference this rule (CMS–4085–P) and 

mark your comments to the attention of 

CMS desk officer. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

V. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impact 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. Most 

hospitals and most other providers and 

suppliers are small entities, either by 

nonprofit status or by having revenues 

of $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 only entities that will 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 are 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. For an analysis 

to be necessary, however, 3 to 5 percent 

of their revenue would have to be 

affected by the provisions. We do not 

believe that this threshold would be 

reached by the proposed requirements. 

Therefore, 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 a regulatory 

impact 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 we believe and 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 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. 

That threshold level is currently $133 

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. 

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. 

Because there are costs to plans and 

sponsors associated with several 

provisions of this rule, we indicate 

general areas affected and specify the 

costs associated with these. For specific 

burden associated with the 

requirements and the bases for our 

estimates, see section III. of this 

proposed rule. 

We estimate this rule is 

‘‘economically significant’’ as measured 

by the $100 million threshold, and 

hence a major rule under the 

Congressional Review Act. Accordingly, 

we have prepared a Regulatory Impact 

Analysis. 

B. Increase in Costs to MA 

Organizations and Part D Sponsors 

The provisions of this proposed rule 

would require MA organizations and 

Part D sponsors an estimated cost of 

approximately $321.68 million for CY 

2010. We believe the following 

requirements will result in monetized 

transfers from the Federal Government 

to MA organizations and Part D 

sponsors between 2011 and 2015. Risk 

Adjustment Validation (Part 422), 

Quality Improvement program 

(§ 422.152), Medicare Secondary Payer 

Procedures (§ 422.108), Validation of 

Reporting Requirements (§ 422.516 and 

§ 423.514), the Quality Improvement 

Program and Consumer Satisfaction 

Surveys (§ 422.152 and § 423.156), 

Providing Written Notifications 

(§ 422.568(e)), Organization 

Determinations, Transition Process 

Notice (§ 423.120), Standard Timeframe 

and Notice Requirements for Coverage 

Determinations (§ 423.568), Drug 

Utilization Management, Quality 

Assurance, and Medication Therapy 

Management Programs (§ 423.153), and 

Pharmacy Use of Standard Technology 

under Part D (§ 423.120(c)(3)). We 

believe that the MIPPA 176 provision 

will result in savings. However, the 

MIPPA 176 provision will not take 

effect until CY 2011. Most of the 

proposed changes do not require 

additional data collection or reporting 

burden but rather involve clarification 

or codification of current policy. The 

economic impact will be funded 

through monetized transfers from the 

Federal government to health plans and 

through increases in beneficiary 

premiums. We expect that these 

expenses will be largely reflected in 

higher bid prices. Given that there are 

approximately 27 million PDP enrollees 

and an additional 8 million MA 


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enrollees, the impact on the premium 

per enrollee will be minimal. In CY 

2010, the estimated cost is 

approximately $3.2 million, translating 

to under $10.00 per enrollee. The affect 

on the monthly premium would be less 

than $1.00. The estimated impact on 

enrollees would appear to be negligible. 

TABLE 10—ESTIMATED COSTS AND SAVINGS BY PROVISION FOR CYS 2010–2015 

[$ in millions] 

Calendar year 

2010 2011 2012 2013 2014 2015 2010–2015 

RADV ............................................................................... $3.98 $3.98 $3.98 $3.98 $3.98 $3.98 $23.88 

Quality .............................................................................. 36.9 36.9 36.9 36.9 36.9 36.9 221.4 

MSP ................................................................................. 77.9 77.9 77.9 77.9 77.9 77.9 467.4 

Validation of Reporting Requirements ............................. 45.6 45.6 45.6 45.6 45.6 45.6 273.6 

CAHPS ............................................................................. 0.0 3.1 3.1 3.1 3.1 3.1 15.5 

Written Notifications ......................................................... 17.0 17.0 17.0 17.0 17.0 17.0 102.0 

MIPPA 176 ....................................................................... 0.0 ¥90.0 ¥210.0 ¥300.0 ¥340.0 ¥380.0 ¥1,320.0 

Organization Determinations ........................................... 15.2 15.2 15.2 15.2 15.2 15.2 91.2 

Transition Process ........................................................... 6.8 6.8 6.8 6.8 6.8 6.8 40.8 

Drug Utilization Management .......................................... 112.5 112.5 112.5 112.5 112.5 112.5 675.0 

Pharmacy Use of Standard Technology .......................... 5.8 0.0 0.0 0.0 0.0 0.0 5.8 

Total Cost/Savings ........................................................... 321.68 228.98 108.98 18.98 ¥21.02 ¥61.02 596.58 

C. Expected Benefits 

Beginning in CY 2014, we expect net 

savings due to the combined impact of 

these new proposed provisions. We 

expect that the net impact across the 6- 

year period from CY 2010 through CY 

2015 will be a cost of $596.58 million. 

Many of the new requirements 

involve clarifications of existing 

regulations and policies. As such, they 

should help plans to improve their 

administrative operational functions 

which will streamline the Medicare 

Prescription Drug program and 

strengthen beneficiary protections 

within the program. Specifically, we 

believe that the proposed requirements 

will improve coordination of care, 

increase quality of data reporting, 

increase ability to comply with existing 

regulations and policies, enhance 

appeal and grievance procedures, and 

curtail illegal marketing practices. 

Additional benefits include clarification 

of timeframes and notification 

requirements. Some of the new 

requirements may lead to changes in 

health plan service areas. 

We anticipate that several of the 

proposed requirements will be 

beneficial to PBMs when assisting Part 

D sponsors with administering the Part 

D benefit. Proposed codification of 

transition process requirements and 

establishment of protected classes will 

assist PBMs in applying the Part D 

requirements consistently across Part D 

plans and managing the Part D sponsor’s 

benefit packages more efficiently. 

Establishing cut-off limits for 

coordination of benefits and requiring 

Part D sponsors to report other payer 

information in a timely fashion to CMS’ 

COB contractors will improve the 

administrative burden of the payment 

reconciliation process. The technical 

correction to the definition of gross 

covered prescription drug costs will also 

help PBMs with calculating a 

beneficiary’s gross covered prescription 

drug costs. 

D. Analysis by Provision 

With regard to part 422, Risk 

Adjustment Data Validation (RADV), we 

estimate that we will audit 

approximately 110 MA organizations for 

risk adjustment data validation (RADV) 

in FYs 2010 and 2011. We estimate that 

at least 50 percent of these 

organizations—55 MA organizations— 

will pursue one of the options presented 

in these proposed rules for disputing or 

appealing their RADV audit findings— 

via attestation, documentation dispute, 

or RADV payment error calculation 

appeal. Our experience to date indicates 

that approximately 25 percent of HCCs 

audited under RADV audit procedures 

result in signature and credentialrelated medical record review errors. 

Each MA organization that undergoes a 

RADV audit is on average asked to 

validate approximately 700 HCCs for 

200 beneficiaries selected for audit. 

Since signature and credential-related 

errors comprise such a large overall 

percentage of RADV error, there is 

clearly an incentive for MA 

organizations to submit attestations 

along with medical records missing 

signatures/credentials to avoid incurring 

a RADV audit error. With approximately 

110 organizations expected to undergo 

RADV audit annually, we can estimate 

that MA organizations will seek to 

produce roughly 19,250 attestations (or 

175 attestations per audit). We estimate 

that it will take 1 hour to prepare and 

submit one attestation to CMS. This 

equates to 19,250 burden hours at 

approximately $59.20/hour (based on 

U.S. Department of Labor statistics for 

hourly wages for management 

analysts)—or, an aggregate annual dollar 

burden on the MA industry of 

$1,139,600. RADV audit statistics to 

date indicate that approximately 55 

percent of RADV audit errors are of the 

type that may be eligible for 

documentation dispute. Clearly there is 

a financial incentive for MA 

organizations to pursue documentation 

dispute in an attempt to avoid incurring 

a RADV audit error. Utilizing the same 

statistics regarding the number of 

organizations that we expect to undergo 

RADV audit annually (that is, 110 

organizations), we estimate that 100 

percent of these organizations will 

pursue documentation dispute. Each 

MA organization that undergoes RADV 

audit is on average asked to validate 

approximately 700 HCCs for 200 

beneficiaries audited. Therefore, we can 

expect each organization that undergoes 

RADV audit to pursue documentation 

dispute for 385 HCCs. This equates to an 

overall volume of 42,350 document 

dispute requests annually. We estimate 

that it will take approximately 1 hour to 

prepare the necessary documentation to 

dispute one HCC via documentation 

dispute. This equates to 42,350 burden 

hours at approximately $59.20/hour 

(based on U.S. Department of Labor 

(DOL) statistics for hourly wages for 

management analysts) or an aggregate 

annual dollar burden on the MA 

industry of $2,507,120. 

Finally, regarding requests for RADV 

payment error calculation appeals, 

based upon existing RADV audit data, 

we estimate that 100 percent of MA 

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will appeal CMS’ RADV payment error 

calculation since we anticipate the 

RADV audit process to uncover 

significant MA program overpayments. 

Currently, MA organizations do not 

have this appeal right so the estimates 

that we provide in this regard are 

altogether new and unique to the 

proposed appeals process. Beyond the 

costs associated with appealing the 

RADV payment error calculation, there 

is little financial incentive to not appeal 

this error calculation. As specified at 

proposed § 422.311(c)(3), the RADV 

payment error calculation appeal 

process is a three-pronged appeal 

process comprised of reconsideration, 

hearing and Administrator-review steps. 

MA organizations can be expected to 

incur costs in preparing appeals at each 

level of the appeal process. For the first 

step in the appeal process—the 

reconsideration step—we estimate that 

MA organizations will take 

approximately 5 hours to prepare the 

necessary reconsideration 

documentation necessary to appeal 

CMS’ RADV payment error calculation. 

This equates to 550 burden hours at 

approximately $59.20/hour (based on 

DOL statistics for hourly wages for 

management analysts)—or, an aggregate 

annual dollar burden on the MA 

industry of $32,560. For step two—the 

hearings step—since the proposed 

hearing is an on-the-record hearing that 

is limited to the documentation 

submitted to CMS and the CMS 

reconsideration official—we do not 

anticipate MA organizations incurring 

substantial costs in submitting the 

documentation necessary to invoke their 

RADV payment error calculation 

hearing rights. We again estimate that 

MA organizations will take 

approximately 5 hours to prepare the 

necessary hearings documentation 

necessary to appeal CMS’ RADV 

payment error calculation and the 

determination of the CMS 

reconsideration official. This equates to 

550 burden hours at approximately 

$59.20/hour (based on U.S. Dept. of 

Labor statistics for hourly wages for 

management analysts)—or, an aggregate 

annual dollar burden on the MA 

industry of $32,560. 

Lastly, in seeking CMS Administrator 

review, we estimate that MA 

organizations will take approximately 5 

hours to prepare the necessary 

documentation to submit to the CMS 

Administrator for his/her review of 

CMS’ RADV payment error calculation. 

This equates to 550 burden hours at 

approximately $59.20/hour (based on 

DOL statistics for hourly wages for 

management analysts) or an aggregate 

annual dollar burden on the MA 

industry of $32,560. Together, we 

estimate that MA organizations will in 

the aggregate incur costs approximating 

$97,680. 

In totaling the burden for attestations, 

documentation dispute and RADV 

payment error calculation appeal, we 

estimate the aggregate annual burden on 

the MA industry to be: $1,139,600 for 

attestations; $2,507,120 for 

documentation dispute; and $97,680 for 

RADV payment error calculation appeal. 

Together, we estimate the total burden 

to the MA industry to be approximately 

$3.74 million as shown in Table 11. 

We anticipate effects on entities other 

than MA organizations. RADV-eligible 

physicians and other practitioners, 

including hospitals, will be impacted by 

the attestation and documentationdispute-related provisions of this 

proposed rule. We note that while MA 

organizations are not required to submit 

attestations, we anticipate that most will 

at least attempt to do so, given the high 

likelihood of overturning RADV errors. 

However, we do not believe that this 

impact will be significant. Our 

experience to date indicates that 

approximately 25 percent of HCCs 

audited under RADV audit procedures 

result in signature and/or credentialrelated medical record review errors. 

Each MA organization that undergoes 

RADV audit is on average asked to 

validate approximately 700 HCCs for 

200 beneficiaries audited. Clearly, there 

is an incentive for MA organizations to 

submit attestations along with medical 

records missing signatures/credentials 

to avoid incurring a RADV audit error. 

With approximately 110 organizations 

expected to undergo RADV audit 

annually, we can estimate that MA 

organizations will seek to produce 

roughly 19,250 attestations (or 175 

attestations per audit). We estimate that 

it will take physicians and other 

practitioners 15 minutes (or one-quarter 

of an hour) or less to review a medical 

record, make a determination whether 

the medical record originated from the 

physician or practitioner in question, 

sign and date the CMS attestation, and 

return the attestation to the requesting 

MA organization. This equates to 4,813 

burden hours at approximately $59.20/ 

hour (based on U.S. Department of 

Labor statistics for hourly wages for 

management analysts) or an aggregate 

annual dollar burden on other providers 

of $284,930. We estimate no burden to 

other providers for either the 

documentation dispute proposal or the 

RADV payment error calculation appeal 

proposal since providers will not be 

called-upon to participate in these 

activities. 

The proposed attestation and 

documentation dispute processes will 

have an overwhelmingly net-positive 

impact on the Medicare program 

through the ultimate lowering of MA 

program payment errors. Our experience 

to date in conducting RADV audits and 

upon consultation with medical record 

review-industry experts leads us to 

estimate that MA organizations will 

submit attestations for up to 65 percent 

of attestation-eligible RADV errors. We 

likewise estimate that we will overturn 

approximately 15 percent of 

documentation-dispute-eligible RADV 

errors via the documentation dispute 

process. Together, these MA program 

error-rate reductions will have a net 

positive impact on the Medicare 

program. 

Since the proposed appeals process 

has not been piloted as part of the 

RADV audit process to date, there is no 

way to realistically estimate its impact 

on the Medicare program. 

TABLE 11—RADV BURDEN FOR ATTESTATIONS (PART 422): TOTAL ESTIMATED IMPACT FOR CYS 2010 THROUGH 2015 

[$ in millions] 

Calendar year 

Total 

2010 2011 2012 2013 2014 2015 

Estimated Impact on MA Organizations .............................. $3.74 $3.74 $3.74 $3.74 $3.74 $3.74 $22.44 

Estimated Impact on All Other Providers ............................ 0.28 0.28 0.28 0.28 0.28 0.28 1.68 

Total .............................................................................. 3.98 3.98 3.98 3.98 3.98 3.98 23.88 


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We are also proposing to require in 

§ 422.152 that each MAO contract 

conduct CCIPs in patient populations 

and quality improvement projects in 

areas identified by CMS and also collect 

and report new quality measures. The 

mean estimated burden per contract as 

indicated in section III. of this proposed 

rule is 1,000 hours. The estimated mean 

cost per hour for these contracts is 

$59.20 (wages, fringe benefits, and 

overhead). The mean cost per contract 

is: 1,000 × $59.20 = $59,200. Since the 

number of contracts is estimated to be 

624, the overall estimated cost across all 

contracts is: 624 × $59,200 = 

$36,940,800. 

Regarding the Medicare Secondary 

Payer (MSP) Procedures (§ 422.108), in 

2007 original Medicare estimated total 

savings due to MSP at $6.5 billion. This 

included $2.9 billion recovered or 

avoided for working-aged individuals, 

$1.9 billion for working-disabled 

individuals, $877 million for workers’ 

compensation, $278 million for ESRD 

beneficiaries, and another $485 million 

recovered or avoided for liability and 

other insurers. In 2007, there were 

approximately 8.5 million MA enrollees 

and 44 million total Medicare enrollees 

(an MA penetration rate of 

approximately 19 percent). The $6.5 

billion in MSP savings can be attributed 

to 35.5 million original Medicare 

enrollees, which equates to 

approximately $183 per original 

Medicare enrollee that can be attributed 

to MSP savings. In 2009 MA penetration 

is higher, with approximately 11 million 

MA enrollees out of approximately 45 

million total Medicare enrollees—or 

about 24 percent MA penetration. We 

assume a similar MSP rate for MA 

enrollees as obtains in original 

Medicare, and therefore project total 

savings from MSP in the MA program in 

2007 as close to $1.5 billion and by 2010 

at approximately $2 billion. 

The estimated impact of MSP on 624 

MA organizations and 456 PDPs based 

on 3.1158 million burden hours at 

approximately $25/hour (based on U.S. 

Department of Labor (DOL) statistics for 

the hourly wages of claims analysts of 

$22.20/hour and for management 

analysts of $59.20/hour), is 

approximately $77.9 million. We expect 

an MA organization to use 

approximately 1.5 FTEs to implement 

Part C MSP procedures related to 

avoiding costs, reporting data, and 

collecting from liable third parties 

related to MSP. We expect the work mix 

to be completed approximately 90 

percent by the claims analyst and 10 

percent by the management analyst. 

We note that MAOs claim expenses 

related to MSP recoveries as part of their 

administrative overhead. MA 

organizations that faithfully pursue and 

recover from liable third parties will 

have lower medical expenses. Lower 

medical expenses make such plans more 

attractive to enrollees. The lower the 

medical expenses in an MA plan, the 

higher the potential rebate. The rebate is 

calculated as the difference between the 

cost of Medicare benefits and the 

benchmark for that plan. The 

benchmark is a fixed amount. Therefore, 

as the cost of Medicare benefits go down 

(with the benchmark remaining 

constant), the larger the rebate. 

Therefore, as more MSP dollars are 

collected or avoided, medical expense 

go down and rebates go up, allowing the 

sponsoring MA organization to offer 

potential enrollees additional nonMedicare benefits funded by rebate 

dollars. Such non-Medicare benefits 

include reductions in cost sharing. 

Since cost sharing is generally 

expressed as a percentage of medical 

costs, such cost sharing will also be 

proportionally lower as overall medical 

costs go down—providing MA 

organizations offering such plans with 

an additional competitive edge. 

Regarding validation of reporting 

requirements (§ 422.516 and § 423.514), 

the main focus will be on how the 

sponsor collects, stores, and reports the 

new Part C and Part D data 

requirements. Standards and procedures 

will also focus on how sponsors 

compile data, and verify calculations, 

computer code, and algorithms. The 

estimated mean hourly burden per 

affected part C and Part D sponsor to 

procure an auditing organization and to 

support the auditing organization in its 

data collection efforts including staff 

interviews is 120 hours as indicated in 

section III. of this proposed rule. We 

believe the auditor that is hired by the 

plan will typically have a team 

consisting of a management analyst, two 

senior auditors, a senior claims analyst, 

a senior statistician, an IT systems 

analyst, a computer programmer, and a 

word processor. We used May 2008 

wage statistics supplied by the 

Department of Labor, Bureau of Labor 

Statistics to develop estimates of direct 

wages. We also added fringe benefits, 

overhead costs, and general and 

administrative expenses using 

percentages that are consistent with 

CMS contracts. Based on our experience 

and in consultant with program experts, 

we developed an estimate of the hourly 

burden. The estimated mean cost per 

hour for these sponsors is $43.14 

(wages, fringe benefits, and overhead). 

The estimated mean number of hours 

per sponsor is 120. The mean cost per 

sponsor to procure and support the 

auditor is therefore: 120 x $43.14 = 

$5,177. Since the number of sponsors is 

estimated to be 710, the overall 

estimated cost across all sponsors to do 

the work involved in procuring and 

supporting the auditing contractors is: 

710 × $5,177 = $3,675,670. 

The total estimated burden hours 

related to the time and effort for all 

auditing organizations to perform the 

annual audit for both Part C and Part D 

data validation is estimated to be 

215,840. The mean cost per hour 

(includes direct wages, fringe benefits, 

overhead costs, general and 

administrative expenses, and fee) is 

estimated to be $194.21. Therefore, the 

estimated annual cost for auditing 

contracts involving all 710 sponsors is: 

215,840 × $194.21 = $41,918,287. The 

total estimated annual cost for auditing 

contracts and for the procurement and 

audit support time and effort of the 

sponsors is: $41,918,287 + 3,675,670= 

$45,593.956. The auditing costs will be 

allowable costs in the plan’s bid. 

We are also proposing that beginning 

in 2011 MA organizations and Part D 

sponsors will begin paying for the data 

collection costs of the CAHPS annual 

survey. Data collection is to be 

performed by a contractor hired by the 

MAO or part D sponsor. The mean 

estimated burden per contract as 

indicated in section III. of this proposed 

rule is 51 hours. The estimated mean 

cost per contract is $5,023. The overall 

estimated annual cost across 624 

contracts is: 624 × $5,023 = $3,134,352. 

Regarding written notices of a 

favorable standard coverage 

determination (§ 423.568(d)), the burden 

is the time and effort necessary for each 

of an estimated 456 PDP sponsors to 

disclose the necessary information in 

writing to an enrollee. (Note: plan 

sponsors have always been required to 

formulate a decision and notify the 

enrollee of that decision, so the 

additional burden is only related to 

communicating the favorable decision 

in writing). We estimated an annual 

burden of 380,206 hours. At an 

estimated cost of $40.00 per hour 

(salary/wages, fringe benefits, 

overhead), the estimated total annual 

cost of this proposed change is 

$15,208,240. 

The burden associated with providing 

written notice of a favorable expedited 

coverage determination (§ 423.572(b)) is 

the time and effort necessary for each of 

an estimated 456 PDP sponsors to 

disclose the necessary information in 

writing to an enrollee (given that plan 

sponsors have always been required to 

formulate favorable and adverse 

expedited decisions, notify enrollees of 


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those decisions, and follow-up in 

writing if the decision is adverse, the 

additional burden is only related to 

communicating the favorable decision 

in writing). 

The total estimated annual burden 

associated with this requirement was 

43,550 hours. At an estimated cost of 

$40.00 per hour, the estimated total 

annual cost of this proposed change is 

$1,742,000. Therefore, the total 

estimated annual cost for these two 

provisions is $15,208,240 + $1,742,000 

= $16,950,240. The total estimated 

annual cost for years 2010–2015 is $102 

million. 

Additionally, regarding written 

notices, proposed § 423.590(d)(2) states 

that if a Part D plan sponsor first notifies 

an enrollee of an adverse or favorable 

expedited redetermination decision 

orally, it must mail written confirmation 

to the enrollee within 3 calendar days 

of the oral notification. The burden 

associated with this requirement is the 

time and effort necessary for a Part D 

plan sponsor to notify an enrollee (and 

the prescribing physician or other 

prescriber involved, as appropriate) in 

writing of an adverse or favorable 

expedited redetermination decision. We 

estimate that each year the 456 Part D 

plan sponsors will issue a total of about 

21,232 written adverse and favorable 

expedited notifications. We further 

estimate that it will take a Part D plan 

sponsor 30 minutes to distribute a single 

notice. The estimated annual burden 

associated with the requirement in 

§ 423.590(d)(2) is 10,616 hours. At an 

estimated cost of $40.00 per hour, the 

estimated total annual cost of this 

proposed change is $424,640. The total 

estimated annual cost for years 2010– 

2015 is $2.5 million. 

With regard to standard timeframes 

and notice requirements for 

organization determinations (§ 422.568 

and § 423.568), the total estimated 

annual burden is 380,206 hours. At an 

estimated average hourly cost of $40.00, 

the total annual estimated cost for CY 

2010 is $15,208,240. 

Regarding the MIPPA 176 protected 

drug class provisions, we project that 

future utilization and hence future costs 

will be lower than estimated in the 

Medicare Advantage and Prescription 

Drug Programs: MIPPA–Related 

Marketing Revisions interim final rule 

with comment period published in the 

January 16, 2009 Federal Register (74 FR 

2881). This is because the proposed 

provisions may be somewhat more 

restrictive than those in the January 16, 

2009 IFC. That is, in the January 16, 

2009 IFC, we had not proposed 

definitions of associated with MIPPA 

protected classes criteria. The 

definitions, as outlined in this proposed 

rule, provide further precision with 

respect to the MIPPA criteria leading to 

a reduced likelihood of certain disease 

categories qualifying as protected 

classes. 

The FY 2010 President’s Budget 

estimated cost of this provision was 

about $4.9 billion for FYs 2010 through 

2019. This is the amount that was built 

into our FY 2010 budget projections. 

The revised cost estimate is roughly 

$1.6 billion over the same period. As a 

result, the modifications made in the 

rule will save Part D an estimated $3.3 

billion for FYs 2010 through 2019 

relative to our current Budget baseline. 

Regarding the Transition Process 

(§ 423.120), proposed § 423.120 would 

require sponsors to provide enrollees 

with appropriate notice regarding their 

transition process within a reasonable 

amount of time after providing a 

temporary supply of non-formulary Part 

D drugs (including Part D drugs that are 

on a sponsor’s formulary but require 

prior authorization or step therapy 

under a sponsor’s utilization 

management rules). We estimated the 

annual hourly burden to be 337,500 

hours in section III. of this proposed 

rule. At an estimated average $20 cost 

per hour for the fully loaded labor of an 

administrative assistant, we estimate the 

yearly cost to be $6,750,000 in CY 2010. 

Regarding drug utilization 

management, quality assurance, and 

medication therapy management 

programs (MTMPs), proposed § 423.153 

states that Part D plans must offer a 

minimum level of medication therapy 

management services for each 

beneficiary enrolled in the MTMP that 

includes but is not limited to annual 

comprehensive medication reviews with 

written summaries. We estimated that 

the total annual burden associated with 

this requirement is 937,500 hours. At an 

average cost of $120 per hour, we 

estimate the yearly cost to be 

$112,500,000. 

Regarding the Use of Standardized 

Technology under Part D (§ 423.120) 

requirements, we estimated an annual 

burden of 38,640 hours, with a cost of 

$150 per hour. The estimated one time 

cost impact for CY 2010 is $5.80 

million. 

E. Anticipated Effects 

1. Effects of Cap on Out-of-Pocket Costs 

and Cost Sharing Amounts 

We are proposing to establish and 

require local MA plans to have an 

annual catastrophic cap on members 

out-of-pocket cost sharing and that we 

will also establish limits on the cost 

sharing amounts that MA plans can 

impose for Part A and B services. These 

proposed changes are significant in that 

they will help beneficiaries to 

understand and anticipate their possible 

health care expenditures. However, we 

do not believe these changes will by 

themselves have a significant impact on 

either plan participation or plan costs. 

We will set the parameters for the cost 

sharing and spending cap and this 

should make it easier for MA plans to 

compete on a level playing field and as 

previously noted enhance transparency 

for prospective enrollees. We note that 

while there will be cost sharing limits 

and a catastrophic cap. We are not 

setting a cap on the monthly plan 

premium beyond the overall actuarial 

limit (determined annually by CMS) on 

the amount of cost sharing that MA 

plans may impose on its enrollees. In 

other words, MA plans will still have 

the option of collecting the maximum 

allowed actuarial amount of cost sharing 

from beneficiaries in terms of premium, 

and costs sharing amounts for plan 

covered benefits. 

2. Alternatives Considered 

a. Strengthening CMS’ Ability To Take 

Timely, Effective Contract 

Determinations or Intermediate 

Sanctions (Part C & D) 

We are proposing to modify the 

regulations to more clearly and 

accurately clarify our existing statutory 

authority to terminate a contract. The 

existing enumerated list of 

determinations that could support a 

decision to terminate a contract is not 

all inclusive. Therefore, we are 

proposing to remove the enumerated 

list. Also, we are proposing to revise the 

regulatory language to clarify that 

failure to comply with any of the 

regulatory requirements contained in 

parts 422 and 423 or failure to meet our 

performance requirements, may 

constitute a basis for CMS to determine 

that the MA Organization or Part D 

sponsor meets the requirements for 

contract termination in accordance with 

the statutory standard. We considered 

modifying or adding to the existing list 

of determinations that could support 

termination (which included 12 items in 

parts 422 and 11 items in parts 423). 

However, we believe that continuing to 

add to the existing list may fail to make 

sufficiently clear to sponsoring 

organizations that all violations of our 

regulations and/or contract and 

performance requirements may be used 

to support a termination decision. 


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b. Changing the Standards of Review, 

Clarifying the Standard of Proof and 

Burden of Proof for Appeals, and 

Modifying the Conduct of Hearing for 

Contract Decisions (Including Denials of 

Initial Applications to Contract, Service 

Area Expansions for Existing Contracts, 

Contract Non-Renewals and 

Terminations, and Intermediate 

Sanctions) 

We are proposing to change the 

standards of review and clarify the 

standard of proof when an appeal of a 

contract determination or intermediate 

sanction is requested and an evidentiary 

hearing is conducted. The current 

standards of review require the hearing 

officer to determine whether the 

sponsoring organization can 

demonstrate ‘‘substantial compliance’’ 

with Part C and/or Part D requirements 

on the ‘‘earliest of’’ the following three 

dates: The date the organization 

received written notice of contract 

determination or intermediate sanction, 

the date of the most recent onsite audit, 

or the date of the alleged breach of 

current contract or past substantial 

noncompliance. In practice, these 

standards of review (‘‘substantial 

compliance’’ and ‘‘earliest of test’’) have 

led to confusion among parties to the 

hearing and have been difficult for the 

hearing officer to apply. Additionally, 

though the existing regulations 

explicitly state that the sponsoring 

organization bears the burden of proof, 

it does not provide the standard of proof 

that is to be applied by the hearing 

officer. Therefore, we are proposing to 

delete the ‘‘substantial compliance’’ and 

‘‘earliest of’’ test and revise the 

regulations to explicitly state the 

standard of proof and provide clear 

standards of review for each type of 

contract determination or intermediate 

sanction. 

First, we are proposing to explicitly 

state that the hearing officer must apply 

the ‘‘preponderance of the evidence’’ 

standard of proof when weighing the 

evidence at all hearings for contract 

determinations or intermediate 

sanctions. Second, we are proposing to 

clarify the standards of review, which 

vary according to the type of contract 

determination or intermediate sanction. 

In particular, the proposed change 

makes the distinction between how the 

evidentiary standard of review is to be 

applied to appeals of CMS 

determinations involving Part C or D 

contract qualification applications, 

those involving the termination or nonrenewal of a Part C or D sponsor 

contract, and those involving the 

imposition of intermediate sanctions. 

Finally, we are proposing to clarify that 

because the sponsoring organization 

bears the burden of proof, under any 

briefing schedule determined by the 

hearing officer, it must first present 

evidence and argument to the hearing 

officer before we present our evidence 

and argument. We considered leaving 

the existing regulations unchanged. 

c. Clarify That CMS May Require a 

‘‘Test Period’’ During an Enrollment/ 

Marketing Sanction 

We are proposing to provide that in 

instances where an enrollment and/or 

marketing suspension has been 

imposed, we may determine that it is 

appropriate to subject the MA 

organization or Part D sponsor to a ‘‘test 

period’’ whereby the organization or 

sponsor will, for a limited time, engage 

in marketing activities and/or accept 

enrollments in order to assist us in 

making a determination as to whether 

the bases for the sanctions have been 

corrected and are not likely to recur. 

Currently, our experience has shown 

that we are limited in our ability to 

adequately determine if marketing and 

enrollment deficiencies have been 

corrected while marketing and 

enrollment sanctions are in place. If the 

test of the Part D sponsor or MA 

organization’s marketing/enrollment 

processes reveals that deficiencies have 

not been corrected and/or are likely to 

recur, the sanction will continue to 

remain in place. 

We considered leaving the existing 

regulations unchanged. However, we 

believe this proposal will strengthen our 

ability to adequately assess compliance 

with our requirements. The proposal 

will also help us to avoid situations 

where, because we do not have the 

ability to perform adequate testing of an 

organization’s systems/processes (such 

as information systems testing) to 

ensure the deficiencies have been 

corrected, we lift a sanction and then 

find that we have to re-engage in the 

statutory and regulatory process for 

reinstituting the sanction. 

d. Right for CMS To Require an 

Independent Audit of Sponsoring 

Organizations Under Intermediate 

Sanction 

We are proposing that we have the 

flexibility to require certain Part D 

sponsors and MA organizations, under 

intermediate sanctions, to hire an 

independent auditor to evaluate 

whether the bases for a sanction have 

been corrected and are not likely to 

recur before we come to a determination 

as to whether lifting of the sanction 

would be appropriate. The independent 

auditor would be hired by the 

sponsoring organization and work in 

accordance with CMS specifications in 

order to provide accurate and reliable 

information to CMS. This would benefit 

the sponsoring organization by 

improving the process for removing a 

sanction, which may reduce the 

duration of the sanction. A similar 

approach is used by the Office of 

Inspector General (OIG) in their 

Corporate Integrity Agreements and/or 

Self-Disclosure Protocol processes. 

We considered leaving the regulations 

unchanged. This existing regulatory 

scheme requires us to rely solely on its 

internal resources to assess whether the 

underlying deficiencies that form the 

basis of an intermediate sanction have 

been corrected and are not likely to 

recur. Given our experience with the 

nature and extent of some compliance 

deficiencies (for example, those caused 

by information technology issues or lack 

of adequate internal controls) and the 

need to obtain the level of skill and 

experience necessary to conduct an 

exhaustive audit and verification of the 

correction of these deficiencies, we 

believe this additional flexibility and 

access to expertise (such as a qualified 

independent auditor) is appropriate and 

will benefit both plan sponsors and 

CMS. 

Another option considered is not 

requiring certain sponsoring 

organizations to hire an independent 

auditor. Instead, we would consider 

using results obtained by an 

independent auditor hired under a 

sponsoring organization’s own initiative 

to evaluate its compliance with our 

requirements. We may consider the 

sponsoring organization’s initiative to 

obtain an independent audit similar to 

a ‘‘safe harbor’’ and may be afforded 

some weight in CMS’ determination of 

whether the bases for the sanction have 

been corrected and are not likely to 

recur. We invite comments from 

sponsors and the industry about this 

alternative proposal and suggestions on 

other options we could implement to 

accomplish the desired outcome. 

e. The Ability for CMS To Require 

Sponsors To Disclose to Current and 

Potential Enrollees Compliance and 

Performance Deficiencies 

We are proposing to require certain 

sponsors to disclose their current 

compliance and/or performance 

deficiencies to existing and potential 

enrollees. This disclosure option could 

be exercised by CMS either when a 

sponsor is sanctioned or when a 

sponsor’s compliance deficiencies rise 

to a certain level such that we make the 

determination that existing or potential 

enrollees should be notified of these 

deficiencies. This level of transparency 


dcolon on DSK2BSOYB1PROD with PROPOSALS2
54714 Federal Register / Vol. 74, No. 203 / Thursday, October 22, 2009 / Proposed Rules 

will provide additional incentives for 

sponsors to make improvements to their 

operations and also provide relevant 

information to beneficiaries and the 

public concerning plan choices. 

We considered not adding this 

disclosure authority to the existing 

regulations. However, we believe this 

change is necessary to provide us with 

another tool to strengthen our 

compliance and oversight authority and 

provide appropriate transparency 

concerning compliance and/or 

performance deficiencies to 

beneficiaries and the public. 

f. Section 176 of the MIPPA—Formulary 

and Protected Classes Requirements 

(Part D) 

The critical policy decision was how 

broadly or narrowly we interpret 

specific terms in the MIPPA provisions. 

Interpreted broadly, the provisions in 

section 176 of the MIPPA might easily 

encompass many classes of drugs and 

significantly increase costs to the Part D 

program by eliminating the need for 

manufacturers to aggressively rebate 

their products for formulary placement. 

Only a narrow interpretation of these 

criteria would limit the number of 

classes ‘‘protected’’ under MIPPA. 

g. Reducing Duplicative and Low 

Enrollment Plans (Parts C & D) 

We are proposing to implement 

regulations to reduce duplicative benefit 

packages based upon our authority to 

add such additional terms to its 

contracts with Medicare Advantage 

organizations or Part D plan sponsors as 

we ‘‘may find necessary and 

appropriate’’ as specified in section 

1857(e)(1) of the Act (see also section 

1860D–12(b)(3)(D) of the Act 

(incorporating section 1857(e)(1) of the 

Act by reference for Part D.) In addition, 

we are using our authority under section 

1860D–11(d)(2)(B) of the Act as further 

support for our authority to propose 

regulations imposing ‘‘reasonable 

minimum standards’’ on Part D 

sponsors. 

One alternative would be to make no 

changes to our current regulations 

regarding bid submission and review 

and to continue our current efforts to 

eliminate duplicative or low enrollment 

plan options. However, since our 

current regulations do not explicitly 

address the issue of eliminating 

duplicative or low enrollment plans, we 

believe that codifying our authority to 

do so will provide us with more 

leverage over plans during the bid 

submissions, review, negotiation, and 

approval processes. 

Another alternative would be to 

provide more detail in regulation text 

regarding the specific criteria we would 

use to eliminate duplicative or low 

enrollment plan options. We believe 

addressing the issue generally in 

regulations text, but containing most of 

the discussion regarding specific criteria 

to the preamble, maintains our 

flexibility to adjust our review processes 

and criteria consistent with current 

market trends. 

h. Validation of Part C and Part D 

Reporting Requirements 

Several of the proposed changes do 

involve costs to MAOs and Part D 

sponsors. One such regulatory change 

was the audit requirement of Part C and 

Part D measures. We considered not 

requiring an audit. However, because 

we believe that an audit is required to 

ensure that the Part C and Part D 

measures are consistent with our 

specifications, are reliable, valid, and 

comparable, and are credible to 

stakeholders, this alternative was 

rejected. A second such regulatory 

change was requiring MAOs and Part C 

sponsors to assume a portion of the cost 

of the annual CAHPs survey that would 

result from hiring contractors to conduct 

the data collection. We considered not 

requiring MAOs and Part C sponsors to 

hire contractors to perform the CAHPs 

data collection. However, we rejected 

this alternative, because we believe that 

the benefits obtained through this 

regulatory change outweigh the costs 

incurred by the MAOs and Part C 

sponsors. 

F. Accounting Statement 

As required by OMB Circular A–4 

(available at http:// 

www.whitehouse.gov/omb/circulars/ 

a004/a-4.pdf), in the Table 13, we have 

prepared an accounting statement 

showing the classification of the 

expenditures associated with the 

provisions of this proposed rule. Table 

13 provides our best estimate of the 

costs and savings as a result of the 

changes. 

TABLE 13—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM CY 2010 TO CY 2015 

[$ in millions] 

Category 

Transfers 

Year dollar 

Units discount rate 

Period covered 

7% 3% 

Annualized Monetized Transfers .................................................................. 2009 $¥204.45 $¥213.23 CYs 2010–2015 

From Whom to Whom? ................................................................................ Federal Government to MAO and Part D Sponsors. 

Annualized Costs to MAOs and Part D Sponsors ....................................... 2009 $319.51 $319.46 CYs 2010–2015 

G. Conclusion 

We expect that the cost of 

implementing these provisions will be 

$321.68 million in CY 2010. Sponsors 

will experience additional costs which 

they are likely to pass on to us through 

direct subsidy payments and to 

beneficiaries through increases in 

premiums as reflected in their bids. 

Beginning in CY 2013, we expect that 

these provisions will generate a net 

savings on an annual basis. For the 

entire estimated time period, CY 2010 

through 2015, we expect the overall 

impact to be a cost of $596.58 million. 

In accordance with the provisions of 

Executive Order 12866, this proposed 

rule 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. 


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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, Reporting and recordkeeping 

requirements. 

42 CFR Part 480 

Health care, Health professions, 

Health records, Peer Review 

Organizations (PRO), 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: Sec. 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 K—Enrollment, Entitlement, 

and Disenrollment Under Medicare 

Contract 

2. Section 417.428 is revised to read 

as follows: 

§ 417.428 Marketing activities. 

(a) With the exception of § 422.2276 

of this chapter, the procedures and 

requirements relating to marketing 

requirements set forth in subpart V of 

part 422 of this chapter also apply to 

Medicare contracts with HMOs and 

CMPs under section 1876 of the Act. 

(b) In applying those provisions, 

references to part 422 of this chapter 

must be read as references to this part, 

and references to MA organizations as 

references to HMOs and CMPs. 

Subpart L—Medicare Contract 

Requirements 

3. Section 417.472 is amended by 

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

follows: 

§ 417.472 Basic contract requirements. 

* * * * * 

(i) The HMO or CMP must comply 

with the requirements at § 422.152(b)(5). 

(j) All coordinated care contracts 

(including local and regional PPOs and 

contracts with exclusively SNP benefit 

packages, cost contracts under section 

1876 of the Act, private fee-for-service 

contracts, and MSA contracts with 600 

or more enrollees in July of the prior 

year) must contract with approved 

Medicare Consumer Assessment of 

Healthcare Providers and Systems 

(CAHPS) survey vendors to conduct the 

Medicare CAHPS satisfaction survey of 

MA plan enrollees in accordance with 

CMS specifications and submit the 

survey data to CMS. 

4. Section 417.492 is amended by 

revising paragraph (b)(2) to read as 

follows: 

§ 417.492 Nonrenewal of contract. 

* * * * * 

(b) * * * 

(2) Notice of appeal rights. CMS gives 

the HMO or CMP written notice of its 

right to appeal the nonrenewal decision, 

in accordance with part 422 subpart N 

of this chapter, if CMS’s decision was 

based on any of the reasons specified in 

§ 417.494(b). 

5. Section 417.494 is amended by 

revising paragraph (b)(2) to read as 

follows: 

§ 417.494 Modification or termination of 

contract. 

* * * * * 

(b) * * * 

(2) If CMS decides to terminate a 

contract, it sends a written notice 

informing the HMO or CMP of its right 

to appeal the termination in accordance 

with part 422 subpart N of this chapter. 

* * * * * 

6. Section 417.500 is revised to read 

as follows: 

§ 417.500 Intermediate sanctions for and 

civil monetary penalties against HMOs and 

CMPs. 

(a) Except as provided in paragraph 

(c) of this section, the rights, 

procedures, and requirements related to 

intermediate sanctions and civil money 

penalties set forth in part 422 subparts 

O and T of this chapter also apply to 

Medicare contracts with HMOs or CMPs 

under sections 1876 of the Act. 

(b) In applying paragraph (a) of this 

section, references to part 422 of this 

chapter must be read as references to 

this part and references to MA 

organizations must be read as references 

to HMOs or CMPs. 

(c) In applying paragraph (a) of this 

section, the amounts of civil money 

penalties that can be imposed are 

governed by section 1876(i)(6)(B) and 

(C) of the Act, not by the provisions in 

part 422 of this chapter. 

Subpart O—Medicare Payment: Cost 

Basis 

7. Section 417.564 is amended by 

adding new paragraphs (b)(2)(iii) and (c) 

to read as follows: 

§ 417.564 Apportionment and allocation of 

administrative and general costs. 

* * * * * 

(b) * * * 

(2) * * * 

(iii) For the costs incurred under 

paragraphs (b)(1)(i) through (iv) of this 

section that include personnel costs, the 

organization must be able to identify the 

person hours expended for each 

administrative task and the rate of pay 

for those persons performing the tasks. 

Administrative tasks performed and rate 

of pay for the persons performing those 

tasks must match in terms of the skill 

level needed to accomplish those tasks. 

This information must be made 

available to CMS upon request. 

(c) Costs excluded from 

administrative costs. In accordance with 

section 1861(v) of the Act, the following 

costs must be excluded from 

administrative costs: 

(1) Donations. 

(2) Fines and penalties. 

(3) Political and lobbying activities. 

(4) Charity or courtesy allowances. 

(5) Spousal education. 

(6) Entertainment. 

(7) Return on equity. 

Subpart R—Medicare Contract Appeals 

8. Section § 417.640 is revised to read 

as follows: 

§ 417.640 Applicability. 

(a) The rights, procedures, and 

requirements relating to contract 

determinations and appeals set forth in 

part 422 subpart N of this chapter also 

apply to Medicare contracts with HMOs 

or CMPs under section 1876 of the Act. 

(b) In applying paragraph (a) of this 

section, references to part 422 of this 

chapter must be read as references to 

this part and references to MA 

organizations must be read as references 

to HMOs or CMPs. 

§ 417.642 through § 417.694 [Removed] 

9. Remove § 417.642 through 

§ 417.694. 

Subpart U—Health Care Prepayment 

Plans 

10. Section 417.840 is revised to read 

as follows: 


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§ 417.840 Administrative review 

procedures. 

The HCPP must apply § 422.568 

through § 422.626 of this chapter to— 

(a) Organization determinations and 

fast-track appeals that affect its 

Medicare enrollees; and 

(b) Reconsiderations, hearings, 

Medicare Appeals Council review, and 

judicial review of the organization 

determinations and fast-track appeals 

specified in paragraph (a) of this 

section. 

PART 422—MEDICARE ADVANTAGE 

PROGRAM 

11. 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 

12. Section 422.2 is amended by— 

A. Adding the definitions of 

‘‘Attestation process,’’ ‘‘documentation 

dispute process,’’ and ‘‘Hierarchical 

condition categories.’’ 

B. Revising the definition of ‘‘Point of 

service.’’ 

C. Adding the definitions of ‘‘RADV 

payment error calculation appeal 

process’’ and ‘‘Risk adjustment data 

validation (RADV) audit.’’ 

D. Revising the introductory text of 

the definition of ‘‘Service area’’. 

E. Adding the definition of ‘‘The one 

best medical record’’. 

The additions and revision read as 

follows: 

§ 422.2 Definitions. 

Attestation process means a CMSdeveloped RADV audit-related dispute 

process that enables MA organizations 

undergoing RADV audit to submit CMSgenerated and physician practitioner 

signed attestations for medical records 

with missing or illegible signatures or 

credentials. Physicians/practitioners 

who documented health care services in 

the specific medical record under RADV 

review will be allowed to attest that 

they provided and documented the 

health care services evidenced in the 

specific medical record. 

* * * * * 

Documentation dispute process 

means a dispute process that enables 

MA organizations that have undergone 

a RADV audit to dispute medical record 

discrepancies that pertain to incorrect 

ICD–9–CM coding by allowing affected 

MA organizations to submit formal 

written disputes regarding discrepancy 

findings for the initial medical record 

that an organization submitted for HCC 

validation. 

* * * * * 

Hierarchical condition categories 

(HCC) means disease groupings 

consisting of disease codes (currently 

ICD–9–CM codes) that predict average 

healthcare spending. HCCs represent the 

disease components of the enrollee risk 

score that are applied to MA payments. 

* * * * * 

Point of service (POS) means a benefit 

option that an MA HMO plan can offer 

to its Medicare enrollees as an 

additional, mandatory supplemental, or 

optional supplemental benefit. Under 

the POS benefit option, the HMO plan 

allows members the option of receiving 

specified services outside of the HMO 

plan’s provider network. In return for 

this flexibility, members typically have 

higher cost-sharing requirements for 

services received and, when offered as 

a mandatory or optional supplemental 

benefit, may also be charged a premium 

for the POS benefit option. 

* * * * * 

RADV payment error calculation 

appeal process means an administrative 

process that enables MA organizations 

that have undergone RADV audit to 

appeal the CMS calculation of an MA 

organization’s RADV payment error. 

* * * * * 

Risk adjustment data validation 

(RADV) audit means a CMSadministered payment audit of a 

Medicare Advantage (MA) organization 

that ensures the integrity and accuracy 

of risk adjustment payment data. 

* * * * * 

Service area means a geographic area 

that for local MA plans is a county or 

multiple counties, and for MA regional 

plans is a region approved by CMS 

within which an MA-eligible individual 

may enroll in a particular MA plan 

offered by an MA organization. 

Facilities in which individuals are 

incarcerated are not included in the 

service area of an MA plan. Each MA 

plan must be available to all MA-eligible 

individuals within the plan’s service 

area. In deciding whether to approve an 

MA plan’s proposed service area, CMS 

considers the following criteria: * * * 

* * * * * 

The one best medical record for the 

purposes of Medicare Advantage Risk 

Adjustment Validation (RADV) is 

defined as: the clinical documentation 

for a single encounter for care (that is, 

a physician office visit, an inpatient 

hospital stay, or an outpatient hospital 

visit) that occurred for one patient 

during the data collection period. The 

single encounter for care must be based 

on a face-to-face encounter with a 

provider deemed acceptable for risk 

adjustment and documentation of this 

encounter must be reflected in the 

medical record. 

13. Amend § 422.4 by— 

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

(a)(2)(i)(A). 

B. Redesignating paragraph (a)(2)(i)(B) 

as paragraph (a)(2)(i)(C). 

C. Adding new paragraphs (a)(2)(i)(B) 

and (a)(3)(iv). 

The revisions and additions read as 

follows: 

§ 422.4 Types of MA plans. 

* * * * * 

(a) * * * 

(1) * * * 

(v) A PPO plan is a plan that— 

(A) Has a network of providers that 

have agreed to a contractually specified 

reimbursement for covered benefits with 

the organization offering the plan; 

(B) Provides for reimbursement for all 

covered benefits regardless of whether 

the benefits are provided within the 

network of providers; 

(C) Only for purposes of quality 

assurance requirements in § 422.152(e), 

is offered by an organization that is not 

licensed or organized under State law as 

an HMO; and 

(D) Does not permit prior notification 

for out-of-network services—that is, a 

reduction in the plan’s standard costsharing levels when the out-of-network 

provider from whom an enrollee is 

receiving plan-covered services 

voluntarily notifies the plan prior to 

furnishing those services, or the enrollee 

voluntarily notifies the PPO plan prior 

to receiving plan-covered services from 

an out-of-network provider. 

(2) * * * 

(i) * * * 

(A) Pays at least for the services 

described in § 422.101, after the enrollee 

has incurred countable expenses (as 

specified in the plan) equal in amount 

to the annual deductible specified in 

§ 422.103(d); 

(B) Does not permit prior 

notification—that is, a reduction in the 

plan’s standard cost-sharing levels when 

the provider from whom an enrollee is 

receiving plan-covered services 

voluntarily notifies the plan prior to 

furnishing those services, or the enrollee 

voluntarily notifies the MSA plan prior 

to receiving plan-covered services from 

a provider; and 

* * * * * 

(3) * * * 

(iv) Does not permit prior 

notification—that is, a reduction in the 

plan’s standard cost-sharing levels when 

the provider from whom an enrollee is 

receiving plan-covered services 


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voluntarily notifies the plan prior to 

furnishing those services, or the enrollee 

voluntarily notifies the PFFS plan prior 

to receiving plan-covered services from 

a provider. 

* * * * * 

Subpart B—Eligibility, Election, and 

Enrollment 

14. Section 422.74 is amended by 

revising paragraphs (d)(1)(i)(B) and 

(d)(4)(iii) to read as follows: 

§ 422.74 Disenrollment by the MA 

organization. 

* * * * * 

(d) * * * 

(1) * * * 

(i) * * * 

(B) Providing the individual with a 

grace period, that is, an opportunity to 

pay past due premiums in full. The 

length of the grace period must be at 

least 2 months, beginning on the first 

day of the month for which the 

premium is unpaid. 

* * * * * 

(4) * * * 

(iii) Exception. If the MA plan offers 

a visitor/traveler benefit when the 

individual is out of the service area but 

within the United States (as defined in 

§ 400.200 of this chapter) for a period of 

consecutive days longer than 6 months 

but less than 12 months, the MA 

organization may elect to offer to the 

individual the option of remaining 

enrolled in the MA plan if— 

(A) The individual is disenrolled on 

the first day of the 13th month after the 

individual left the service area (or 

residence, if paragraph (d)(4)(i)(B) of 

this section applies); 

(B) The individual understands and 

accepts any restrictions imposed by the 

MA plan on obtaining these services 

while absent from the MA plan’s service 

area for the extended period, consistent 

with paragraph (d)(4)(i)(C) of the 

section; 

(C) The MA organization makes this 

visitor/traveler option available to all 

Medicare enrollees who are absent for 

an extended period from the MA plan’s 

service area. MA organizations may 

limit this visitor/traveler option to 

enrollees who travel to certain areas, as 

defined by the MA organization, and 

who receive services from qualified 

providers who directly provide, arrange 

for, or pay for health care; and 

(D) The MA organization furnishes all 

Medicare Parts A and B services and all 

mandatory and optional supplemental 

benefits at the same cost sharing levels 

as apply within the plan’s service area; 

and 

(E) The MA organization furnishes the 

services in paragraph (D) of this 

paragraph consistent with Medicare 

access and availability requirements at 

§ 422.112 of this part. 

* * * * * 

Subpart C—Benefits and Beneficiary 

Protections 

15. Section 422.100 is amended by 

adding new paragraphs (f)(4) and (f)(5) 

to read as follows: 

§ 422.100 General requirements. 

* * * * * 

(f) * * * 

(4) All local MA plans must establish 

an out-of pocket maximum for Medicare 

A and B services that is no greater than 

the annual limit set by CMS. 

(5) Cost sharing for Medicare A and B 

services does not exceed levels annually 

determined by CMS to be 

discriminatory. 

* * * * * 

16. Section 422.103 is amended by 

adding a new paragraph (d)(3) to read as 

follows: 

§ 422.103 Benefits under an MA MSA plan. 

* * * * * 

(d) * * * 

(3) Is pro-rated for enrollments 

occurring during a beneficiary’s initial 

coverage election period as described at 

§ 422.62(a)(1) of this part. 

* * * * * 

17. Section 422.105 is amended by 

revising paragraphs (b), (c), and (f) to 

read as follows: 

§ 422.105 Special rules for self-referral and 

point of service option. 

* * * * * 

(b) Point of service option. As a 

general rule, a POS benefit is an option 

that an MA organization may offer in an 

HMO plan to provide enrollees with 

additional choice in obtaining specified 

health care services. The organization 

may offer A POS option— 

(1) Before January 1, 2006, under a 

coordinated care plan as an additional 

benefit as described in section 

1854(f)(1)(A) of the Act; 

(2) Under an HMO plan as a 

mandatory supplemental benefit as 

described in § 422.102(a); or 

(3) Under an HMO plan as an optional 

supplemental benefit as described in 

§ 422.102(b). 

(c) Ensuring availability and 

continuity of care. An MA HMO plan 

that includes a POS benefit must 

continue to provide all benefits and 

ensure access as required under this 

subpart. 

* * * * * 

(f) POS-related data. An MA 

organization that offers a POS benefit 

through an HMO plan must report 

enrollee utilization data at the plan level 

by both plan contracting providers (innetwork) and by non-contracting 

providers (out-of-network) including 

enrollee use of the POS benefit, in the 

form and manner prescribed by CMS. 

18. Section 422.108 is amended by 

revising paragraph (b)(3) to read as 

follows: 

§ 422.108 Medicare secondary payer (MSP) 

procedures. 

* * * * * 

(b) * * * 

(3) Coordinate its benefits to Medicare 

enrollees with the benefits of the 

primary payers, including reporting, on 

an ongoing basis, information obtained 

related to requirements in paragraphs 

(b)(1) and (b)(2) of this section in 

accordance with CMS instructions. 

* * * * * 

19. Section 422.111 is amended by 

adding a new paragraph (g) to read as 

follows: 

§ 422.111 Disclosure requirements. 

* * * * * 

(g) CMS may require an MA 

organization to self-disclose to its 

enrollees or potential enrollees, the MA 

organization’s performance and contract 

compliance deficiencies in a manner 

specified by CMS. 

20. Section 422.112 is amended by 

adding a new paragraph (a)(10) to read 

as follows: 

§ 422.112 Access to services. 

* * * * * 

(a) * * * 

(10) Prevailing patterns of community 

health care delivery. Coordinated care 

and PFFS 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— 

(i) The number and geographical 

distribution of eligible health care 

providers available to potentially 

contract with an MAO to furnish plan 

covered services within the proposed 

service area of the MA plans. 

(ii) 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. 


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(iii) Whether the service area is 

comprised of rural or urban areas or 

some combination of the two. 

(iv) Whether the MA plan’s proposed 

provider network meet Medicare time 

and distance standards for member 

access to health care providers 

including specialties. 

(v) Other factors that CMS determines 

are relevant in setting a standard for an 

acceptable health care delivery network 

in a particular service area. 

* * * * * 

Subpart D—Quality Improvement 

21. Section 422.152 is amended by— 

A. Revising paragraphs (a)(1) and 

(a)(2). 

B. Redesignating paragraph (b)(3)(ii) 

as paragraph (b)(3)(iii). 

C. Adding new paragraph (b)(3)(ii). 

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

F. Redesignating paragraphs (e)(2)(ii) 

and (e)(2)(iii) as paragraphs (e)(2)(iii) 

and (e)(2)(iv), respectively. 

H. Adding a new paragraph (e)(2)(ii). 

The revisions and additions read as 

follows: 

§ 422.152 Quality improvement program. 

(a) * * * 

(1) Have a chronic care improvement 

program that meets the requirements of 

paragraph (c) of this section concerning 

elements of a chronic care program and 

addresses populations identified by 

CMS based on a review of current 

quality performance; 

(2) Conduct quality improvement 

projects that can be expected to have a 

favorable effect on health outcomes and 

enrollee satisfaction, meet the 

requirements of paragraph (d) of this 

section, and address areas identified by 

CMS; and 

* * * * * 

(b) * * * 

(3) * * * 

(ii) Collect, analyze, and report 

quality performance data identified by 

CMS that are of the same type as those 

under paragraph (b)(3)(i) of this section. 

* * * * * 

(5) All coordinated care contracts 

(including local and regional PPOs and 

contracts with exclusively SNP benefit 

packages, cost contracts under section 

1876 of the Act, private fee-for-service 

contracts, and MSA contracts with 600 

or more enrollees in July of the prior 

year) must contract with approved 

Medicare Consumer Assessment of 

Healthcare Providers and Systems 

(CAHPS) survey vendors to conduct the 

Medicare CAHPS satisfaction survey of 

MA plan enrollees in accordance with 

CMS specifications, and submit the 

survey data to CMS. 

* * * * * 

(e) * * * 

(2) * * * 

(ii) Collect, analyze, and report 

quality performance data identified by 

CMS that are of the same type as those 

described under paragraph (e)(2)(i) of 

this section. 

* * * * * 

22. Section 422.153 is added to read 

as follows: 

§ 422.153 Use of quality improvement 

organization review information. 

CMS will acquire from quality 

improvement organizations (QIOs) as 

described in part 480 of this chapter 

quality review study information as 

defined in § 480.101(b) and subject to 

the requirements in § 480.140(g). CMS 

will acquire this information, as needed, 

and use it for the following limited 

functions: 

(a) Enable beneficiaries to compare 

health coverage options and select 

among them. 

(b) Evaluate plan performance. 

(c) Ensure compliance with plan 

requirements under this part. 

(d) Develop payment models. 

(e) Other purposes related to MA 

plans as specified by CMS. 

23. Section 422.156 is amended by 

revising paragraphs (b)(7) and (f) to read 

as follows: 

§ 422.156 Compliance deemed on the 

basis of accreditation. 

* * * * * 

(b) * * * 

(7) The requirements listed in 

§ 423.165 (b)(1) through (3) for MA 

organizations that offer prescription 

drug benefit programs. 

* * * * * 

(f) Authority. Nothing in this subpart 

limits CMS’ authority under subparts K 

and O of this part, including but not 

limited to, the ability to impose 

intermediate sanctions, civil money 

penalties, and terminate a contract with 

an MA organization. 

Subpart F—Submission of Bids, 

Premiums, and Related Information 

and Plan Approval 

24. Section 422.254 is amended by 

adding new paragraphs (a)(4) and (b)(5) 

to read as follows: 

§ 422.254 Submission of bids. 

* * * * * 

(a) * * * 

(4) Substantial differences between 

bids. An MA organization’s bid 

submissions must reflect differences in 

benefit packages and plan costs that 

CMS determines to represent substantial 

differences relative to a sponsor’s other 

bid submissions. 

* * * * * 

(b) * * * 

(5) Actuarial valuation. The bid must 

be prepared in accordance with CMS 

actuarial guidelines based on generally 

accepted actuarial principles. 

(i) A qualified actuary must certify the 

plan’s actuarial valuation (which may 

be prepared by others under his or her 

direction or review). 

(ii) To be deemed a qualified actuary, 

the actuary must be a member of the 

American Academy of Actuaries. 

(iii) Applicants may use qualified 

outside actuaries to prepare their bids. 

* * * * * 

25. Section 422.256 is amended by 

adding a new paragraph (b)(4) to read as 

follows: 

§ 422.256 Review, negotiation, and 

approval of bids. 

* * * * * 

(b) * * * 

(4) Substantial differences between 

bids. 

(i) General. CMS approves a bid only 

if it finds that the benefit package and 

plan costs represented by that bid are 

substantially different from the MA 

organization’s other bid submissions. In 

order to be considered ‘‘substantially 

different,’’ each bid must be 

significantly different from other plans 

of its plan type with respect to 

premiums, benefits, or cost-sharing 

structure. 

(ii) Transition period for MA 

organizations with new acquisitions. 

After a 2-year transition period, CMS 

approves a bid offered by an MA 

organization (or by a parent organization 

to that MA organization) that recently 

purchased (or otherwise acquired or 

merged with) another MA organization 

only if it finds that the benefit package 

and plan costs represented by that bid 

are substantially different, as provided 

under paragraph (b)(4)(i) of this section, 

from any benefit package and plan costs 

represented by another bid submitted by 

the same MA organization (or parent 

organization to that MA organization). 

* * * * * 

Subpart G—Payments to Medicare 

Advantage Organizations 

26. Section 422.306 is amended by 

revising paragraph (a) to read as follows: 

§ 422.306 Annual MA capitation rates. 

* * * * * 

(a) Minimum percentage increase rate. 

The annual capitation rate for each MA 

local area is equal to the minimum 

percentage increase rate, which is the 


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annual capitation rate for the area for 

the preceding year increased by the 

national per capita MA growth 

percentage (defined at § 422.308(a)) for 

the year, but not taking into account any 

adjustment under § 422.308(b) for a year 

before 2004. 

* * * * * 

27. A new § 422.311 is added to read 

as follows. 

§ 422.311 RADV audit dispute and appeal 

processes. 

(a) Risk Adjustment Data Validation 

(RADV) audits. In accordance with 

§ 422.2 and § 422.310 et seq., CMS 

annually conducts RADV audits to 

ensure risk adjusted payment integrity 

and accuracy. 

(b) RADV audit results. 

(1) MA organizations that undergo 

RADV audits will be issued an audit 

report post medical record review that 

describes the results of the RADV audit 

as follows: 

(i) Detailed enrollee-level information 

relating to confirmed enrollee HCC 

discrepancies. 

(ii) The contract-level RADV payment 

error estimate in absolute dollars. 

(iii) The contract-level payment 

adjustment amount to be made in 

absolute dollars. 

(iv) An approximate timeframe for the 

payment adjustment. 

(v) An enrollee-level description of 

HCC-level discrepancies that will be 

eligible for dispute. 

(vi) A description of the MA 

organization’s RADV audit appeal 

rights. 

(2) Compliance date. The compliance 

date for meeting RADV medical record 

submission requirements for the 

validation of risk adjustment data is the 

due date when MA organizations 

selected for RADV audit must submit 

medical records to CMS or its 

contractors. 

(c) RADV audit dispute and appeal 

processes. 

(1) Attestation process. 

(i) MA organizations— 

(A) May submit CMS-generated 

attestations from physician/ 

practitioner(s) in order to dispute 

signature or credential-related RADV 

errors. 

(B) That submit CMS-generated 

attestations must do so in accordance 

with the rules under this section. 

(C) Are not obligated to submit 

attestations to CMS. 

(ii) RADV audit-related errors eligible 

for attestation process. CMS will only 

accept an attestation to support a 

physician or outpatient medical records 

with missing or illegible signatures or 

missing or illegible credentials or both. 

(iii) RADV audit-related errors 

ineligible for attestation process. 

(A) Attestations from providers, for 

the purpose of resolving coding 

discrepancies or other medical record 

documentation, will not be permitted. 

(B) The introduction of new HCCs for 

payment that were not previously 

identified by CMS for RADV audit will 

not be eligible for attestation. 

(C) Inpatient provider-type medical 

records are not eligible for attestation. 

(iv) Manner and timing of a request 

for attestation. 

(A) At the time CMS notifies an MA 

organization that it has been selected for 

RADV audit, CMS provides the MA 

organization with the attestation forms 

and instructions regarding the 

submission of attestations. 

(B) If an organization decides to 

submit attestations completed by 

physicians or other practitioners, the 

MA organization must submit the 

attestations to CMS at the same time 

that the MA organization is required to 

submit related medical records for 

RADV audit. 

(v) Attestation content. An attestation 

must accompany and correspond to the 

medical record submitted for RADV 

audit and must meet the following 

requirements: 

(A) Only CMS-generated attestations 

will be accepted by CMS. 

(B) The CMS attestation form may not 

be altered unless otherwise instructed 

and agreed-upon in writing by CMS. 

(C) Attestations must be completed 

and be signed and dated by the RADVphysician/practitioner whose medical 

record accompanies the attestation. 

(D) Attestations must be based upon 

medical records that document face-toface encounters between beneficiaries 

and RADV-eligible physicians/ 

practitioners. 

(vi) Attestation review and 

determination procedures. 

(A) CMS reviews each submitted 

attestation to determine if it meets CMS 

requirements and is acceptable for use 

during the medical record review. 

(B) CMS provides written notice of its 

determination(s) regarding submitted 

attestations to the MA organization at 

the time CMS issues its RADV audit 

report. 

(vii) Effect of CMS’ attestation 

determination. CMS’ attestation 

determination is final and binding. 

(2) Documentation dispute process. 

An MA organization may choose to 

dispute CMS’ operational processing of 

RADV medical records using a CMSadministered documentation dispute 

process. 

(i) RADV-related errors eligible for 

documentation dispute process. The 

documentation dispute process will 

apply only to the operational processing 

of those medical records selected for 

RADV audit. In order to be eligible for 

documentation dispute, medical records 

have to have been submitted to CMS by 

the CMS-established deadline. 

(ii) RADV-related audit errors 

ineligible for documentation dispute 

process. 

(A) Medical record coding 

discrepancies. 

(B) MA organizations may not use the 

documentation dispute process to 

submit new medical records in place of 

previously-submitted medical records. 

(C) MA organizations may not use the 

documentation dispute process to 

introduce new HCCs for payment that 

were not earlier identified by CMS for 

audit. 

(D) MA organizations may not submit 

medical records for HCCs that were in 

error because the MA organization 

failed to meet the medical record 

submission deadline established by 

CMS. 

(iii) Manner and timing of a request 

for documentation dispute. 

(A) At the time CMS issues its RADV 

audit report to affected MA 

organizations, CMS notifies affected MA 

organizations of any RADV errors that 

are eligible for documentation dispute. 

(B) MA organizations have 30 days 

from date of issuance of the RADV audit 

report to request documentation 

dispute. 

(iv) Documentation dispute review 

and notification procedures. 

(A) CMS reviews documentation 

submitted by MA organizations to 

determine whether it supports 

overturning errors listed in the MA 

organization’s RADV audit report. 

(B) CMS provides written notice of its 

determination(s) to the MA organization 

and notifies the MA organization of its 

aggregate determinations regarding 

overturning errors listed in the MA 

organization’s RADV audit report and 

recalculating the MA organization’s 

RADV payment error. 

(v) Effect of CMS documentation 

dispute determination. CMS’ 

documentation dispute determination is 

final and binding. 

(3) RADV payment error calculation 

appeal process. 

(i) MA organizations may appeal 

CMS’ RADV payment error calculation. 

(ii) RADV payment error-related 

issues ineligible for appeal. 

(A) MA organizations may not appeal 

RADV medical record review-related 

errors. 

(B) MA organizations may not appeal 

physician/practitioner signature or 

credential-related medical record review 

errors. 


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(C) MA organizations may not 

introduce new HCCs to CMS for 

payment consideration in the context of 

their RADV payment error calculation 

appeal. 

(D) MA organizations may not appeal 

RADV errors that result from an MA 

organization’s failure to submit a 

medical record. 

(E) MA organizations may not appeal 

CMS’ RADV payment error calculation 

methodology. 

(iii) Manner and timing of a request 

for appeal. 

(A) At the time CMS issues its RADV 

audit report, CMS notifies affected MA 

organizations in writing of their appeal 

rights around the RADV payment error 

calculation. 

(B) MA organizations have 30 days 

from the date of this notice to submit a 

written request for reconsideration of its 

RADV payment error calculation. 

(iv) Burden of proof. The MA 

organization bears the burden of proof 

in demonstrating that CMS failed to 

follow its stated RADV payment error 

calculation methodology. 

(v) Content of request. The written 

request for reconsideration must specify 

the issues with which the MA 

organization disagrees and the reasons 

for the disagreements. 

(A) Excluding evidence pertaining to 

issues described at § 422.311(c) (1) and 

(2), the written request for 

reconsideration may include additional 

documentary evidence the MA 

organization wishes CMS to consider. 

(B) CMS does not accept 

reconsiderations for issues with the 

methodology applied in any part of the 

RADV audit. 

(vi) Conduct of written 

reconsideration. 

(A) In conducting the written 

reconsideration, CMS reviews all of the 

following information: 

(1) The RADV payment error 

calculation. 

(2) The evidence and findings upon 

which they were based. 

(3) Any other written evidence 

submitted by the MA organization. 

(B) CMS ensures that a third party— 

either within CMS or a CMS 

contractor—not otherwise involved in 

the RADV payment error calculation 

reviews the written request for 

reconsideration. 

(C) The third party recalculates the 

payment error in accordance with CMS 

RADV payment calculation procedures 

described in CMS’ RADV payment error 

calculation standard operating 

procedures. 

(D) The third party described in 

paragraph (B) of this paragraph provides 

his or her determination to a CMS 

reconsideration official not otherwise 

involved in the RADV payment error 

calculation to review the 

reconsideration determination. 

(vii) Decision of the CMS 

reconsideration official. The CMS 

reconsideration official informs the MA 

organization and CMS in writing of the 

decision of the CMS reconsideration 

official. 

(viii) Effect of the CMS 

reconsideration official. The written 

reconsideration decision is final and 

binding unless a request for a hearing is 

filed by CMS or the appellant MA 

organization in accordance with 

paragraph (c)(4) of this section. 

(4) Right to a hearing. CMS or an MA 

organization dissatisfied with the 

written decision of the CMS 

reconsideration official is entitled to a 

hearing as provided in this section. 

(i) Manner and timing for request. A 

request for a hearing must be made in 

writing and filed with CMS within 30 

days of the date CMS and the MA 

organization receives CMS’ written 

reconsideration decision. 

(ii) Content of request. The written 

request for hearing must include a copy 

of the written decision of the CMS 

reconsideration official and must 

specify the findings or issues in the 

reconsideration decision with which 

either CMS or the MA organization 

disagrees and the reasons for the 

disagreement. 

(iii) Hearing procedures. 

(A) The hearing will be held on the 

record, unless the parties request, 

subject to the hearing officer’s 

discretion, a live or telephonic hearing. 

The hearing officer may schedule a live 

or telephonic hearing on his/her own 

motion. 

(B) The hearing is conducted by an 

official from the CMS’ Office of 

Hearings (CMS Hearing Officer) who 

neither receives testimony nor accepts 

any new evidence that was not 

presented with the request for 

reconsideration. The CMS Hearing 

Officer is limited to the review of the 

record that was before CMS when CMS 

made its initial RADV payment error 

calculation determination and when the 

CMS reconsideration official issued the 

written reconsideration decision. 

(C) The hearing officer has full power 

to make rules and establish procedures, 

consistent with the law, regulations, and 

CMS rulings. These powers include the 

authority to dismiss the appeal with 

prejudice or take any other action which 

the hearing officer considers appropriate 

for failure to comply with such rules 

and procedures. 

(iv) Decision of the CMS Hearing 

Officer. The CMS Hearing Officer 

decides whether the reconsideration 

official’s decision was correct, and 

sends a written decision to CMS and the 

MA organization, explaining the basis 

for the decision. 

(v) Effect of the Hearing Officer’s 

decision. The Hearing Officer’s decision 

is final and binding, unless the decision 

is reversed or modified by the 

Administrator in accordance with 

paragraph (c)(5) of this section. 

(5) Review by the CMS Administrator. 

(i) At his or her discretion, the CMS 

Administrator can choose to either 

review or not review a case. 

(ii) CMS or an MA organization that 

has received a Hearing Officer decision 

upholding or overturning a CMS initial 

or reconsideration-level RADV payment 

error calculation determination may 

request review by the Administrator 

within 30 days of receipt of the Hearing 

Officer’s decision. 

(iii) If the CMS Administrator chooses 

to review the case, the CMS 

Administrator reviews the Hearing 

Officer’s decision, any written 

documents submitted by CMS or the 

MA organization to the Hearing Officer, 

as well as any other information 

included in the record of the Hearing 

Officer’s decision and determines 

whether to uphold, reverse, or modify 

the Hearing Officer’s decision. 

(iv) The Administrator’s 

determination is final and binding. 

Subpart K—Contracts With Medicare 

Advantage Organizations 

28. Section 422.501 is amended by— 

A. Redesignating paragraphs (b) 

through (e) as paragraphs (c) through (f), 

respectively. 

B. Adding a new paragraph (b). 

C. Revising newly redesignated 

paragraph (c)(1) introductory text and 

paragraph (c)(2). 

The addition and revisions read as 

follows: 

§ 422.501 Application requirements. 

* * * * * 

(b) Completion of a notice of intent to 

apply. 

(1) An organization submitting an 

application under this section for a 

particular contract year must first 

submit a completed Notice of Intent to 

Apply by the date established by CMS. 

CMS will not accept applications from 

organizations that do not first submit a 

timely Notice of Intent to Apply. 

(2) Submitting a Notice of Intent to 

Apply does not bind that organization to 

submit an application for the applicable 

contract year. 

(c) * * * 

(1) In order to obtain a determination 

on whether it meets the requirements to 


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become an MA organization and is 

qualified to provide a particular type of 

MA plan, an entity, or an individual 

authorized to act for the entity (the 

applicant) must fully complete all parts 

of a certified application, in the form 

and manner required by CMS, including 

the following: 

* * * * * 

(2) The authorized individual must 

thoroughly describe how the entity and 

MA plan meet, or will meet, all the 

requirements described in this part. 

* * * * * 

29. Section 422.502 is amended by— 

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

and (b). 

B. Adding a new paragraph (c)(2)(iii). 

C. Revising paragraph (c)(3)(iii). 

D. Removing paragraph (d). 

The revisions read as follows: 

§ 422.502 Evaluation and determination 

procedures. 

(a) * * * 

(1) With the exception of evaluations 

conducted under paragraph (b) of this 

section, CMS evaluates an application 

for an MA contract solely on the basis 

of information contained in the 

application itself and any additional 

information that CMS obtains through 

other means such as on-site visits. 

(2) After evaluating all relevant 

information, CMS determines whether 

the applicant’s application meets all the 

requirements described in this part. 

(b) Use of information from a current 

or prior contract. If an MA organization 

fails during the 14 months preceding the 

deadline established by CMS for the 

submission of contract qualification 

applications to comply with the 

requirements of the Part C program 

under any current or prior contract with 

CMS under title XVIII of the Act or fails 

to complete a corrective action plan 

during the 14 months preceding the 

deadline established by CMS for the 

submission of contract qualification 

applications, CMS may deny an 

application based on the applicant’s 

failure to comply with the requirements 

of the Part C program under any current 

or prior contract with CMS even if the 

applicant currently meets all of the 

requirements of this part. 

(c) * * * 

(2) * * * 

(iii) If CMS does not receive a revised 

application within 10 days from the 

date of the notice, or if after timely 

submission of a revised application, 

CMS still finds the applicant does not 

appear qualified to contract as an MA 

organization or has not provided enough 

information to allow CMS to evaluate 

the application, CMS will deny the 

application. 

(3) * * * 

(iii) The applicant’s right to request a 

hearing in accordance with the 

procedures specified in subpart N of 

this part. 

30. Section 422.503 is amended by— 

A. Revising paragraph (b)(4)(vi). 

B. Adding new paragraph (b)(7). 

The revisions and addition read as 

follows: 

§ 422.503 General provisions. 

* * * * * 

(b) * * * 

(4) * * * 

(vi) Adopt and implement an effective 

compliance program, which must 

include measures that prevent, detect, 

and correct non-compliance with CMS’ 

program requirements as well as 

measures that prevent, detect, and 

correct fraud, waste, and abuse. The 

compliance program must, at a 

minimum, include the following core 

requirements: 

(A) Written policies, procedures, and 

standards of conduct that— 

(1) Articulate the organization’s 

commitment to comply with all 

applicable Federal and State standards; 

(2) Describe compliance expectations 

as embodied in the standards of 

conduct, 

(3) Implement the operation of the 

compliance program; 

(4) Provide guidance to employees 

and others on dealing with potential 

compliance issues; 

(5) Identify how to communicate 

compliance issues to appropriate 

compliance personnel; 

(6) Describe how potential 

compliance issues are investigated and 

resolved by the organization; and 

(7) Include a policy of nonintimidation and non-retaliation for 

good faith participation in the 

compliance program, including but not 

limited to reporting potential issues, 

investigating issues, conducting selfevaluations, audits and remedial 

actions, and reporting to appropriate 

officials. 

(B) The designation of a compliance 

officer and a compliance committee 

who report directly to the organization’s 

chief executive or other senior 

administrator. 

(1) The compliance officer, vested 

with the day-to-day operations of the 

compliance program, must be an 

employee of the MA organization. 

(2) The compliance officer and the 

compliance committee must 

periodically report directly to the 

governing body of the MA organization 

on the activities and status of the 

compliance program, including issues 

identified, investigated, and resolved by 

the compliance program. 

(3) The governing body of the MA 

organization must be knowledgeable 

about the content and operation of the 

compliance program and must exercise 

reasonable oversight with respect to the 

implementation and effectiveness of the 

compliance programs. 

(C)(1) Each MA organization must 

establish and implement effective 

training and education between the 

compliance officer and organization 

employees, the MA organization’s chief 

executive or other senior administrator, 

managers and governing body members, 

and the MA organization’s first tier, 

downstream, and related entities. Such 

training and education must occur at a 

minimum annually and must be made a 

part of the orientation for a new 

employee, new first tier, downstream 

and related entities, and new 

appointment to a chief executive, 

manager, or governing body member. 

(2) First tier, downstream, and related 

entities who have met the fraud, waste, 

and abuse certification requirements 

through enrollment into the Medicare 

program are deemed to have met the 

training and educational requirements 

for fraud, waste, and abuse. 

(D) Establishment and 

implementation of effective lines of 

communication, ensuring 

confidentiality, between the compliance 

officer, members of the compliance 

committee, the MA organization’s 

employees, managers and governing 

body, and the MA organization’s first 

tier, downstream, and related entities. 

Such lines of communication must be 

accessible to all and allow compliance 

issues to be reported including a 

method for anonymous and confidential 

good faith reporting of potential 

compliance issues as they are identified. 

(E) Well-publicized disciplinary 

standards through the implementation 

of procedures which encourage good 

faith participation in the compliance 

program by all affected individuals. 

These standards must include policies 

that: 

(1) Articulate expectations for 

reporting compliance issues and assist 

in their resolution, 

(2) Identify noncompliance or 

unethical behavior; and 

(3) Provide for timely, consistent, and 

effective enforcement of the standards 

when noncompliance or unethical 

behavior is determined. 

(F) Establishment and implementation 

of an effective system for routine 

monitoring and identification of 

compliance risks. The system should 

include internal monitoring and audits 

and, as appropriate, external audits, to 

evaluate the MA organization, including 

first tier entities’, compliance with CMS 


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requirements and the overall 

effectiveness of the compliance 

program. 

(G) Establishment and 

implementation of procedures and a 

system for promptly responding to 

compliance issues as they are raised, 

investigating potential compliance 

problems as identified in the course of 

self-evaluations and audits, correcting 

such problems promptly and thoroughly 

to reduce the potential for recurrence, 

and ensure ongoing compliance with 

CMS requirements. 

* * * * * 

(7) Not have terminated a contract by 

mutual consent under which, as a 

condition of the consent, the MA 

organization agreed that it was not 

eligible to apply for new contracts or 

service area expansions for a period of 

2 years per § 422.508(c) of this subpart. 

* * * * * 

31. Section 422.504 is amended by— 

A. Redesignating paragraph (e)(1)(ii) 

and (e)(1)(iii) as paragraph (e)(1)(iii) and 

(e)(1)(iv), respectively. 

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

C. Revising newly redesignated 

paragraph (e)(1)(iii). 

D. Revising paragraph (i)(2)(i). 

E. Add a new paragraph (m). 

The additions and revisions read as 

follows: 

§ 422.504 Contract provisions. 

* * * * * 

(e) * * * 

(1) * * * 

(ii) Compliance with CMS 

requirements for maintaining the 

privacy and security of personal health 

information and other personally 

identifiable information of Medicare 

enrollees; 

(iii) The facilities of the MA 

organization to include computer and 

other electronic systems; and 

* * * * * 

(i) * * * 

(2) * * * 

(i) HHS, the Comptroller General, or 

their designees have the right to audit, 

evaluate, and inspect any books, 

contracts, computer or other electronic 

systems, including medical records and 

documentation of the first tier, 

downstream, and related to CMS’ 

contract with the MA organization. 

* * * * * 

(m)(1) CMS may determine that an 

MA organization is out of compliance 

with Part C when the organization fails 

to meet performance standards 

articulated in the Part C statutes, 

regulations, or guidance. 

(2) If CMS has not already articulated 

a measure for determining 

noncompliance, CMS may determine 

that a MA organization is out of 

compliance when its performance 

represents an outlier relative to the 

performance of other MA organizations. 

32. Section 422.506 is amended by— 

A. Revising paragraph (a)(2)(ii). 

B. Removing paragraph (a)(2)(iii). 

C. Revising paragraph (a)(3)(i). 

D. Adding a new paragraph (b)(1)(iv). 

E. Revising paragraph (b)(2)(ii). 

F. Removing paragraph (b)(2)(iii). 

G. Revising paragraph (b)(3). 

The revisions and addition read as 

follows: 

§ 422.506 Nonrenewal of contract. 

(a) * * * 

(2) * * * 

(ii) Each Medicare enrollee by mail at 

least 90 calendar days before the date on 

which the nonrenewal is effective. The 

MA organization must also provide 

information about alternative 

enrollment options by doing one or 

more of the following: 

(A) Provide a CMS approved written 

description of alternative MA plan 

options available for obtaining qualified 

Medicare services within the 

beneficiaries’ region. 

(B) Place outbound calls to all affected 

enrollees to ensure beneficiaries know 

who to contact to learn about their 

enrollment options. 

(3) * * * 

(i) The MA organization notifies its 

Medicare enrollees in accordance with 

paragraph (a)(2)(ii) of this section; and 

* * * * * 

(b) * * * 

(1) * * * 

(iv) The contract must be nonrenewed 

as to an individual MA plan if that plan 

does not have a sufficient number of 

enrollees to establish that it is a viable 

independent plan option. 

(2) * * * 

(ii) To each of the MA organization’s 

Medicare enrollees by mail at least 90 

calendar days before the date on which 

the nonrenewal is effective, or at the 

conclusion of the appeals process if 

applicable. 

(3) Opportunity to develop and 

implement a corrective action plan. 

(i) Before providing a notice of intent 

of nonrenewal of the contract, CMS will 

provide the MA organization with a 

notice specifying the deficiencies and 

reasonable opportunity to develop and 

implement a corrective action plan to 

correct the deficiencies that form the 

basis for the determination to nonrenew the contract. 

(ii) CMS affords the MA organization 

with at least 30 calendar days in which 

to develop and implement a corrective 

action plan to correct the deficiencies 

that formed the basis for the 

determination to non-renew the 

contract. 

(iii) The MA organization is solely 

responsible for the identification, 

development, and implementation of its 

corrective action plan and for 

demonstrating to CMS that the 

underlying deficiencies have been 

corrected within the time period 

specified by CMS in the notice 

requesting corrective action. 

* * * * * 

33. Section 422.508 is amended by 

adding paragraph (c) to read as follows: 

§ 422.508 Modification or termination of 

contract by mutual consent. 

* * * * * 

(c) Agreement to limit new MA 

applications. As a condition of the 

consent to a mutual termination CMS 

will require, as a provision of the 

termination agreement language 

prohibiting the MA organization from 

applying for new contracts or service 

area expansions for a period of 2 years, 

absent circumstances warranting special 

consideration. 

34. Section 422.510 is amended by 

revising paragraphs (a), (b) introductory 

text, (b)(2)(i), (b)(2)(ii), and (c) to read as 

follows: 

§ 422.510 Termination of contract by CMS. 

(a) Termination by CMS. 

(1) CMS may at any time terminate a 

contract if CMS determines that the MA 

organization meets any of the following: 

(i) Has failed substantially to carry out 

the contract. 

(ii) Is carrying out the contract in a 

manner that is inconsistent with the 

efficient and effective administration of 

this part. 

(iii) No longer substantially meets the 

applicable conditions of this part. 

(2) CMS may determine, in 

accordance with paragraph (a)(1) of this 

section, that a basis exists to terminate 

an MA organization’s contract if— 

(i) The MA organization fails to 

comply with any of the regulatory 

requirements contained in this part or 

part 423 of this chapter or both; 

(ii) The MA organization fails to meet 

CMS performance requirements in 

carrying out the regulatory requirements 

contained in this part or part 423 of this 

chapter or both including, but not 

limited to, when CMS determines that 

an analysis of data related to the 

organization’s performance indicates it 

is an outlier relative to that of other 

organizations; or 

(iii) There is credible evidence to 

show that the MA organization has 

committed or participated in false, 

fraudulent, or abusive activities 


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affecting the Medicare, Medicaid, or 

other State or Federal health care 

programs, including submission of false 

or fraudulent data. 

(b) Notice. If CMS decides to 

terminate a contract it gives notice of 

the termination as follows: 

(1) * * * 

(2) Expedited termination of contract 

by CMS. (i) If CMS determines that a 

delay in termination, resulting from 

compliance with the procedures 

provided in this part prior to 

termination, would pose an imminent 

and serious risk to the health of the 

individuals enrolled with the MA 

organization, the effective date of 

termination will be specified, in writing, 

by CMS. 

(ii) If a termination is effective in the 

middle of a month, CMS has the right 

to recover the prorated share of the 

capitation payments made to the MA 

organization covering the period of the 

month following the contract 

termination. 

* * * * * 

(c) Opportunity to develop and 

implement a corrective action plan. 

(1) General. (i) Before providing a 

notice of intent to terminate the 

contract, CMS will provide the MA 

organization with a notice specifying 

the deficiencies and reasonable 

opportunity to develop and implement 

a corrective action plan to correct the 

deficiencies that form the basis for the 

determination to terminate the contract. 

(ii) CMS affords the MA organization 

with at least 30 calendar days in which 

to develop and implement a corrective 

action plan to correct the deficiencies 

that formed the basis for the 

determination to terminate the contract. 

(iii) The MA organization is solely 

responsible for the identification, 

development, and implementation of its 

corrective action plan and for 

demonstrating to CMS that the 

underlying deficiencies have been 

corrected within the time period 

specified by CMS in the notice 

requesting corrective action. 

(2) Exceptions. If CMS determines 

that a delay in termination, resulting 

from compliance with the procedures 

provided in this part prior to 

termination, would pose an imminent 

and serious risk to the health of the 

individuals enrolled with the MA 

organization, the MA organization will 

not be provided with an opportunity to 

develop and implement a corrective 

action plan prior to termination. 

* * * * * 

35. Section 422.516 is amended by— 

A. Revising the section heading. 

B. Adding a new paragraph (g). 

The revision and addition to read as 

follows: 

§ 422.516 Validation of Part C reporting 

requirements. 

* * * * * 

(g) Data validation. Each Part C 

sponsor must subject information 

collected under paragraph (a) of this 

section to a yearly independent audit to 

determine their reliability, validity, 

completeness, and comparability in 

accordance with specifications 

developed by CMS. 

Subpart M—Grievances, Organization 

Determinations, and Appeals 

36. Section 422.561 is amended by 

revising the definition of 

‘‘Representative’’ to read as follows: 

§ 422.561 Definitions. 

* * * * * 

Representative means an individual 

appointed by an enrollee or other party, 

or authorized under State or other 

applicable law, to act on behalf of an 

enrollee or other party involved in the 

grievance or appeal. Unless otherwise 

stated in this subpart, the representative 

will have all the rights and 

responsibilities of an enrollee or party 

in filing a grievance, and in obtaining an 

organization determination or in dealing 

with any of the levels of the appeals 

process, subject to the applicable rules 

described in part 405 of this chapter. 

37. Section 422.566 is amended by 

revising paragraph (b)(4) to read as 

follows: 

§ 422.566 Organization determinations. 

* * * * * 

(b) * * * 

(4) Discontinuation or reduction of a 

service or an authorized course of 

treatment. 

* * * * * 

38. Section 422.568 is amended by— 

A. Redesignating paragraphs (a) 

through (f) as paragraphs (b) through (g), 

respectively. 

B. Adding a new paragraph (a). 

C. Revising newly redesignated 

paragraph (e). 

The addition and revision read as 

follows: 

§ 422.568 Standard timeframes and notice 

requirements for organization 

determinations. 

(a) Method and place for filing a 

request. An enrollee must ask for a 

standard organization determination by 

making a request with the MA 

organization or, if applicable, to the 

entity responsible for making the 

determination (as directed by the MA 

organization), in accordance with the 

following: 

(1) The request may be made orally or 

in writing, except as provided in 

paragraph (a)(2) of this section. 

(2) Requests for payment must be 

made in writing (unless the MA 

organization or entity responsible for 

making the determination has 

implemented a voluntary policy of 

accepting oral payment requests). 

* * * * * 

(e) Written notice for MA organization 

denials. 

(1) If an MA organization decides to 

deny a service or payment in whole or 

in part, or discontinue or reduce the 

level of care for an authorized course of 

treatment, the organization must give 

the enrollee written notice of the 

determination. 

(2) If an enrollee requests an MA 

organization to provide an explanation 

of a practitioner’s denial of an item or 

service, in whole or in part, the MA 

organization must give the enrollee a 

written notice. 

* * * * * 

39. Section 422.574 is amended by 

revising paragraph (a) to read as follows: 

§ 422.574 Parties to the organization 

determination. 

* * * * * 

(a) The enrollee (including his or her 

representative); 

* * * * * 

40. Section 422.622 is amended by 

revising paragraph (f)(3) to read as 

follows: 

§ 422.622 Requesting immediate QIO 

review of the decision to discharge from the 

inpatient hospital. 

* * * * * 

(f) * * * 

(3) If the QIO determines that the 

enrollee still requires inpatient hospital 

care, the hospital must provide the 

enrollee with a notice consistent with 

§ 422.620(c) of this subpart when the 

hospital or MA organization once again 

determines that the enrollee no longer 

requires inpatient hospital care. 

* * * * * 

41. Section 422.624 is amended by 

revising paragraph (c)(1) to read as 

follows: 

§ 422.624 Notifying enrollees of 

termination of provider services. 

* * * * * 

(c) * * * 

(1) The enrollee (or the enrollee’s 

representative) has signed and dated the 

notice to indicate that he or she has 

received the notice and can comprehend 

its contents; and 

* * * * * 

42. Section 422.626 is amended by— 


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A. Redesignating paragraph (f) as 

paragraph (g). 

B. Redesignating paragraph (e)(5) as 

paragraph (f) and revising the newly 

redesignated paragraph (f). 

The revisions read as follows: 

§ 422.626 Fast-track appeals of service 

terminations to independent review entities 

(IREs). 

* * * * * 

(f) Responsibilities of the provider. If 

an IRE reverses an MA organization’s 

termination decision, the provider must 

provide the enrollee with a new notice 

consistent with § 422.624(b) of this 

subpart. 

* * * * * 

Subpart N—Medicare Contract 

Determinations and Appeals 

43. Section 422.644 is amended by 

revising paragraph (c) to read as follows: 

§ 422.644 Notice of contract determination. 

* * * * * 

(c) CMS-initiated terminations. 

(1) General rule. CMS mails notice to 

the MA organization 90 calendar days 

before the anticipated effective date of 

the termination. 

(2) Exception. For terminations where 

CMS determines that a delay in 

termination, resulting from compliance 

with the procedures provided in this 

part prior to termination, would pose an 

imminent and serious risk to the health 

of the individuals enrolled with the MA 

organization, CMS notifies the MA 

organization of the date that it will 

terminate the MA organization’s 

contract. 

* * * * * 

44. Section § 422.660 is revised to 

read as follows: 

§ 422.660 Right to a hearing, burden of 

proof, standard of proof, and standards of 

review. 

(a) Right to a hearing. The following 

parties are entitled to a hearing: 

(1) A contract applicant that has been 

determined to be unqualified to enter 

into a contract with CMS under Part C 

of Title XVIII of the Act in accordance 

with § 422.501 and § 422.502. 

(2) An MA organization whose 

contract has been terminated under 

§ 422.510 of this part. 

(3) An MA organization whose 

contract has not been renewed under 

§ 422.506 of this part. 

(4) An MA organization who has had 

an intermediate sanction imposed in 

accordance with § 422.752(a) through 

(b) of this part. 

(b) Burden of proof, standard of proof, 

and standards of review at a hearing. 

(1) During a hearing to review a 

contract determination as described at 

§ 422.641(a) of this subpart, the 

applicant has the burden of proving by 

a preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 422.501 and 

§ 422.502 of this part. 

(2) During a hearing to review a 

contract determination as described at 

§ 422.641(b) of this subpart, the MA 

organization has the burden of proving 

by a preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 422.506 of 

this part. 

(3) During a hearing to review a 

contract determination as described at 

§ 422.641(c) of this subpart, the MA 

organization has the burden of proving 

by a preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 422.510 of 

this part. 

(4) During a hearing to review the 

imposition of an intermediate sanction 

as described at § 422.750 of this part, the 

MA organization has the burden of 

proving by a preponderance of the 

evidence that CMS’ determination was 

inconsistent with the requirements of 

§ 422.752 of this part. 

(c) Timing of favorable decisions. 

Notice of any decision favorable to the 

MA organization appealing a 

determination that it is not qualified to 

enter into a contract with CMS must be 

issued by September 1 for the contract 

in question to be effective on January 1 

of the following year. 

45. Section 422.662 is amended by 

revising paragraphs (a) and (b) to read 

as follows: 

§ 422.662 Request for hearing. 

(a) Method and place for filing a 

request. (1) A request for a hearing must 

be made in writing and filed by an 

authorized official of the contract 

applicant or MA organization that was 

the party to the determination under the 

appeal. 

(2) The request for the hearing must 

be filed in accordance with the 

requirements specified in the notice. 

(b) Time for filing a request. A request 

for a hearing must be filed within 15 

calendar days after the receipt of the 

notice of the contract determination or 

intermediate sanction. 

* * * * * 

46. Section 422.664 is amended by 

revising paragraph (b)(2) to read as 

follows: 

§ 422.664 Postponement of effective date 

of a contract determination when a request 

for a hearing is filed timely. 

* * * * * 

(b) * * * 

(2) If CMS determines that a delay in 

termination, resulting from compliance 

with the procedures provided in this 

part prior to termination, would pose an 

imminent and serious risk to the health 

of individuals enrolled with the MA 

organization, the date of termination 

will not be postponed if the MA 

organization requests a hearing. 

47. Section 422.670 is revised to read 

as follows: 

§ 422.670 Time and place of hearing. 

(a) The hearing officer— 

(1) Fixes a time and place for the 

hearing, which is not to exceed 30 

calendar days after the receipt of the 

request for the hearing; and 

(2) Sends written notice to the parties 

that informs the parties of the general 

and specific issues to be resolved, the 

burden of proof, and information about 

the hearing procedure. 

(b)(1) The hearing officer may, on his 

or her own motion, change the time and 

place of the hearing. 

(2) The hearing officer may adjourn or 

postpone the hearing. 

(c)(1) The MA organization or CMS 

may request an extension by filing a 

written request no later than 5 calendar 

days prior to the scheduled hearing. 

(2) When either the MA organization 

or CMS requests an extension, the 

hearing officer will provide a one-time 

15 calendar day extension. 

(3) Additional extensions may be 

granted at the discretion of the hearing 

officer. 

48. Section 422.676 is amended by 

revising paragraph (d) to read as 

follows: 

§ 422.676 Conduct of hearing. 

* * * * * 

(d) The MA organization bears the 

burden of going forward and must first 

present evidence and argument before 

CMS presents its evidence and 

argument. 

49. Section 422.682 is revised to read 

as follows: 

§ 422.682 Witness lists and documents. 

Witness lists and documents must be 

identified and exchanged at least 5 

calendar days before the scheduled 

hearing. 

50. Section 422.692 is amended by 

revising paragraphs (a) and (c) to read as 

follows: 

§ 422.692 Review by the Administrator. 

(a) Request for review by 

Administrator. CMS or an MA 

organization that has received a hearing 

decision may request a review by the 

Administrator within 15 calendar days 

after receipt of the hearing decision as 

provided under § 422.690(b). Both the 

MA organization and CMS may provide 


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written arguments to the Administrator 

for review. 

* * * * * 

(c) Notification of Administrator 

determination. The Administrator 

notifies both parties of his or her 

determination regarding review of the 

hearing decision within 30 calendar 

days after receipt of request for review. 

If the Administrator declines to review 

the hearing decision or the 

Administrator does not make a 

determination regarding review within 

30 calendar days, the decision of the 

hearing officer is final. 

* * * * * 

51. Section 422.696 is amended by 

revising the section heading and 

paragraph heading for paragraph (a) to 

read as follows: 

§ 422.696 Reopening of a contract 

determination or decision of a hearing 

officer or the Administrator. 

(a) Contract determination. * * * 

* * * * * 

Subpart O—Intermediate Sanctions 

52. Section 422.750 is amended by 

revising paragraph (a) to read as follows: 

§ 422.750 Types of intermediate sanctions 

and civil money penalties. 

(a) The following intermediate 

sanctions may be imposed and will 

continue in effect until CMS is satisfied 

that the deficiencies that are the basis 

for the sanction determination have 

been corrected and are not likely to 

recur: 

(1) Suspension of the MA 

organization’s enrollment of Medicare 

beneficiaries. 

(2) Suspension of payment to the MA 

organization for Medicare beneficiaries 

enrolled after the date CMS notifies the 

organization of the intermediate 

sanction. 

(3) Suspension of all marketing 

activities to Medicare beneficiaries by 

an MA organization. 

* * * * * 

53. Section 422.752 is amended by— 

A. Revising paragraphs (a) 

introductory text, (a)(1), (a)(3), and 

(a)(4). 

B. In paragraph (c)(1), removing the 

cross-reference ‘‘422.510(a)(4)’’ and 

adding the cross-reference 

‘‘§ 422.510(a)(2)(iii) of this part’’ in its 

place. 

C. In paragraph (c)(2)(iii), removing 

the phrase ‘‘pursuant to 422.510(a)(4)’’ 

and adding the phrase ‘‘under 

§ 422.510(a)(2)(iii) of this part’’ in its 

place. 

The revisions read as follows: 

§ 422.752 Basis for imposing intermediate 

sanctions and civil money penalties. 

(a) All intermediate sanctions. For the 

violations listed in this paragraph, CMS 

may impose one or more of the 

sanctions specified in § 422.750(a) of 

this subpart on any MA organization 

with a contract. The MA organization 

may also be subject to other remedies 

authorized under law. 

(1) Fails substantially to provide 

medically necessary items and services 

that are required (under law or under 

the contract) to be provided to an 

individual covered under the contract, if 

the failure has adversely affected (or has 

the substantial likelihood of adversely 

affecting) the individual. 

* * * * * 

(3) Acts to expel or refuses to re-enroll 

a beneficiary in violation of the 

provisions of this part. 

(4) Engages in any practice that would 

reasonably be expected to have the 

effect of denying or discouraging 

enrollment (except as permitted by this 

part) by eligible individuals with the 

organization whose medical condition 

or history indicates a need for 

substantial future medical services. 

* * * * * 

54. Section 422.756 amended by— 

A. Revising paragraph (b). 

B. Removing paragraph (c). 

C. Redesignating paragraphs (d) 

through (f) as paragraphs (c) through (e), 

respectively. 

D. Revising the newly redesignated 

paragraphs (c)(1) and (c)(3). 

The revisions read as follows: 

§ 422.756 Procedures for imposing 

intermediate sanctions and civil money 

penalties. 

* * * * * 

(b) Hearing. (1) The MA organization 

may request a hearing before a CMS 

hearing officer. 

(2) A written request must be received 

by the designated CMS office within 15 

calendar days after the receipt of the 

notice. 

(3) A request for a hearing under 

§ 422.660 does not delay the date 

specified by CMS when the sanction 

becomes effective. 

(4) The MA organization must follow 

the right to a hearing procedure as 

specified at § 422.660 through § 422.684. 

(c) Effective date and duration of 

sanction. (1) Effective date. The 

effective date of the sanction is the date 

specified by CMS in the notice. 

* * * * * 

(3) Duration of sanction. The sanction 

remains in effect until CMS is satisfied 

that the deficiencies that are the basis 

for the sanction determination have 

been corrected and are not likely to 

recur. 

(i) CMS may require that the MA 

organization hire an independent 

auditor to provide CMS with additional 

information to determine if the 

deficiencies that are the basis for the 

sanction determination have been 

corrected and are not likely to recur. 

The independent auditor must work in 

accordance with CMS specifications and 

must be willing to attest that a complete 

and full independent review has been 

performed. 

(ii) In instances where marketing or 

enrollment or both intermediate 

sanctions have been imposed, CMS may 

require an MA organization to market or 

to accept enrollments or both for a 

limited period of time in order to assist 

CMS in making a determination as to 

whether the deficiencies that were the 

bases for the intermediate sanctions 

have been corrected and are not likely 

to recur. 

(A) If, following this time period, 

CMS determines the deficiencies have 

not been corrected or are likely to recur, 

the intermediate sanctions will remain 

in effect until such time that CMS is 

assured the deficiencies have been 

corrected and are not likely to recur. 

(B) The MA organization does not 

have a right to a hearing under 

§ 422.660(a)(4) of this part to challenge 

CMS’ determination to keep the 

intermediate sanctions in effect. 

* * * * * 

Subpart V—Medicare Advantage 

Marketing Requirements 

55. Section 422.2260 is amended by 

revising paragraph (5)(vii) of the 

definition of ‘‘Marketing materials’’ to 

read as follows: 

§ 422.2260 Definitions concerning 

marketing materials. 

* * * * * 

(5) * * * 

(vii) Membership activities—Current 

enrollee communication materials. 

Current enrollee communication 

materials include any informational 

materials that are— 

(A) Targeted to current enrollees; and 

(B) Customized or limited to a subset 

of enrollees or apply to a specific 

situation; or 

(C) Cover claims processing or other 

operational issues. 

56. Section 422.2262 is amended by— 

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

B. Adding new paragraphs (c) and (d). 

The revisions and additions read as 

follows: 


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§ 422.2262 Required use of standardized 

model materials. 

(a) * * * 

(1) Except as provided in paragraph 

(b) of this section, an MA organization 

may not distribute any marketing 

materials (as defined in § 422.2260 of 

this subpart), or election forms, or make 

such materials or forms available to 

individuals eligible to elect an MA 

organization unless— 

(i) At least 45 days (or 10 days if using 

certain types of marketing materials that 

use, without modification, proposed 

model language and format, including 

standardized language and formatting, 

as specified by CMS) before the date of 

distribution the MA organization has 

submitted the material or form to CMS 

for review under the guidelines in 

§ 422.2264 of this subpart; and 

(ii) CMS does not disapprove the 

distribution of new material or form. 

* * * * * 

(b) File and use. The MA organization 

may distribute certain types of 

marketing material, designated by CMS, 

5 days following their submission to 

CMS if the MA organization certifies 

that in the case of these marketing 

materials, it followed all applicable 

marketing guidelines and, when 

applicable, used model language 

specified by CMS without modification. 

(c) Standardized model marketing 

materials. When specified by CMS, 

organizations must use standardized 

formats and language in model 

materials. 

(d) Current enrollee communication 

materials. Current enrollee 

communication materials may be 

reviewed by CMS, which may upon 

review determine that such materials 

must be modified, or may no longer be 

used. 

PART 423—MEDICARE PROGRAM; 

MEDICARE PRESCRIPTION DRUG 

PROGRAM 

57. 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 B—Eligibility and Enrollment 

58. Section 423.34 is revised to read 

as follows: 

§ 423.34 Enrollment of low-income 

subsidy eligible individuals. 

(a) General rule. CMS must ensure the 

enrollment into Part D plans of lowincome subsidy eligible individuals 

who fail to enroll in a Part D plan. 

(b) Definitions. 

Full-benefit dual-eligible individual. 

For purposes of this section, a fullbenefit dual eligible individual means 

an individual who is— 

(1) Determined eligible by the State 

for— 

(i) Medical assistance for full-benefits 

under Title XIX of the Act for the month 

under any eligibility category covered 

under the State plan or comprehensive 

benefits under a demonstration under 

section 1115 of the Act; or 

(ii) Medical assistance under section 

1902(a)(10)(C) of the Act (medically 

needy) or section 1902(f) of the Act 

(States that use more restrictive 

eligibility criteria than are used by the 

SSI program) for any month if the 

individual was eligible for medical 

assistance in any part of the month. 

(2) Eligible for Part D in accordance 

with § 423.30(a) of this subpart. 

Low-income subsidy-eligible 

individual. For purposes of this section, 

a low-income subsidy eligible 

individual means an individual who 

meets the definition of full subsidy 

eligible (including full benefit dual 

eligible individuals) or other subsidy 

eligible in § 423.772 of this part. 

(c) Reassigning low-income subsidyeligible individuals. 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. 

(d) Enrollment rules. 

(1) General rule. Except for lowincome 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. 

(2) Individuals enrolled in an MSA 

plan or one of the following that does 

not offer a Part D benefit. Low-income 

subsidy eligible individuals enrolled in 

an MA private fee-for-service plan or 

cost-based HMO or CMP that does not 

offer qualified prescription drug 

coverage or an MSA plan and who fail 

to enroll in a Part D plan must be 

enrolled into a PDP plan as described in 

paragraph (d)(1) of this section. 

(3) Exception for individuals who are 

qualifying covered retirees. 

(i) Full benefit dual eligible 

individuals who are qualifying covered 

retirees as defined in § 423.882 of this 

part, and for whom CMS has approved 

the group health plan sponsor to receive 

the retirement drug subsidy described in 

subpart R of this part, also are 

automatically enrolled in a Part D plan, 

consistent with this paragraph, unless 

they elect to decline that enrollment. 

(ii) Before effectuating such an 

enrollment, CMS provides notice to 

such individuals of their choices and 

advises them to discuss the potential 

impact of Medicare Part D coverage on 

their group health plan coverage. The 

notice informs individuals that they will 

be deemed to have declined to enroll in 

Part D unless they affirmatively enroll 

in a Part D plan or contact CMS and 

confirm that they wish to be autoenrolled in a PDP. Individuals who elect 

not to be auto-enrolled, may enroll in 

Medicare Part D at a later time if they 

choose to do so. 

(iii) All other low-income subsidy 

eligible beneficiaries who are qualified 

covered retirees are not enrolled by 

CMS into PDPs. 

(e) Declining enrollment and 

disenrollment. Nothing in this section 

prevents a low-income subsidy eligible 

individual from— 

(1) Affirmatively declining enrollment 

in Part D; or 

(2) Disenrolling from the Part D plan 

in which the individual is enrolled and 

electing to enroll in another Part D plan 

during the special enrollment period 

provided under § 423.38. 

(f) Effective date of enrollment for 

full-benefit dual eligible individuals. 

Enrollment of full-benefit dual eligible 

individuals under this section must be 

effective as follows: 

(1) January 1, 2006 for individuals 

who are full-benefit dual-eligible 

individuals as of December 31, 2005. 

(2) The first day of the month the 

individual is eligible for Part D under 

§ 423.30(a)(1) for individuals who are 

Medicaid eligible and subsequently 

become newly eligible for Part D under 

§ 423.30(a)(1) on or after January 1, 

2006. 

(3) For individuals who are eligible 

for Part D under § 423.30(a)(1) of this 

subpart and subsequently become newly 

eligible for Medicaid on or after January 

1, 2006, enrollment is effective with the 

first day of the month when the 

individuals become eligible for both 

Medicaid and Part D. 

(g) Effective date of enrollment for 

non-full-benefit dual-eligible 

individuals who are low-income 

subsidy-eligible individuals. The 


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effective date for non-full-benefit dualeligible individuals who are low-income 

subsidy-eligible individuals is no later 

than the first day of the second month 

after CMS determines that they meet the 

criteria for enrollment under this 

section. 

59. Section 423.38 is amended by 

revising paragraph (c)(4) to read as 

follows: 

§ 423.38 Enrollment periods. 

* * * * * 

(c) * * * 

(4) The individual is a full-subsidy 

eligible individual or other subsidyeligible individual as defined in 

§ 423.772 of this part. 

* * * * * 

60. Section 423.44 is amended by— 

A. Redesignating paragraphs (d)(1)(iii) 

and (d)(1)(iv) as paragraphs (d)(1)(iv) 

and (d)(1)(v), respectively. 

B. Adding a new paragraph (d)(1)(iii). 

C. Redesignating the introductory text 

of paragraph (d)(5) as paragraph 

(d)(5)(i). 

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

The revisions and additions read as 

follows: 

§ 423.44 Involuntary disenrollment by the 

PDP. 

* * * * * 

(d) * * * 

(1) * * * 

(iii) The PDP sponsor provides the 

individual with a grace period, that is, 

an opportunity to pay past due 

premiums in full. The grace period 

must— 

(A) Be at least 2 months; and 

(B) Begin on the first day of the month 

for which the premium is unpaid. 

* * * * * 

(5) * * * 

(ii) Special rule. If the individual has 

not moved from the PDP service area, 

but has been absent from the service 

area for more than 12 consecutive 

months, the PDP sponsor must disenroll 

the individual from the plan effective on 

the first day of the 13th month after the 

individual left the service area. 

* * * * * 

Subpart C—Benefits and Beneficiary 

Protections 

61. Section 423.100 is amended by 

adding the definitions of ‘‘Drug category 

or class,’’ ‘‘Major or life threatening 

clinical consequences,’’ ‘‘Multiple 

drugs,’’ ‘‘Restricted access,’’ and 

‘‘Significant need for access to multiple 

drugs’’ to read as follows: 

§ 423.100 Definitions. 

* * * * * 

Drug category or class means, for the 

purpose of § 423.120(b)(2)(v) of the 

subpart, the identification of a drug 

grouping that is reasonable to identify 

the applicable drug products. 

* * * * * 

Major or life threatening clinical 

consequences means consequences in 

which serious clinical events may arise 

as a result of not taking a drug that can 

lead to patient hospitalization, or a 

persistent or significant disability or 

incapacity, or that can result in death. 

Multiple drugs mean two or more Part 

D drugs. 

* * * * * 

Restricted access means, for the 

purposes of § 423.120(b)(2)(v)(A) of this 

subpart, an enrollee who but for 

§ 423.120(b)(2)(v) of this subpart 

urgently requires a Part D drug but is 

waiting for an expedited 

redetermination by a Part D plan or an 

CMS independent review entity with 

respect to coverage of that drug. 

* * * * * 

Significant need for access to multiple 

drugs means instances in which — 

(1) There is a need for simultaneous 

use of drugs within a drug grouping 

because such drugs work in 

combination with each other; or 

(2) There is a strong likelihood of 

sequential use of drugs within a class or 

category within a short period of time 

due to the unique effects the drugs have 

on various individuals. 

* * * * * 

62. Section 423.104 is amended by— 

A. Revising paragraph (b). 

B. Adding a new paragraph (d)(2)(iii). 

The revision and addition read as 

follows: 

§ 423.104 Requirements related to 

qualified prescription drug coverage. 

* * * * * 

(b) Availability of prescription drug 

plan. A PDP sponsor offering a 

prescription drug plan must offer the 

plan— 

(1) To all Part D eligible beneficiaries 

residing in the plan’s service area; and 

(2) At a uniform premium, with 

uniform benefits and level of costsharing throughout the plan’s service. 

* * * * * 

(d) * * * 

(2) * * * 

(iii) Tiered cost sharing under 

paragraph (d)(2)(ii) of this section may 

not exceed levels annually determined 

by CMS to be discriminatory. 

* * * * * 

63. Section 423.112 is amended by 

revising paragraph (a) to read as follows: 

§ 423.112 Establishment of prescription 

drug plan sponsor service areas. 

(a) Service area for prescription drug 

plan sponsors. The service area for a 

prescription drug plan sponsor other 

than a fallback prescription drug plan 

sponsor consists of one or more PDP 

regions as established under paragraphs 

(b) and (c) of this section. 

* * * * * 

64. Section 423.120 is amended by— 

A. Revising paragraph (a). 

B. Redesignating paragraph (b)(1)(ix) 

as paragraph (b)(1)(x). 

C. Adding a new paragraph (b)(1)(ix). 

D. Revising paragraph (b)(2)(v). 

E. Adding new paragraph (b)(2)(vi). 

F. Revising paragraph (b)(3). 

G. Redesignating paragraph (c) as 

paragraph (c)(1). 

H. Adding new paragraphs (c)(2) 

through (c)(4). 

The revisions and additions read as 

follows: 

§ 423.120 Access to covered Part D drugs. 

(a) Assuring pharmacy access—(1) 

Standards for convenient access to 

network pharmacies. Except as provided 

in paragraph (a)(7) of this section, a Part 

D sponsor (as defined in § 423.4 of this 

part) must have a contracted pharmacy 

network consisting of retail pharmacies 

sufficient to ensure that, for 

beneficiaries residing in each State in a 

PDP sponsor’s service area (as defined 

in § 423.112(a) of this part), each State 

in a regional MA-organization’s service 

area (as defined in § 422.2 of this part), 

the entire service area of a local MA 

organization (as defined in § 422.2 of 

this chapter) or the entire geographic 

area of a cost contract (as defined in 

§ 417.401 of this chapter) all of the 

following requirements are satisfied: 

(i) At least 90 percent of Medicare 

beneficiaries, on average, in urban areas 

served by the Part D sponsor live within 

2 miles of a network pharmacy that is 

a retail pharmacy or a pharmacy 

described under paragraph (a)(2) of this 

section. 

(ii) At least 90 percent of Medicare 

beneficiaries, on average, in suburban 

areas served by the Part D sponsor live 

within 5 miles of a network pharmacy 

that is a retail pharmacy or a pharmacy 

described under paragraph (a)(2) of this 

section. 

(iii) At least 70 percent of Medicare 

beneficiaries, on average, in rural areas 

served by the Part D sponsor live within 

15 miles of a network pharmacy that is 

a retail pharmacy or a pharmacy 

described under paragraph (a)(2) of this 

section. 

(2) Applicability of some non-retail 

pharmacies to standards for convenient 

access. Part D sponsors may count 


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I/T/U pharmacies and pharmacies 

operated by Federally Qualified Health 

Centers and Rural Health Centers 

toward the standards for convenient 

access to network pharmacies in 

paragraph (a)(1) of this section. 

(3) Access to non-retail pharmacies. A 

Part D sponsor’s contracted pharmacy 

network may be supplemented by nonretail pharmacies, including pharmacies 

offering home delivery via mail-order 

and institutional pharmacies, provided 

the requirements of paragraph (a)(1) of 

this section are met. 

(4) Access to home infusion 

pharmacies. A Part D sponsor’s 

contracted pharmacy network must 

provide adequate access to home 

infusion pharmacies consistent with 

written policy guidelines and other 

CMS instructions. A Part D plan must 

ensure that such network pharmacies, at 

a minimum meet all the following 

requirements: 

(i) Are capable of delivering homeinfused drugs in a form that can be 

administered in a clinically appropriate 

fashion. 

(ii) Are capable of providing infusible 

Part D drugs for both short-term acute 

care and long-term chronic care 

therapies. 

(iii) Ensure that the professional 

services and ancillary supplies 

necessary for home infusion therapy are 

in place before dispensing Part D home 

infusion drugs. 

(iv) Provide delivery of home infusion 

drugs within 24 hours of discharge from 

an acute care setting, or later if so 

prescribed. 

(5) Access to long-term care 

pharmacies. A Part D sponsor must offer 

standard contracting terms and 

conditions, including performance and 

service criteria for long-term care 

pharmacies that CMS specifies, to all 

long-term care pharmacies in its service 

area. The sponsor must provide 

convenient access to long-term care 

pharmacies consistent with written 

policy guidelines and other CMS 

instructions. 

(6) Access to I/T/U pharmacies. A 

Part D sponsor must offer standard 

contracting terms and conditions 

conforming to the model addendum that 

CMS develops, to all I/T/U pharmacies 

in its service area. The sponsor must 

provide convenient access to I/T/U 

pharmacies consistent with written 

policy guidelines and other CMS 

instructions. 

(7) Waiver of pharmacy access 

requirements. CMS waives the 

requirements under paragraph (a)(1) of 

this section in the case of either of the 

following: 

(i) An MA organization or cost 

contract (as described in section 1876(h) 

of the Act) that provides its enrollees 

with access to covered Part D drugs 

through pharmacies owned and 

operated by the MA organization or cost 

contract, provided the organization’s or 

plan’s pharmacy network meets the 

access standard set forth— 

(A) At § 422.112 of this chapter for an 

MA organization; or 

(B) At § 417.416(e) of this chapter for 

a cost contract. 

(ii) An MA organization offering a 

private fee-for-service plan described in 

§ 422.4 of this chapter that— 

(A) Offers qualified prescription drug 

coverage; and 

(B) Provides plan enrollees with 

access to covered Part D drugs 

dispensed at all pharmacies, without 

regard to whether they are contracted 

network pharmacies and without 

charging cost-sharing in excess of that 

described in § 423.104(d)(2) and (d)(5). 

(8) Pharmacy network contracting 

requirements. In establishing its 

contracted pharmacy network, a Part D 

sponsor offering qualified prescription 

drug coverage— 

(i) Must contract with any pharmacy 

that meets the Part D sponsor’s standard 

terms and conditions; and 

(ii) May not require a pharmacy to 

accept insurance risk as a condition of 

participation in the Part D sponsor’s 

contracted pharmacy network. 

(9) Differential cost-sharing for 

preferred pharmacies. A Part D sponsor 

offering a Part D plan that provides 

coverage other than defined standard 

coverage may reduce copayments or 

coinsurance for covered Part D drugs 

obtained through a preferred pharmacy 

relative to the copayments or 

coinsurance applicable for such drugs 

when obtained through a non-preferred 

pharmacy. Such differentials are taken 

into account in determining whether the 

requirements under § 423.104(d)(2) and 

(d)(5) and § 423.104(e) are met. Any 

cost-sharing reduction under this 

section must not increase CMS 

payments to the Part D plan under 

§ 423.329. 

(10) Level playing field between mailorder and network pharmacies. A Part D 

sponsor must permit its Part D plan 

enrollees to receive benefits, which may 

include a 90-day supply of covered Part 

D drugs, at any of its network 

pharmacies that are retail pharmacies. A 

Part D sponsor may require an enrollee 

obtaining a covered Part D drug at a 

network pharmacy that is a retail 

pharmacy to pay any higher cost-sharing 

applicable to that covered Part D drug 

at the network pharmacy that is a retail 

pharmacy instead of the cost-sharing 

applicable to that covered Part D drug 

at the network pharmacy that is a mailorder pharmacy. 

(b) * * * 

(1) * * * 

(ix) Reviews and approves all clinical 

prior authorization criteria, step therapy 

protocols, and quantity limit restrictions 

applied to each covered Part D drug. 

* * * * * 

(2) * * * 

(v) Beginning with contract year 2011, 

except as provided in paragraph 

(b)(2)(vi) of this section, a Part D 

sponsor’s formulary will include all Part 

D drugs in a category or class for which 

both of the following apply: 

(A) Restricted access to the drugs in 

the category or class would have major 

or life threatening clinical consequences 

for individuals who have a disease or 

disorder treated by drugs in such 

category or class; and 

(B) There is a significant need for 

such individuals to have access to 

multiple drugs within a category or 

class due to unique chemical actions 

and pharmacological effects of the drugs 

within a category or class. 

(vi) Exceptions to paragraph (b)(2)(v) 

of this section are as follows: 

(A) Drug products that are rated as 

therapeutically equivalent (under the 

Food and Drug Administration’s most 

recent publication of ‘‘Approved Drug 

Products with Therapeutic Equivalence 

Evaluations,’’ also known as the Orange 

Book). 

(B) Utilization management processes 

that limit the quantity of drugs due to 

safety. 

(C) Other drugs that CMS specifies 

through a process that is based upon 

scientific evidence and medical 

standards of practice (and, in the case of 

antiretroviral medications, is consistent 

with the Department of Health and 

Human Services Guidelines for the Use 

of Antiretroviral Agents in HIV–1– 

Infected Adults and Adolescents) and 

which permits public notice and 

comment. 

(3) Transition process. A Part D 

sponsor must provide for an appropriate 

transition process for enrollees 

prescribed Part D drugs that are not on 

its Part D plan’s formulary (including 

Part D drugs that are on a sponsor’s 

formulary but require prior 

authorization or step therapy under a 

plan’s utilization management rules). 

The transition process must: 

(i) Be applicable to all of the 

following: 

(A) New enrollees into Part D plans 

following the annual coordinated 

election period. 

(B) Newly eligible Medicare enrollees 

from other coverage. 


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(C) Individuals who switch from one 

plan to another after the start of the 

contract year. 

(D) Current enrollees remaining in the 

plan affected by formulary changes. 

(ii) Ensure access to a temporary 

supply of drugs within the first 90 days 

of coverage under a new plan. This 90- 

day timeframe applies to retail, home 

infusion, long-term care and mail-order 

pharmacies, 

(iii) Ensure the provision of a 

temporary fill when an enrollee requests 

a fill of a non-formulary drug during the 

time period specified in paragraph (ii) of 

this paragraph (including Part D drugs 

that are on a plan’s formulary but 

require prior authorization or step 

therapy under a plan’s utilization 

management rules). 

(A) In the outpatient setting, the onetime, 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 at least 30 days of 

medication, unless the prescription is 

written by a prescriber for less than 30 

days and requires the Part D sponsor to 

allow multiple fills to provide up to a 

total of 30 days of medication. 

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

temporary supply of non-formulary Part 

D drugs (including Part D drugs that are 

on a sponsor’s formulary but require 

prior authorization or step therapy 

under a sponsor’s utilization 

management rules) must be for up to 90 

days in 31-day supply increments 

(unless the prescription is written for 

less than 31 days). 

(iv) Ensure written notice is provided 

to each affected enrollee within 3 

business days of the temporary fill. 

(v) Ensure that reasonable efforts are 

made to notify prescribers of affected 

enrollees who receive a transition notice 

under paragraph (b)(3)(iv) of this 

section. 

(c) * * * 

(2) When processing Part D claims, a 

Part D sponsor or its intermediary must 

comply with the electronic transaction 

standards established by 45 CFR 

162.1102. CMS will issue guidance on 

the use of conditional fields within such 

standards. 

(3) A Part D sponsor must require its 

network pharmacies to submit claims to 

the Part D sponsor or its intermediary 

whenever the card described in 

paragraph (c)(1) of this section is 

presented or on file at the pharmacy 

unless the enrollee expressly requests 

that a particular claim not be submitted 

to the Part D sponsor or its 

intermediary. 

(4) A part D sponsor must assign a 

unique— 

(i) Part D BIN or RxBIN and Part D 

processor control number (RxPCN) 

combination to its Medicare line of 

business; and 

(ii) Part D cardholder identification 

number (RxID) to each Medicare Part D 

enrollee to clearly identify Medicare 

Part D beneficiaries. 

65. Section 423.128 is amended by 

adding a new paragraph (f) to read as 

follows: 

§ 423.128 Dissemination of Part D plan 

information. 

* * * * * 

(f) Disclosure requirements. CMS may 

require a Part D plan sponsor to disclose 

to its enrollees or potential enrollees, 

the Part D plan sponsor’s performance 

and contract compliance deficiencies in 

a manner specified by CMS. 

66. Section 423.132 is amended by— 

A. Revising the introductory text of 

paragraph c. 

B. In paragraphs (c)(2) and (c)(3), 

removing the ‘‘;’’ and adding a ‘‘.’’ in its 

place. 

C. In paragraph (c)(4), removing ‘‘; 

and’’ and adding a ‘‘.’’ in its place. 

D. Redesignating paragraph (c)(5) as 

(c)(6). 

E. Adding a new paragraph (c)(5). 

F. Revising paragraph (d). 

The revisions and additions read as 

follows: 

§ 423.132 Public disclosure of 

pharmaceutical prices for equivalent drugs. 

* * * * * 

(c) Waiver of public disclosure 

requirement. CMS waives the 

requirement under paragraph (a) of this 

section in any of the following cases: 

* * * * * 

(5) A long-term care network 

pharmacy. 

(d) Modification of timing 

requirement. CMS modifies the 

requirement under paragraph (b) of this 

section under circumstances where 

CMS deems compliance with this 

requirement to be impossible or 

impracticable. 

Subpart D—Cost Control and Quality 

Improvement Requirements 

67. Section 423.153 is amended by— 

A. Adding paragraphs (d)(1)(v) 

through (vii). 

B. Revising paragraph (d)(2). 

The additions and revisions read as 

follows: 

§ 423.153 Drug utilization management, 

quality assurance, and medication therapy 

management programs (MTMPs). 

* * * * * 

(d) * * * 

(1) * * * 

(v) Must enroll targeted beneficiaries 

using an opt-out method of enrollment 

only. 

(vi) Must target beneficiaries for 

enrollment in the MTMP at least 

quarterly during each plan year. 

(vii) Must offer a minimum level of 

medication therapy management 

services for each beneficiary enrolled in 

the MTMP that includes all of the 

following: 

(A) Interventions for both 

beneficiaries and prescribers. 

(B) Annual comprehensive 

medication reviews with written 

summaries. The comprehensive medical 

review must include an interactive, 

person-to-person consultation 

performed by a pharmacist or other 

qualified provider unless the beneficiary 

is in a long-term care setting. 

(C) Quarterly targeted medication 

reviews with follow-up interventions 

when necessary. 

(2) Targeted beneficiaries. Targeted 

beneficiaries for the MTMP described in 

paragraph (d)(1) of this section are 

enrollees in the sponsor’s Part D plan 

who— 

(i) Have multiple chronic diseases, 

with three chronic diseases being the 

maximum number a Part D plan sponsor 

may require for targeted enrollment; 

(ii) Are taking multiple Part D drugs, 

with eight Part D drugs being the 

maximum number of drugs a Part D 

plan sponsor may require for targeted 

enrollment; and 

(iii) Are likely to incur costs for 

covered Part D drugs that exceed the 

initial coverage limit for the Part D 

defined standard benefit for the 

applicable Part D plan year. 

* * * * * 

68. Section 423.156 is revised to read 

as follows: 

§ 423.156 Consumer satisfaction surveys. 

Part D contracts with 600 or more 

enrollees as of July of the prior year 

must contract with approved Medicare 

Consumer Assessment of Healthcare 

Providers and Systems (CAHPS) survey 

vendors to conduct the Medicare 

CAHPS satisfaction survey of Part D 

plan enrollees in accordance with CMS 

specifications and submit the survey 

data to CMS. 

69. Section 423.165 is amended by— 

A. Removing paragraph (b)(4). 

B. Revising paragraph (f). 

The revision reads as follows: 

§ 423.165 Compliance deemed on the 

basis of accreditation. 

* * * * * 

(f) Authority. Nothing in this limits 

CMS’ authority under subparts K and O 


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of this part, including, but not limited 

to the ability to impose intermediate 

sanctions, civil money penalties, and 

terminate a contract with a Part D plan 

sponsor. 

Subpart F—Submission of Bids and 

Monthly Beneficiary Premiums: Plan 

Approval 

70. Section 423.265 is amended by 

revising paragraph (b) to read as follows: 

§ 423.265 Submission of bids and related 

information. 

* * * * * 

(b) Bid submission. (1) General. Not 

later than the first Monday in June, each 

potential Part D sponsor must submit 

bids and supplemental information 

described in this section for each Part D 

plan it intends to offer in the subsequent 

calendar year. 

(2) Substantial differences between 

bids. Potential Part D sponsors’ bid 

submissions must reflect differences in 

benefit packages and plan costs that 

CMS determines to represent substantial 

differences relative to a sponsor’s other 

bid submissions. In order to be 

considered ‘‘substantially different,’’ 

each bid must be significantly different 

from the sponsor’s other bids with 

respect to beneficiary out-of-pocket 

costs and formulary structures. 

* * * * * 

71. Section 423.272 is amended by 

adding a new paragraph (b)(3) to read as 

follows: 

§ 423.272 Review and negotiation of bid 

and approval of plans submitted by 

potential Part D sponsors. 

* * * * * 

(b) * * * 

(3) Substantial differences between 

bids—(i) General. CMS approves a bid 

only if it finds that the benefit package 

and plan costs represented by that bid 

are substantially different as provided 

under § 423.265 (b)(2) of this subpart 

from the benefit package represented by 

another bid submitted by the same Part 

D sponsor. 

(ii) Transition period for PDP 

sponsors with new acquisitions. After a 

2-year transition period, as determined 

by CMS, CMS approves a bid offered by 

a PDP sponsor (or by a parent 

organization to that PDP sponsor) that 

recently purchased (or otherwise 

acquired or merged with) another Part D 

sponsor if it finds that the benefit 

package and plan costs represented by 

that bid are substantially different from 

any benefit package and plan costs 

represented by another bid submitted by 

the same Part D sponsor (or parent 

organization to that Part D sponsor). 

* * * * * 

Subpart G—Payments to Part D Plan 

Sponsors for Qualified Prescription 

Drug Coverage 

§ 423.308 [Amended] 

72. Section 423.308 is amended in 

paragraph (1) of the definition of ‘‘gross 

covered prescription drug costs’’ by 

removing the phrase ‘‘The share of 

negotiated prices’’ and adding in its 

place ‘‘The share of actual costs’’. 

Subpart J—Coordination Under Part D 

Plans With Other Prescription Drug 

Coverage 

73. Section 423.462 is amended by— 

A. Redesignating the existing text as 

paragraph (a). 

B. Adding a paragraph heading for 

paragraph (a) and new paragraph (b). 

The additions read as follows: 

§ 423.462 Medicare secondary payer 

procedures. 

* * * * * 

(a) General rule. * * * 

(b) Reporting requirements. A Part D 

sponsor must report credible new or 

changed primary payer information to 

the CMS Coordination of Benefits 

Contractor in accordance with the 

processes and timeframes specified by 

CMS. 

74. Section 423.464 is amended by 

adding new paragraphs (a)(3), (e)(1)(vi), 

and (g) to read as follows: 

§ 423.464 Coordination of benefits with 

other providers of prescription drug 

coverage. 

(a) * * * 

(3) Retroactive claims adjustments, 

underpayment reimbursements, and 

overpayment recoveries as described in 

paragraph (g) of this section and 

§ 423.466(a) of this subpart. 

* * * * * 

(e) * * * 

(1) * * * 

(vi) Does not engage in midyear plan 

or noncalendar year plan enrollment 

changes on behalf of a substantial 

number of its members when authorized 

to do so on the beneficiary’s behalf. 

* * * * * 

(g) Responsibility to account for other 

providers of prescription drug coverage 

when a retroactive claims adjustment 

creates an overpayment or 

underpayment. When a Part D sponsor 

makes a retroactive claims adjustment, 

the sponsor has the responsibility to 

account for SPAPs and other entities 

providing prescription drug coverage in 

reconciling the claims adjustments that 

create overpayments or underpayments. 

In carrying out these reimbursements 

and recoveries, Part D sponsors must 

also account for payments made, and for 

amounts being held for payment, by 

other individuals or entities. Part D 

sponsors must have systems to track and 

report adjustment transactions and to 

support all of the following: 

(1) Adjustments involving payments 

by other plans and programs providing 

prescription drug coverage have been 

made. 

(2) Reimbursements for excess costsharing and premiums for low-income 

subsidy eligible individuals have been 

processed in accordance with the 

requirements in § 423.800(c). 

(3) Recoveries of erroneous payments 

for enrollees as specified in 

§ 423.464(f)(4) have been sought. 

75. A new § 423.466 is added to 

subpart J to read as follows: 

§ 423.466 Timeframes for coordination of 

benefits. 

(a) Retroactive claims adjustments, 

underpayment refunds, and 

overpayment recoveries. Whenever a 

sponsor receives information that 

necessitates a retroactive claims 

adjustment, the sponsor must process 

the adjustment and issue refunds or 

recovery notices within 45 days of the 

sponsor’s receipt of complete 

information regarding claims 

adjustment. 

(b) Coordination of benefits. Part D 

sponsors must coordinate benefits with 

SPAPs, other entities providing 

prescription drug coverage, 

beneficiaries, and others paying on the 

beneficiaries’ behalf for a period not to 

exceed 3 years from the date on which 

the prescription for a covered Part D 

drug was filled. 

Subpart K—Application Procedures 

and Contracts With PDP Sponsors 

76. Section 423.502 is amended by— 

A. Redesignating paragraphs (b) 

through (d) as (c) through (e), 

respectively 

B. Adding a new paragraph (b). 

C. Revising newly redesignated 

paragraph (c)(1) introductory text and 

paragraph (c)(2). 

The addition and revisions reads as 

follows: 

§ 423.502 Application requirements. 

* * * * * 

(b) Completion of a notice of intent to 

apply. 

(1) An organization submitting an 

application under this section for a 

particular contract year must first 

submit a completed Notice of Intent to 

Apply by the date established by CMS. 

CMS will not accept applications from 

organizations that do not submit a 

timely Notice of Intent to Apply. 


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(2) Submitting a Notice of Intent to 

Apply does not bind that organization to 

submit an application for the applicable 

contract year. 

(c) * * * 

(1) In order to obtain a determination 

on whether it meets the requirements to 

become a Part D plan sponsor, an entity, 

or an individual authorized to act for 

the entity (the applicant), must fully 

complete all parts of a certified 

application in the form and manner 

required by CMS, including the 

following: 

* * * * * 

(2) The authorized individual must 

describe thoroughly how the entity is 

qualified to meet the all requirements 

described in this part. 

* * * * * 

77. Section 423.503 is amended by— 

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

and (b). 

B. Adding a new paragraph (c)(2)(iii). 

C. Revising paragraph (c)(3)(iii). 

D. Removing paragraph (d). 

The revisions and addition read as 

follows: 

§ 423.503 Evaluation and determination 

procedures for applications to be 

determined qualified to act as a sponsor. 

* * * * * 

(a) * * * 

(1) With the exception of evaluations 

conducted under paragraph (b) of this 

section, CMS evaluates an entity’s 

application solely on the basis of 

information contained in the 

application itself and any additional 

information that CMS obtains through 

on-site visits. 

(2) After evaluating all relevant 

information, CMS determines whether 

the application meets all the 

requirements described in this part. 

(b) Use of information from a current 

or prior contract. If a Part D plan 

sponsor fails during the 14 months 

preceding the deadline established by 

CMS for the submission of contract 

qualification applications (or in the case 

of a fallback entity, the previous 3-year 

contract) to comply with the 

requirements of the Part D program 

under any current or prior contract with 

CMS under title XVIII of the Act or fails 

to complete a corrective action plan 

during the 14 months preceding the 

deadline established by CMS for the 

submission of contract qualification 

applications, CMS may deny an 

application based on the applicant’s 

failure to comply with the requirements 

of the Part D program under any current 

or prior contract with CMS even if the 

applicant currently meets all of the 

requirements of this part. 

(c) * * * 

(2) * * * 

(iii) If CMS does not receive a revised 

application within 10 days from the 

date of the notice, or if after timely 

submission of a revised application, 

CMS still finds the applicant does not 

appear qualified to contract as a Part D 

plan sponsor or has not provided 

enough information to allow CMS to 

evaluate the application, CMS denies 

the application. 

(3) * * * 

(iii) The applicant’s right to request a 

hearing in accordance with the 

procedures specified in subpart N of 

this part. 

78. Section 423.504 is amended by— 

A. Revising paragraph (b)(4)(vi). 

B. Redesignating paragraph (b)(6) as 

paragraph (b)(7). 

C. Adding a new paragraph (b)(6). 

The revisions and addition read as 

follows: 

§ 423.504 General provisions. 

* * * * * 

(b) * * * 

(4) * * * 

(vi) Adopt and implement an effective 

compliance program, which must 

include measures that prevent, detect, 

and correct noncompliance with CMS’ 

program requirements as well as 

measures that prevent, detect, and 

correct fraud, waste, and abuse. The 

compliance program must, at a 

minimum, include the following core 

requirements: 

(A) Written policies, procedures, and 

standards of conduct that— 

(1) Articulate the Part D plan 

sponsor’s commitment to comply with 

all applicable Federal and State 

standards; 

(2) Describe compliance expectations 

as embodied in the standards of 

conduct; 

(3) Implement the operation of the 

compliance program; 

(4) Provide guidance to employees 

and others on dealing with potential 

compliance issues; 

(5) Identify how to communicate 

compliance issues to appropriate 

compliance personnel; 

(6) Describe how potential 

compliance issues are investigated and 

resolved by the Part D plan sponsor; and 

(7) Include a policy of nonintimidation and non-retaliation for 

good faith participation in the 

compliance program, including but not 

limited to reporting potential issues, 

investigating issues, conducting selfevaluations, audits and remedial 

actions, and reporting to appropriate 

officials. 

(B) The designation of a compliance 

officer and a compliance committee 

who report directly to the Part D plan 

sponsor’s chief executive or other senior 

administrator. 

(1) The compliance officer, vested 

with the day-to-day operations of the 

compliance program, must be an 

employee of the Part D plan sponsor. 

(2) The compliance officer and the 

compliance committee must 

periodically report directly to the 

governing body of the Part D plan 

sponsor on the activities and status of 

the compliance program, including 

issues identified, investigated, and 

resolved by the compliance program. 

(3) The governing body of the Part D 

plan sponsor must be knowledgeable 

about the content and operation of the 

compliance program and must exercise 

reasonable oversight with respect to the 

implementation and effectiveness of the 

compliance programs. 

(C)(1) Each Part D plan sponsor must 

establish, implement and provide 

effective training and education for its 

employees including, the chief 

executive and senior administrators or 

managers; governing body members; 

and first tier, downstream, and related 

entities. 

(2) The training and education must 

occur at a least annually and be a part 

of the orientation for new employees 

including, the chief executive and 

senior administrators or managers; 

governing body members; and first tier, 

downstream, and related entities. 

(D) Establishment and 

implementation of effective lines of 

communication, ensuring 

confidentiality, between the compliance 

officer, members of the compliance 

committee, the Part D plan sponsor’s 

employees, managers and governing 

body, and the Part D plan sponsor’s first 

tier, downstream, and related entities. 

Such lines of communication must be 

accessible to all and allow compliance 

issues to be reported including a 

method for anonymous and confidential 

good faith reporting of potential 

compliance issues as they are identified. 

(E) Well-publicized disciplinary 

standards through the implementation 

of procedures which encourage good 

faith participation in the compliance 

program by all affected individuals. 

These standards must include policies 

that— 

(1) Articulate expectations for 

reporting compliance issues and assist 

in their resolution; 

(2) Identify non-compliance or 

unethical behavior; and 

(3) Provide for timely, consistent, and 

effective enforcement of the standards 

when non-compliance or unethical 

behavior is determined. 


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(F) Establishment and implementation 

of an effective system for routine 

monitoring and identification of 

compliance risks. The system should 

include internal monitoring and audits 

and, as appropriate, external audits, to 

evaluate the Part D plan sponsors, 

including first tier entities’, compliance 

with CMS requirements and the overall 

effectiveness of the compliance 

program. 

(G) Establishment and 

implementation of procedures and a 

system for promptly responding to 

compliance issues as they are raised, 

investigating potential compliance 

problems as identified in the course of 

self-evaluations and audits, correcting 

such problems promptly and thoroughly 

to reduce the potential for recurrence, 

and ensure ongoing compliance with 

CMS requirements. 

* * * * * 

(6) Not have terminated a contract by 

mutual consent under which, as a 

condition of the consent, the Part D plan 

sponsor agreed that it was not eligible 

to apply for new contracts or service 

area expansions for a period up to 2 

years per § 423.508(e) of this subpart. 

* * * * * 

79. Section 423.505 is amended by— 

A. Redesignating paragraph (e)(1)(ii) 

and (e)(1)(iii) as paragraph (e)(1)(iii) and 

(e)(1)(iv), respectively. 

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

C. Revising newly redesignated 

paragraph (e)(1)(iii). 

D. Revising paragraph (f)(3) 

introductory text. 

E. Revising paragraphs (i)(2)(i) and 

(m)(1)(iii)(C). 

F. Add a new paragraph (n). 

The additions and revisions read as 

follows: 

§ 423.505 Contract provisions. 

* * * * * 

(e) * * * 

(1) * * * 

(ii) Compliance with CMS 

requirements for maintaining the 

privacy and security of personal health 

information and other personally 

identifiable information of Medicare 

enrollees; 

(iii) The facilities of the Part D 

sponsor to include computer and other 

electronic systems; and 

* * * * * 

(f) * * * 

(3) All data elements included in all 

its drug claims for purposes deemed 

necessary and appropriate by the 

Secretary, including, but not limited to 

the following: 

* * * * * 

(i) * * * 

(2) * * * 

(i) HHS, the Comptroller General, or 

their designees have the right to audit, 

evaluate, and inspect any books, 

contracts, computer or other electronic 

systems, including medical records and 

documentation of the first tier, 

downstream, and related to CMS’ 

contract with the Part D sponsor. 

* * * * * 

(m)(1) * * * 

(iii) * * * 

(C) Plan identifier elements on the 

claim are encrypted or unavailable for 

release to external entities with the 

exception of HHS grantees that CMS 

determines meet all of the following 

criteria: 

(1) The plan identifier is essential to 

the study. 

(2) The study is key to the mission of 

the sponsoring agency. 

(3) The study provides significant 

benefit to the Medicare program. 

(4) The requestor attests that any 

public findings or publications will not 

identify plans. 

* * * * * 

(n)(1) CMS may determine that a Part 

D plan sponsor is out of compliance 

with a Part D requirement when the 

sponsor fails to meet performance 

standards articulated in the Part D 

statutes, regulations, or guidance. 

(2) If CMS has not already articulated 

a measure for determining 

noncompliance, CMS may determine 

that a Part D sponsor is out of 

compliance when its performance 

represents an outlier relative to the 

performance of other Part D sponsors. 

80. Section 423.507 is amended by— 

A. Revising paragraph (a)(2)(ii). 

B. Removing paragraph (a)(2)(iii). 

C. Adding a new paragraph (b)(1)(iii). 

D. Revising paragraph (b)(2)(ii). 

E. Removing (b)(2)(iii). 

F. Redesignating paragraph (b)(2)(iv) 

as (b)(2)(iii). 

G. In newly redesignated paragraph 

(b)(2)(iii), removing the reference 

‘‘paragraphs (b)(2)(ii) and (iii) of this 

section’’ and add the reference 

‘‘paragraph (b)(2)(ii) of this section’’ in 

its place. 

H. Revising paragraph (b)(3). 

The revisions and addition read as 

follows: 

§ 423.507 Nonrenewal of a contract. 

(a) * * * 

(2) * * * 

(ii) Each Medicare enrollee by mail at 

least 90 calendar days before the date on 

which the nonrenewal is effective. The 

sponsor must also provide information 

about alternative enrollment options by 

doing one or more of the following: 

(A) Provide a CMS approved written 

description of alternative PDP plan 

options available for obtaining qualified 

prescription drug coverage within the 

beneficiaries’ region. 

(B) Place outbound calls to all affected 

enrollees to ensure beneficiaries know 

who to contact to learn about their 

enrollment options. 

* * * * * 

(b) * * * 

(1) * * * 

(iii) The contract must be nonrenewed 

as to an individual PDP if that plan does 

not have a sufficient number of 

enrollees to establish that it is a viable 

independent plan option. 

(2) * * * 

(ii) To each of the Part D plan 

sponsor’s Medicare enrollees by mail at 

least 90 calendar days before the date on 

which the nonrenewal is effective, or at 

the conclusion of the appeals process if 

applicable. 

* * * * * 

(3) Opportunity to develop and 

implement a corrective action plan. (i) 

Before providing a notice of intent of 

nonrenewal of the contract, CMS will 

provide the Part D plan sponsor with a 

notice specifying the deficiencies and 

reasonable opportunity to develop and 

implement a corrective action plan to 

correct the deficiencies that form the 

basis for the determination to nonrenew the contract. 

(ii) CMS affords the Part D plan 

sponsor at least 30 calendar days in 

which to develop and implement a 

corrective action plan to correct the 

deficiencies that formed the basis for the 

determination to nonrenew the contract. 

(iii) The Part D plan sponsor is solely 

responsible for the identification, 

development, and implementation of its 

corrective action plan and for 

demonstrating to CMS that the 

underlying deficiencies have been 

corrected within the time period 

specified by CMS in the notice 

requesting corrective action. 

* * * * * 

81. Section 423.508 is amended by 

adding a new paragraph (e) to read as 

follows: 

§ 423.508 Modification or termination of 

contract by mutual consent. 

* * * * * 

(e) Agreement to limit new Part D 

applications. As a condition of the 

consent to a mutual termination, CMS 

will require, as a provision of the 

termination agreement language 

prohibiting the Part D plan sponsor from 

applying for new contracts or service 

area expansions for a period up to 2 

years, absent circumstances warranting 

special consideration. 


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82. Amend § 423.509 by revising 

paragraphs (a), introductory text of 

paragraph (b), (b)(2), and (c) to read as 

follows: 

§ 423.509 Termination of contract by CMS. 

(a) Termination by CMS. 

(1) CMS may at any time terminate a 

contract if CMS determines that the Part 

D plan sponsor meets any of the 

following: 

(i) Has failed substantially to carry out 

the contract. 

(ii) Is carrying out the contract in a 

manner that is inconsistent with the 

efficient and effective administration of 

this part. 

(iii) No longer substantially meets the 

applicable conditions of this part. 

(2) CMS may determine, in 

accordance with paragraph (a)(1) of this 

section, that a basis exists to terminate 

a Part D sponsor’s contract if— 

(i) The Part D plan sponsor fails to 

comply with any of the regulatory 

requirements contained in this part. 

(ii) The Part D plan sponsor fails to 

meet CMS performance requirements in 

carrying out the regulatory requirements 

contained in this part, including, but 

not limited to, when CMS determines 

that an analysis of data related to the 

sponsor’s performance indicates it is an 

outlier relative to that of other sponsors; 

or. 

(iii) There is credible evidence to 

show that the Part D plan sponsor has 

committed or participated in false, 

fraudulent, or abusive activities 

affecting the Medicare, Medicaid, or 

other State or Federal health care 

programs, including submission of false 

or fraudulent data. 

(b) Notice. If CMS decides to 

terminate a contract it gives notice of 

the termination as follows: 

* * * * * 

(2) Expedited termination of contract 

by CMS. (i) If CMS determines that a 

delay in termination, resulting from 

compliance with the procedures 

provided in this part prior to 

termination, would pose an imminent 

and serious risk to the health of the 

individuals enrolled with the Part D 

plan sponsor the effective date of 

termination will be specified, in writing, 

by CMS. 

(ii) If a termination in is effective in 

the middle of a month, CMS has the 

right to recover the prorated share of the 

capitation payments made to the Part D 

plan sponsor covering the period of the 

month following the contract 

termination. 

* * * * * 

(c) Opportunity to develop and 

implement a corrective action plan. 

(1) General. (i) Before providing a 

notice of intent to terminate the 

contract, CMS will provide the Part D 

plan sponsor with a notice specifying 

the deficiencies and reasonable 

opportunity to develop and implement 

a corrective action plan to correct the 

deficiencies that form the basis for the 

determination to terminate the contract. 

(ii) CMS will afford the Part D plan 

sponsor at least 30 calendar days in 

which to develop and implement a 

corrective action plan to correct the 

deficiencies that formed the basis for the 

determination to terminate the contract. 

(iii) The Part D plan sponsor is solely 

responsible for the identification, 

development, and implementation of its 

corrective action plan and for 

demonstrating to CMS that the 

underlying deficiencies have been 

corrected within the time period 

specified by CMS in the notice 

requesting corrective action. 

(2) Exceptions. If CMS determines 

that a delay in termination, resulting 

from compliance with the procedures 

provided in this part prior to 

termination, would pose an imminent 

and serious risk to the health of the 

individuals enrolled with the Part D 

plan sponsor, the Part D plan sponsor 

will not be provided with an 

opportunity to develop and implement 

a corrective action plan prior to 

termination. 

* * * * * 

83. Section 423.514 is amended by— 

A. Revising the section heading. 

B. Adding a new paragraph (g). 

The revision and addition to read as 

follows: 

§ 423.514 Validation of Part D reporting 

requirements. 

* * * * * 

(g) Data validation. Each Part D 

sponsor must subject information 

collected under paragraph (a) of this 

section to a yearly independent audit to 

determine its reliability, validity, 

completeness, and comparability in 

accordance with specifications 

developed by CMS. 

Subpart L—Effect of Change of 

Ownership or Leasing of Facilities 

During Term of Contract 

84. Section 423.551 is amended by 

adding a new paragraph (g) to read as 

follows: 

§ 423.551 General provisions. 

* * * * * 

(g) Sale of beneficiaries not permitted. 

(1) CMS will only recognize the sale or 

transfer of an organization’s entire PDP 

line of business, consisting of all PDP 

contracts held by the PDP sponsor. 

(2) CMS will not recognize or allow a 

sale or transfer that consists solely of the 

sale or transfer of individual 

beneficiaries, groups of beneficiaries 

enrolled in a pharmacy benefit package, 

or one contract if the sponsor holds 

more than one PDP contract. 

Subpart M—Grievances, Coverage 

Determinations, and Appeals 

85. Section 423.568 is revised to read 

as follows: 

§ 423.568 Standard timeframe and notice 

requirements for coverage determinations. 

(a) Method and place for filing a 

request. An enrollee must ask for a 

standard coverage determination by 

making a request with the Part D plan 

sponsor in accordance with the 

following: 

(1) Except as specified in paragraph 

(a)(2) of this section, the request may be 

made orally or in writing.. 

(2) Requests for payment must be 

made in writing (unless the Part D plan 

sponsor has implemented a voluntary 

policy of accepting oral payment 

requests). 

(b) Timeframe for requests for drug 

benefits. When a party makes a request 

for a drug benefit, the Part D plan 

sponsor must notify the enrollee (and 

the prescribing physician or other 

prescriber involved, as appropriate) of 

its determination as expeditiously as the 

enrollee’s health condition requires, but 

no later than 72 hours after receipt of 

the request, or, for an exceptions 

request, the physician’s or other 

prescriber’s supporting statement. 

(c) Timeframe for requests for 

payment. When a party makes a request 

for payment, the Part D plan sponsor 

must notify the enrollee of its 

determination and make payment (when 

applicable) no later than 14 calendar 

days after receipt of the request. 

(d) Written notice for favorable 

decisions by a Part D plan sponsor. If a 

Part D plan sponsor makes a completely 

favorable decision under paragraph (b) 

of this section, 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 

sent within 3 calendar days of the oral 

notification. 

(e) Form and content of the approval 

notice. The notice of any approval 

under paragraph (d) of this section must 

explain the conditions of the approval 

in a readable and understandable form. 

(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. 


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(g) Form and content of the denial 

notice. The notice of any denial under 

paragraph (f) of this section must meet 

the following requirements: 

(1) Use approved notice language in a 

readable and understandable form. 

(2) State the specific reasons for the 

denial. 

(i) For drug coverage denials, describe 

both the standard and expedited 

redetermination processes, including 

the enrollee’s right to, and conditions 

for, obtaining an expedited 

redetermination and the rest of the 

appeals process. 

(ii) For payment denials, describe the 

standard redetermination process and 

the rest of the appeals process. 

(3) Inform the enrollee of his or her 

right to a redetermination. 

(4) Comply with any other notice 

requirements specified by CMS. 

(h) Effect of failure to meet the 

adjudicatory timeframes. If the Part D 

plan sponsor fails to notify the enrollee 

of its determination in the appropriate 

timeframe under paragraphs (b) or (c) of 

this section, the failure constitutes an 

adverse coverage determination, and the 

plan sponsor must forward the 

enrollee’s request to the IRE within 24 

hours of the expiration of the 

adjudication timeframe. 

86. Section 423.570 is amended by 

revising paragraph (d)(1) to read as 

follows: 

§ 423.570 Expediting certain coverage 

determinations. 

* * * * * 

(d) * * * 

(1) Make the determination within the 

72 hour timeframe established in 

§ 423.568(b) for a standard 

determination. The 72 hour period 

begins on the day the Part D plan 

sponsor receives the request for 

expedited determination, or, for an 

exceptions request, the physician’s or 

other prescriber’s supporting statement. 

* * * * * 

87. Section 423.572 is amended by 

revising paragraphs (b) and (c) to read 

as follows: 

§ 423.572 Timeframes and notice 

requirements for expedited coverage 

determinations. 

* * * * * 

(b) Confirmation of oral notice. If the 

Part D plan sponsor first notifies an 

enrollee of an adverse or favorable 

expedited determination orally, it must 

mail written confirmation to the 

enrollee within 3 calendar days of the 

oral notification. 

(c) Content of the notice of expedited 

determination. (1) If the determination 

is completely favorable to the enrollee, 

the notice must explain the conditions 

of the approval in a readable and 

understandable form. 

(2) If the determination is not 

completely favorable to the enrollee, the 

notice must— 

(i) Use approved language in a 

readable and understandable form; 

(ii) State the specific reasons for the 

denial; 

(iii) Inform the enrollee of his or her 

right to a redetermination; 

(iv) Describe— 

(A) Both the standard and expedited 

redetermination processes, including 

the enrollee’s right to request an 

expedited redetermination; 

(B) Conditions for obtaining an 

expedited redetermination; and 

(C) Other aspects of the appeal 

process. 

* * * * * 

88. Section 423.590 is amended by— 

A. Redesignating paragraph (d)(2) as 

paragraph (d)(3). 

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

C. Revising the introductory text of 

paragraph (g). 

D. Adding a new paragraph (h). 

The revisions and additions read as 

follows: 

§ 423.590 Timeframes and responsibility 

for making redeterminations. 

* * * * * 

(d) * * * 

(2) Confirmation of oral notice. If the 

Part D plan sponsor first notifies an 

enrollee of an adverse or favorable 

expedited redetermination orally, it 

must mail written confirmation to the 

enrollee within 3 calendar days of the 

oral notification. 

* * * * * 

(g) Form and content of an adverse 

redetermination notice. The notice of 

any adverse determination under 

paragraphs (a)(2), (b)(2), (d)(1) or (d)(2) 

of this section must— 

* * * * * 

(h) Form and content of a completely 

favorable redetermination notice. The 

notice of any completely favorable 

determination under paragraphs (a)(1), 

(d)(1) or (d)(2) of this section must 

explain the conditions of the approval 

in a readable and understandable form. 

Subpart N—Medicare Contract 

Determinations and Appeals 

89. Section 423.642 is amended by 

revising paragraph (c) to read as follows: 

§ 423.642 Notice of contract determination. 

* * * * * 

(c) CMS-initiated terminations—(1) 

General rule. CMS mails notice to the 

Part D plan sponsor 90 calendar days 

before the anticipated effective date of 

the termination. 

(2) Exception. For terminations where 

CMS determines that a delay in 

termination, resulting from compliance 

with the procedures provided in this 

part prior to termination, would pose an 

imminent and serious risk to the health 

of the individuals enrolled with the Part 

D plan sponsor, CMS notifies the Part D 

plan sponsor of the date that it will 

terminate the Part D plan sponsor’s 

contract. 

* * * * * 

90. Section 423.650 is revised to read 

as follows: 

§ 423.650 Right to a hearing, burden of 

proof, standard of proof, and standards of 

review. 

(a) Right to a hearing. The following 

parties are entitled to a hearing: 

(1) A contract applicant that has been 

determined to be unqualified to enter 

into a contract with CMS under Part D 

of Title XVIII of the Act in accordance 

with § 423.502 and § 423.503 of this 

part. 

(2) A Part D sponsor whose contract 

has been terminated under § 423.509 of 

this part. 

(3) A Part D sponsor whose contract 

has not been renewed in accordance 

with § 423.507 of this part. 

(4) A Part D sponsor who has had an 

intermediate sanction imposed in 

accordance with § 423.752(a) and (b) of 

this part. 

(b) Burden of proof, standard of proof, 

and standard of review at hearing. 

(1) During a hearing to review a 

contract determination as described at 

§ 423.641(a) of this subpart, the 

applicant has the burden of proving by 

a preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 423.502 and 

§ 423.503 of this part. 

(2) During a hearing to review a 

contract determination as described at 

§ 423.641(b) of this part, the Part D plan 

sponsor has the burden of proving by a 

preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 423.507 of 

this part. 

(3) During a hearing to review a 

contract determination as described at 

§ 423.641(c) of this subpart, the Part D 

plan sponsor has the burden of proving 

by a preponderance of the evidence that 

CMS’ determination was inconsistent 

with the requirements of § 423.509 of 

this part. 

(4) During a hearing to review the 

imposition of an intermediate sanction 

as described at § 423.750 of this part, the 

Part D sponsor has the burden of 

proving by a preponderance of the 


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evidence that CMS’ determination was 

inconsistent with the requirements of 

§ 423.752 of this part. 

(c) Timing of favorable decision. 

Notice of any decision favorable to the 

Part D sponsor appealing a 

determination that it is not qualified to 

enter into a contract with CMS must be 

issued by September 1 for the contract 

in question to be effective on January 1 

of the following year. 

* * * * * 

91. Section 423.651 is amended by 

revising paragraphs (a) and (b) to read 

as follows: 

§ 423.651 Request for hearing. 

(a) Method and place for filing a 

request. (1) A request for a hearing must 

be made in writing and filed by an 

authorized official of the contract 

applicant or Part D plan sponsor that 

was the party to the determination 

under the appeal. 

(2) The request for the hearing must 

be filed in accordance with the 

requirements specified in the notice. 

(b) Time for filing a request. A request 

for a hearing must be filed within 15 

calendar days after the receipt of the 

notice of the contract determination or 

intermediate sanction. 

* * * * * 

92. Section 423.652 is amended by 

revising paragraph (b)(2) to read as 

follows: 

§ 423.652 Postponement of effective date 

of a contract determination when a request 

for a hearing is filed timely. 

* * * * * 

(b) * * * 

(2) If CMS determines that a delay in 

termination, resulting from compliance 

with the procedures provided in this 

part prior to termination, would pose an 

imminent and serious risk to the health 

of individuals enrolled with the Part D 

plan sponsor, the date of termination 

will not be postponed if the Part D plan 

sponsor requests a hearing. 

* * * * * 

93. Section 423.655 is revised to read 

as follows: 

§ 423.655 Time and place of hearing. 

(a) The hearing officer— 

(1) Fixes a time and place for the 

hearing, which is not to exceed 30 

calendar days after the receipt of request 

for the hearing; 

(2) Sends written notice to the parties 

that informs the parties of the general 

and specific issues to be resolved, the 

burden of proof, and information about 

the hearing procedure. 

(b)(1) The hearing officer may, on his 

or her own motion, change the time and 

place of the hearing. 

(2) The hearing officer may adjourn or 

postpone the hearing. 

(c)(1) The Part D plan sponsor or CMS 

may request an extension by filing a 

written request no later than 5 calendar 

days prior to the scheduled hearing. 

(2) When either the Part D plan 

sponsor or CMS requests an extension 

the hearing officer will provide a onetime 15-calendar day extension. 

(3) Additional extensions may be 

granted at the discretion of the hearing 

officer. 

94. Section 423.658 is amended by 

revising paragraph (d) to read as 

follows: 

§ 423.658 Conduct of hearing. 

* * * * * 

(d) The Part D sponsor bears the 

burden of going forward and must first 

present evidence and argument before 

CMS presents its evidence and 

argument. 

95. Section 423.661 is revised to read 

as follows: 

§ 423.661 Witnesses lists and documents. 

Witness lists and documents must be 

identified and exchanged at least 5 

calendar days prior to the scheduled 

hearing. 

96. Section 423.666 is amended by 

revising paragraphs (a) and (c) to read as 

follows: 

§ 423.666 Review by the Administrator. 

(a) Request for review by 

Administrator. CMS or a Part D plan 

sponsor that has received a hearing 

decision may request a review by the 

Administrator within 15 calendar days 

after receipt of the hearing decision as 

provided under § 423.665(b) of this 

subpart. Both the Part D plan sponsor 

and CMS may provide written 

arguments to the Administrator for 

review. 

* * * * * 

(c) Notification of Administrator 

determination. The Administrator 

notifies both parties of his or her 

determination regarding review of the 

hearing decision within 30 calendar 

days after receipt of request for review. 

If the Administrator declines to review 

the hearing decision or the 

Administrator does not make a 

determination regarding review within 

30 calendar days, the decision of the 

hearing officer is final. 

* * * * * 

97. Section 423.668 is amended by 

revising the section heading and the 

paragraph heading for paragraph (a) to 

read as follows: 

§ 423.668 Reopening of a contract 

determination or decision of a hearing 

officer or the Administrator. 

(a) Contract determination. * * * 

* * * * * 

Subpart O—Intermediate Sanctions 

98. Section 423.750 is amended by 

revising paragraph (a) to read as follows: 

§ 423.750 Types of intermediate sanctions 

and civil money penalties. 

(a) The following intermediate 

sanctions may be imposed and will 

continue in effect until CMS is satisfied 

that the deficiencies that are the basis 

for the sanction determination have 

been corrected and are not likely to 

recur: 

(1) Suspension of the Part D plan 

sponsor’s enrollment of Medicare 

beneficiaries. 

(2) Suspension of payment to the Part 

D plan sponsor for Medicare 

beneficiaries enrolled after the date 

CMS notifies the organization of the 

intermediate sanction. 

(3) Suspension of all marketing 

activities to Medicare beneficiaries by a 

Part D plan sponsor. 

* * * * * 

99. Section 423.752 is amended by— 

A. Revising the paragraphs (a) 

introductory text, (a)(1), (a)(3), and 

(a)(4). 

B. In paragraph (c)(1), removing the 

cross-reference ‘‘423.509(a)(4)’’ and 

adding the cross-reference 

‘‘§ 422.509(a)(2)(iii) of this part’’ in its 

place. 

C. In paragraph (c)(2)(ii), removing the 

phrase ‘‘pursuant to 423.509(a)(4)’’ and 

adding the phrase ‘‘under 

§ 422.509(a)(2)(iii) of this part’’ in its 

place. 

§ 423.752 Basis for imposing intermediate 

sanctions and civil money penalties. 

(a) All intermediate sanctions. For the 

violations listed in this paragraph (a), 

CMS may impose one or more of the 

sanctions specified in § 423.750(a) of 

this subpart on any Part D plan sponsor 

with a contract. The Part D plan sponsor 

may also be subject to other remedies 

authorized under law. 

(1) Fails substantially to provide 

medically necessary items and services 

that are required (under law or under 

the contract) to be provided to an 

individual covered under the contract, if 

the failure has adversely affected (or has 

the substantial likelihood of adversely 

affecting) the individual. 

* * * * * 

(3) Acts to expel or refuses to re-enroll 

a beneficiary in violation of the 

provisions of this part. 


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(4) Engages in any practice that would 

reasonably be expected to have the 

effect of denying or discouraging 

enrollment (except as permitted by this 

part) by eligible individuals with the 

organization whose medical condition 

or history indicates a need for 

substantial future medical services. 

* * * * * 

100. Section 423.756 is amended by— 

A. Revising paragraph (b). 

B. Removing paragraph (c). 

C. Redesignating paragraphs (d) 

through (f) as paragraphs (c) through (e), 

respectively. 

D. Revising the newly redesignated 

paragraphs (c)(1) and (c)(3). 

The revisions read as follows: 

§ 423.756 Procedures for imposing 

intermediate sanctions and civil money 

penalties. 

(b) Hearing. (1) The Part D plan 

sponsor may request a hearing before a 

CMS hearing officer. 

(2) A written request must be received 

by the designated CMS office within 15 

calendar days after the receipt of the 

notice. 

(3) A request for a hearing under 

§ 423.650 of this part does not delay the 

date specified by CMS when the 

sanction becomes effective. 

(4) The Part D plan sponsor must 

follow the right to a hearing procedure 

as specified at § 423.650 through 

§ 423.662 of this part. 

(c) * * * 

(1) Effective date. The effective date of 

the sanction is the date specified by 

CMS in the notice. 

* * * * * 

(3) Duration of sanction. The sanction 

remains in effect until CMS is satisfied 

that the deficiencies that are the basis 

for the sanction determination have 

been corrected and are not likely to 

recur. 

(i) CMS may require that the Part D 

plan sponsor hire an independent 

auditor to provide CMS with additional 

information to determine if the 

deficiencies that are the basis for the 

sanction determination have been 

corrected and are not likely to recur. 

The independent auditor must work in 

accordance with CMS specifications and 

must be willing to attest that a complete 

and full independent review has been 

performed. 

(ii) In instances where marketing or 

enrollment or both intermediate 

sanctions have been imposed, CMS may 

require a Part D plan sponsor to market 

or to accept enrollments or both for a 

limited period of time in order to assist 

CMS in making a determination as to 

whether the deficiencies that were the 

bases for the intermediate sanctions 

have been corrected and are not likely 

to recur. 

(A) If, following this time period, 

CMS determines the deficiencies have 

not been corrected or are likely to recur, 

the intermediate sanctions will remain 

in effect until such time that CMS is 

assured the deficiencies have been 

corrected and are not likely to recur. 

(B) The Part D plan sponsor does not 

have a right to a hearing under 

§ 423.650(a)(4) of this subpart to 

challenge CMS’ determination to keep 

the intermediate sanctions in effect. 

* * * * * 

Subpart P—Premium and Cost-Sharing 

Subsidies for Low-Income Individuals 

101. Section 423.773 is amended by 

revising paragraph (c)(2) to read as 

follows: 

§ 423.773 Requirements for eligibility. 

* * * * * 

(c) * * * 

(2) CMS notifies an individual treated 

as a full-subsidy eligible under this 

paragraph (c) that he or she does not 

need to apply for the subsidies under 

this subpart, and, at a minimum, is 

deemed eligible for a full subsidy as 

follows: 

(i) For an individual deemed eligible 

between January 1 and June 30 of a 

calendar year, the individual is deemed 

eligible for a full subsidy for the 

remainder of the calendar year. 

(ii) For an individual deemed eligible 

between July 1 and December 31 of a 

calendar year, the individual is deemed 

eligible for the remainder of the 

calendar year and the following 

calendar year. 

* * * * * 

Subpart V—Part D Marketing 

Requirements 

102. Section 423.2260 is amended by 

revising paragraph (5)(vii) of the 

definition ‘‘Marketing materials’’ to read 

as follows: 

§ 423.2260 Definitions concerning 

marketing materials. 

* * * * * 

Marketing materials. * * * 

(5) * * * 

(vii) Membership activities. Current 

enrollee communication materials 

include any informational materials that 

are— 

(A) Targeted to current enrollees, and 

(B) Customized or limited to a subset 

of enrollees or apply to a specific 

situation; or 

(C) Cover claims processing or other 

operational issues. 

* * * * * 

103. Section 423.2262 is amended 

by— 

A. Revising paragraph (a)(1)(i). 

B. Adding new paragraphs (c) and (d) 

to read as follows: 

§ 423.2262 Review and distribution of 

marketing materials. 

* * * * * 

(a) * * * 

(1) * * * 

(i) At least 45 days (or 10 days if using 

certain types of marketing materials that 

use, without modification, proposed 

model language and format, including 

standardized language and formatting, 

as specified by CMS) before the date of 

distribution, the Part D sponsor submits 

the material or form to CMS for review 

under the guidelines in § 423.2264 of 

this subpart; and 

* * * * * 

(c) Standardized model marketing 

materials. When specified by CMS, 

organizations must use standardized 

formats and language in model 

materials. 

(d) Current enrollee communication 

materials. Current enrollee 

communication materials may be 

reviewed by CMS, which may upon 

review determine that such materials 

must be modified, or may not longer be 

used. 

PART 480—ACQUISITION, 

PROTECTION, AND DISCLOSURE 

QUALITY IMPROVEMENT 

ORGANIZATION REVIEW 

INFORMATION 

104. The authority citation for part 

480 continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

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

1395hh). 

105. Section 480.140 is amended by 

adding a new paragraph (g) to read as 

follows. 

§ 480.140 Disclosure of quality review 

study information. 

* * * * * 

(g) The QIO must disclose quality 

review study information with 

identifiers of MA plan beneficiaries, 

providers, practitioners, and services to 

CMS when CMS requests this 

information for the sole purpose of 

conducting activities related to MA 

organizations as described in § 422.153 

of this chapter. 

Authority: (Catalog of Federal Domestic 

Assistance Program No. 93.773, Medicare— 

Hospital Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 


dcolon on DSK2BSOYB1PROD with PROPOSALS2
Federal Register / Vol. 74, No. 203 / Thursday, October 22, 2009 / Proposed Rules 54737 

Dated: August 13, 2009. 

Charlene Frizzera, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: September 1, 2009. 

Kathleen Sebelius, 

Secretary. 

[FR Doc. E9–24756 Filed 10–9–09; 4:15 pm] 

BILLING CODE 4120–01–P 


dcolon on DSK2BSOYB1PROD with PROPOSALS2