[Federal Register Volume 74, Number 203 (Thursday, October 22, 2009)]
[Proposed Rules]
[Pages 54634-54737]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-24756]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 417, 422, 423 et al.



Medicare Program; Policy and Technical Changes to the Medicare 
Advantage and the Medicare Prescription Drug Benefit Programs; Proposed 
Rule

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

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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.

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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 (Sec.  422.501 and Sec.  423.502)
    2. Application Requirements (Sec.  422.501(c) and Sec.  
423.502(c)) and Evaluation and Determination Procedures for 
Determining Whether Applicants Are Qualified for a Contract Under 
Parts C and D (Sec.  422.502 and Sec.  423.503)
    3. Deny Contract Qualification Applications Based on Past 
Contract Performance (Sec.  423.750 and Sec.  422.750)
    4. Use of Data To Evaluate Continued Ability To Act as a 
Qualified Sponsoring Organization Under Parts C and D (Sec.  
422.504, and Sec.  423.505)
    5. Compliance Programs Under Part C and D (Sec.  
422.503(b)(4)(vi) and Sec.  423.504(b)(4)(vi))
    6. Network Adequacy of Coordinated Care and Network-Based 
Private Fee-for-Service Plans Under Part C (Sec.  422.112)
    7. Deemable Program Requirements Under Parts C and D (Sec.  
422.156(b)(7), Sec.  422.156(f), Sec.  423.165(b), and Sec.  
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 (Sec.  422.506(b)(3), Sec.  422.510(c)(1), Sec.  
423.507(b)(3), and Sec.  423.509(c)(1))

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    9. Procedures for Imposing Intermediate Sanctions and Civil 
Money Penalties Under Part C and D (Sec.  422.756 and 423.756)
    10. Termination of Contracts Under Parts C and D (Sec.  
422.510(a) and Sec.  423.509(a))
    11. Request for Hearing Under Parts C and D (Sec.  422.662 and 
Sec.  423.651)
    12. Burden of Proof, Standard of Proof, Standard of Review and 
Conduct of Hearing (Sec.  422.660, Sec.  423.650, Sec.  422.676 and 
Sec.  423.658)
    13. Expedited Contract Terminations Procedures (Sec.  422.510, 
Sec.  423.509, Sec.  422.664, Sec.  423.652, Sec.  422.644, and 
Sec.  423.642) Under Parts C and D
    14. Time and Place of Hearing Under Parts C and D (Sec.  422.670 
and Sec.  423.655)
    15. Discovery Under Parts C and D (Sec.  422.682 and Sec.  
423.661)
    16. Review by the Administrator Under Parts C and D Sec.  
422.692(a) and Sec.  423.666(a))
    17. Reopening of an Initial Contract Determination or Decision 
of a Hearing Officer or the Administrator Under Parts C and D (Sec.  
422.696 and Sec.  423.668)
    18. Prohibition of MA and Part D Applications for 2 Years After 
a Mutual Termination Sec.  422.503(b)(6) and Sec.  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 
(Sec.  422.2260, Sec.  423.2262, Sec.  423.2260, and Sec.  423.2262)
    3. Required Use of Standardized Model Materials Under Parts C 
and D (Sec.  422.2262, and Sec.  423.2262)
    4. Involuntary Disenrollment for Failure To Pay Plan Premiums 
Under Parts C and D (Sec.  422.74 and Sec.  423.44)
    5. Maximum Allowable Out-of-Pocket Cost Amount for Medicare 
Parts A and B Services (Sec.  422.100)
    6. Maximum Allowable Cost Sharing Amount for Medicare Parts A 
and B Services and Prescription Drugs (Sec.  422.100 and Sec.  
423.104)
    7. Prohibition on Prior Notification by PPO, PFFS, and MSA Plans 
Under Part C (Sec.  422.2, Sec.  422.4, and Sec.  422.105)
    8. Requirements for LIS Eligibility Under Part D (Sec.  423.773)
    9. Enrollment of Full Subsidy Eligible Individuals and Other 
Subsidy Eligible Individuals Under Part D (Sec.  423.34)
    10. Special Enrollment Periods Under Part D (Sec.  423.380)
    11. Transition Process Under Part D (Sec.  423.120(b)(3))
    12. Part D Sponsor Responsibility for Retroactive Claims 
Adjustment Reimbursements and Recoveries Under Part D (Sec.  
423.464)
    13. Time Limits for Coordination of Benefits (Sec.  423.466)
    14. Use of Standardized Technology Under Part D (Sec.  423.120)
    15. Absence From Service Area for More Than 12 Months Under Part 
D (Sec.  423.44)
    16. Prohibition of Mid Year Mass Enrollment Changes by SPAPS 
Under Part D (Sec.  423.464(e))
    17. Non-renewal Beneficiary Notification Requirement Under Parts 
C and D (Sec.  422.506 and Sec.  423.507)
    18. Notice of Alternative Medicare Plans Available To Replace 
Non-renewing Plans Under Parts C and D (Sec.  422.506(a)(2)(ii) and 
Sec.  423.507(a)(2)(ii))
    19. Timeframes and Responsibilities for Making Redeterminations 
Under Part D (Sec.  423.590)
    20. Requirements for Requesting Organization Determinations 
Under Part C (Sec.  422.568)
    21. Organization Determinations Under Part C (Sec.  422.566 and 
Sec.  422.568)
    22. Representatives (Sec.  422.561, Sec.  422.574 and Sec.  
422.624)
    23. Disclosure Requirements Under Parts C and D (Sec.  
422.111(g) and Sec.  423.128(f))
    24. Definition of MA Plan Service Area (Sec.  422.2)
    C. Changes To Provide Plan Offerings With Meaningful Differences
    1. Bid Submissions--Ensuring Significant Differences (Sec.  
422.254 and Sec.  423.265)
    2. Bid Review Process (Sec.  422.256 and Sec.  423.272)
    3. Transition Process in Cases of Acquisitions and Mergers 
(Sec.  422.256 and Sec.  423.272)
    4. Non-renewing Low-enrollment Plans (Sec.  422.506(b)(1)(iv) 
and Sec.  423.507(b)(1)(iii))
    D. Changes To Improve Payment Rules and Processes
    1. Risk Adjustment Data Validation Appeals (Sec.  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 (Sec.  422.254)
    3. Determination of Acceptable Administrative Cost by Cost 
Contract and Health Care Prepayment Plans (Sec.  417.564)
    4. Calculation of the Minimum Percentage Increase Under Part C 
(Sec.  422.306)
    E. Changes To Improve Data Collection for Oversight and Quality 
Assessment
    1. Requirements for Quality Improvement Programs Under Part C 
(Sec.  422.152, Sec.  422.153, and Sec.  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 (Sec.  
417.472, Sec.  422.152 and Sec.  423.156)
    3. Validation of Part C and Part D Reporting Requirements (Sec.  
422.516 and Sec.  423.514)
    4. Collection of Additional Part D Claims' Elements for 
Nonpayment-Related Purposes (Sec.  423.505)
    F. Changes To Implement New Policy
    1. Protected Classes of Concern Under Part D (Sec.  
423.120(b)(2)(v))
    2. Pro-rating the Plan Deductible for Part C MSA Enrollments 
Occurring During an Initial Coverage Election Period (Sec.  422.103)
    G. Changes To Clarify Various Program Participation Requirements
    1. Uniform Benefits Under Parts C and D (Sec.  422.100(d) and 
Sec.  423.104))
    2. Ensuring the Security of Personal Health Information and 
Other Personally Identifiable Information (Sec.  422.504 and Sec.  
423.505)
    3. Requirement for Sponsoring Organizations Under Parts C and D 
To Report Other Payer Information to the Coordination of Benefits 
Contractor (Sec.  422.108 and Sec.  423.464)
    4. Visitor/Traveler Benefit Under Part C for the Purpose of 
Extending Enrollment Up to 12 Months (Sec.  422.74)
    5. Medication Therapy Management Programs Under Part D (Sec.  
423.153(d))
    6. Formulary Requirements-Development and Revision by a Pharmacy 
and Therapeutics Committee (Sec.  423.120)
    7. Generic Equivalent Disclosure Under Part D (Sec.  423.132)
    8. Access to Covered Part D Drugs (Sec.  423.120)
    9. Standard Timeframe and Notice Requirements for Coverage 
Determinations Under Part D (Sec.  423.568)
    10. Expediting Certain Coverage Determinations (Sec.  423.570)
    11. Timeframes and Notice Requirements for Expedited Coverage 
Determinations (Sec.  423.572)
    12. Clarify Novation Agreements Under Part D (Sec.  423.551)
    13. Cost Contract Program Revisions: Appeals and Marketing 
Requirements (Sec.  417.428, Sec.  417.494, Sec.  417.500, and Sec.  
417.640)
    14. Appeals Processes for Contract Determinations, Intermediate 
Sanctions, and Civil Money Penalties
    a. Contract Determinations (Sec.  417.492 and 417.494)
    b. Civil Money Penalties (Sec.  417.500)
    c. Intermediate Sanctions (Sec.  417.500)
    15. Extending MA Marketing Requirements to Cost Program Plans 
(Sec.  417.428)
    a. Definitions Concerning Marketing Materials (Sec.  422.2260)
    b. Review and Distribution of Marketing Materials (Sec.  
422.2262)
    c. Guidelines for CMS Review (Sec.  422.2264)
    d. Deemed Approval (Sec.  422.2266)
    e. Standards for MA Organization Marketing (Sec.  422.2268)
    f. Licensing of Marketing Representatives and Confirmation of 
Marketing Resources (Sec.  422.2272)
    g. Broker and Agent Requirements (Sec.  422.2274)
    H. Changes To Implement Corrections and Other Technical Changes
    1. Application of Subpart M to Health Care Prepayment Plans 
(Sec.  417.840)
    2. Generic Notice Delivery Requirements (Sec.  422.622 and 
422.626)
    3. Revision to Definition of Gross Covered Prescription Drug 
Costs (Sec.  423.308)
    4. Application Evaluation Procedures (Sec.  422.502(c and d) and 
Sec.  423.503(c and d))

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    5. Intermediate Sanctions (Sec.  422.750(a) and Sec.  
423.750(a))
    6. Basis for Imposing Intermediate Sanctions and Civil Money 
Penalties (Sec.  422.752 and Sec.  423.752)
III. Collection of Information Requirements
    A. ICRs Regarding Basic Contract Requirements (Sec.  417.472)
    B. ICRs Regarding Apportionment and Allocation of Administrative 
and General Costs (Sec.  417.564)
    C. ICRs Regarding Medicare Secondary Payer (MSP) Procedure 
(Sec.  422.108 and Sec.  423.462)
    D. ICRs Regarding Disclosure Requirements (Sec.  422.111)
    E. ICRs Regarding Quality Improvement Program (Sec.  422.152)
    F. ICRs Regarding RADV Audit Dispute and Appeal Processes (Sec.  
422.311)
    G. ICRs Regarding Application Requirements (Sec.  422.501 and 
Sec.  423.502)
    H. ICRs Regarding General Provisions (Sec.  422.503 and Sec.  
423.504)
    I. ICRs Regarding Contract Provisions (Sec.  422.504 and 
423.505)
    J. ICRs Regarding Nonrenewal of Contract (Sec.  422.506 and 
Sec.  423.507)
    K. ICRs Regarding Request for Hearing (Sec.  422.662 and Sec.  
423.651)
    L. ICRs Regarding Time and Place of Hearing (Sec.  422.670 and 
Sec.  423.655)
    M. ICRs Regarding Review by the Administrator (Sec.  422.692 and 
Sec.  423.666)
    N. ICRs Regarding Procedures for Imposing Intermediate Sanctions 
and Civil Monetary Penalties (Sec.  422.756 and Sec.  423.756)
    O. ICRs Regarding Disclosure of Part D Plan Information (Sec.  
423.128)
    P. ICRs Regarding Consumer Satisfaction Surveys (Sec.  423.156)
    Q. ICRs Regarding Validation of Part C and Part D Reporting 
Requirements (Sec.  422.516 and Sec.  423.514)
    R. ICRs Regarding Drug Utilization Management, Quality 
Assurance, and Medication Therapy Management Programs (MTMPs) (Sec.  
423.153)
    S. ICRs Regarding Timeframes and Notice Requirements for 
Standard Coverage Determinations (Sec.  423.568)
    T. ICRs Regarding Timeframes and Notice Requirements for 
Expedited Coverage Determinations (Sec.  423.572)
    U. ICRs Regarding Access to Covered Part D Drugs (Sec.  423.120)
    V. ICRs Regarding Timeframes and Responsibility for Making 
Redeterminations (Sec.  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 end-stage 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

[[Page 54638]]

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:
    <bullet> 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);
    <bullet> 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);
    <bullet> 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.<SUP>1 2</SUP> 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.
---------------------------------------------------------------------------

    \1\ McFadden D (2006). Free Markets and Fettered Consumers. The 
American Economic Review 96(1), 5-29
    \2\ Hanock 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.
    \3\ See, 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.
    \4\ Hargrave 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.
---------------------------------------------------------------------------

    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:

[[Page 54639]]

    <bullet> Strengthening our ability to distinguish for approval 
strong applicants for MMA participation and remove consistently poor 
performers.
    <bullet> Strengthening beneficiary protections.
    <bullet> Providing plan offerings with sufficient enrollment and 
meaningful differences.
    <bullet> Improving payment rules and processes.
    <bullet> Improving data collection for oversight and quality 
assessment.
    <bullet> Implementing other new policies.
    <bullet> Clarifying various sponsor program participation 
requirements.
    <bullet> 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, computer-based 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 re-
submissions 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 ten-
day 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

[[Page 54640]]

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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Part 422                                                  Part 423
              Provision              -------------------------------------------------------------------------------------------------------------------
                                              Subpart                  Section                  Subpart                          Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
Notice of Intent to Apply...........  Subpart K..............  Sec.   422.501.........  Subpart K.............  Sec.   423.502.
Application Standards...............  Subpart K..............  Sec.   422.502.........  Subpart K.............  Sec.   423.503.
Compliance Measures/Analysis........  Subpart K..............  Sec.   422.502.........  Subpart K.............  Sec.   423.503.
Compliance Programs.................  Subpart K..............  Sec.                     Subpart K.............  Sec.   423.504(b)(4)(vi).
                                                                422.503(b)(4)(vi).
Network Adequacy of Coordinated Care  Subpart C..............  Sec.   422.112.........  N/A...................  N/A.
 and Network-Based Private-Fee-For-
 Service plans under Part C.
Clarify programmatic elements that    Subpart D..............  Sec.   422.156(b)(7),    Subpart D.............  Sec.   423.165(b), Sec.   423.165(f).
 are ``deemable''.                                              Sec.   422.156(f).
Procedures for termination and        Subpart K..............  Sec.   422.510(c)(1),    Subpart K.............  Sec.   423.509(c)(1), Sec.
 Nonrenewals: Part C and D.                                     Sec.   422.506(b)(3).                            423.507(b)(3).
Intermediate Sanctions: Procedures    Subpart O..............  Sec.   422.756.........  Subpart O.............  Sec.   423.756.
 for imposing civil and money
 penalties.
Contract Termination................  Subpart K..............  Sec.   422.510(a)......  Subpart K.............  Sec.   423.509(a).
Proper request for hearings.........  Subpart N..............  Sec.   422.662.........  Subpart N.............  Sec.   423.651.
Burden of Proof, Standard of Proof,   Subpart N..............  Sec.   422.660, Sec.     Subpart N.............  Sec.   423.650, Sec.   423.658(d).
 Standard of Review and Conduct of                              422.676(d).
 Hearing.
Postponement of effective date of     Subpart N..............  Sec.   422.664.........  Subpart N.............  Sec.   423.652.
 determination when a request is
 being filed.
Extending timeframe for contract      Subpart N..............  Sec.   422.670.........  Subpart N.............  Sec.   423.655.
 determination hearings.
Appeal times: Require each party      Subpart N..............  Sec.   422.682.........  Subpart N.............  Sec.   423.661.
 provide witness list and documents
 5 calendar days before hearing.
Appeal times: Require request for a   Subpart N..............  Sec.   422.692(a)......  Subpart N.............  Sec.   423.666(a).
 review by the administrator must be
 received with 15 days after receipt
 of hearing decision.
Contract redeterminations and         Subpart N..............  Sec.   422.696.........  Subpart N.............  Sec.   423.668.
 reopening.
Mutual termination of contract......  Subpart K..............  Sec.   422.503(b)(6)...  Subpart K.............  Sec.   423.504(b)(5).
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Require Notice of Intent To Apply Under Part C and D Within the 
Application Requirements (Sec.  422.501 and Sec.  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

[[Page 54641]]

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 Sec.  422.501 and Sec.  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 (Sec.  422.501(c) and Sec.  423.502(c)) and 
Evaluation and Determination Procedures for Determining Whether 
Applicants Are Qualified for a Contract Under Parts C and D (Sec.  
422.502 and Sec.  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 Sec.  422.502 and 
Sec.  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 Sec.  422.501(c)(1) and (2), Sec.  422.502(a)(2), Sec.  
423.502(c)(1) and (2), and Sec.  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 Sec.  422.502(a)(1) and Sec.  
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 Sec.  422.502(a)(1) and 
Sec.  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 Sec.  
422.502(c) and Sec.  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 Sec.  422.502(c)(2) and Sec.  
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 Sec.  422.650(b)(2) 
and Sec.  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 Sec.  422.502(c)(2) and Sec.  
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 (Sec.  422.750 and Sec.  423.750)
    As described in Sec.  422.502(b) and Sec.  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 Sec.  422.502(b) and Sec.  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,

[[Page 54642]]

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 Sec.  
423.503(b) and Sec.  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 Sec.  422.503(b), 
Sec.  422.508(c), Sec.  423.504(b), and Sec.  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 Sec.  422.750 and Sec.  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 (Sec.  422.504, and Sec.  
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 Sec.  
422.516 and Sec.  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 Sec.  
422.502(d)(1) and Sec.  423.503(d)(1).
    Some of the data acquired through Sec.  422.516 and Sec.  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 Sec.  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:
    <bullet> Develop a data distribution--data values ordered from low 
to high.
    <bullet> Determine the maximum and minimum data values.
    <bullet> Determine the range (maximum-minimum).
    <bullet> 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 Sec.  422.516 or 
Sec.  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.

[[Page 54643]]

    We propose to add paragraphs Sec.  422.504(m)(1) and (2) and Sec.  
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 (Sec.  422.503(b)(4)(vi) and 
Sec.  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 Sec.  422.503(b)(4)(vi) and Sec.  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 Sec.  422.503(b)(4)(vi)(A) and 
Sec.  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 non-intimidation 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 
Sec.  422.503(b)(4)(vi)(B) and Sec.  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 Sec.  422.503(b)(4)(vi)(C) and Sec.  
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,

[[Page 54644]]

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 non-physician 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 Sec.  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 Sec.  
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 Sec.  422.503(b)(4)(vi)(D) and Sec.  
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 
Sec.  422.503(b)(4)(vi)(E) and Sec.  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 Sec.  
422.503(b)(4)(vi)(F) and Sec.  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 Sec.  422.503(b)(4)(vi)(G) 
and Sec.  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 self-evaluations 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-
for-Service Plans Under Part C (Sec.  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 Sec.  
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

[[Page 54645]]

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 Sec.  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 Sec.  
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 Sec.  
422.112(a)(10), these factors would include, but not be limited to--
    <bullet> 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;
    <bullet> 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;
    <bullet> Whether the service area is comprised of rural or urban 
areas or some combination of the two;
    <bullet> Whether the MA plan's proposed provider network meets 
Medicare time and distance standards for member access to health care 
providers including specialties; and
    <bullet> 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 (Sec.  
422.156(b)(7), Sec.  422.156(f), Sec.  423.165(b), and Sec.  
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 Sec.  422.156(b)(7) 
to refer to the list of deemable requirements for Part D sponsors set 
out at Sec.  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 Sec.  422.156(f) and Sec.  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 Sec.  422.156(f) and Sec.  
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 Sec.  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.

[[Page 54646]]

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 (Sec.  422.506(b)(3), Sec.  422.510(c)(1), Sec.  423.507(b)(3), and 
Sec.  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 
Sec.  422.506(b)(3), Sec.  422.510(c)(1), Sec.  423.507(b)(3), and 
Sec.  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 Sec.  422.506(b)(3), Sec.  422.510(c)(1), Sec.  
423.507(b)(3), and Sec.  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 Sec.  422.506(b)(3), Sec.  422.510(c)(1), 
Sec.  423.507(b)(3), and Sec.  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 Sec.  
422.506(b)(3), Sec.  422.510(c)(1), Sec.  423.507(b)(3), and Sec.  
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 day-to-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

[[Page 54647]]

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 Sec.  422.506(b)(3), Sec.  422.510(c)(1), Sec.  
423.507(b)(3), and Sec.  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 Sec.  422.506(b)(3), Sec.  
422.510(c)(1), Sec.  423.507(b)(3), and Sec.  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 (Sec.  422.756 and Sec.  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 Sec.  422.756(d)(3) and Sec.  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 self-disclosed, 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 requirements in relevant areas where

[[Page 54648]]

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 Sec.  422.756 and 
Sec.  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 Sec.  422.756 and 
Sec.  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 Sec.  422.756 and 
Sec.  423.756, we are proposing to delete the existing provisions at 
Sec.  422.756(c) and Sec.  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 Sec.  422.750(a) and Sec.  423.750(a) and are unnecessary. 
Due to this deletion, we are proposing to redesignate paragraphs (d) 
through (f) in Sec.  422.756 and Sec.  423.756 as paragraphs (c) 
through (e), respectively.
10. Termination of Contracts Under Parts C and D (Sec.  422.510(a) and 
Sec.  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--
    <bullet> Has failed substantially to carry out the contract;
    <bullet> Is carrying out the contract in a manner inconsistent with 
the efficient and effective administration of this part; or
    <bullet> No longer substantially meets the applicable conditions of 
this part.
    Existing regulations at Sec.  422.510(a)(6) through (12) and Sec.  
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

[[Page 54649]]

enumerated. Therefore, we are proposing to delete the enumerated bases 
for termination contained at Sec.  422.510(a)(6) through (12) and Sec.  
423.509(a)(6) through (11). In addition, we are proposing to revise 
Sec.  422.510(a) and Sec.  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 Sec.  
422.510(a)(2)(i) and Sec.  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 Sec.  
422.510(a)(2)(ii) and Sec.  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 
Sec.  422.510(a)(4) and Sec.  423.509(a)(4). However, we are proposing 
to redesignate current Sec.  422.510(a)(4) and Sec.  423.509(a)(4) as 
Sec.  422.510(a)(2)(iii) and Sec.  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 Sec.  
422.510(a)(5) and Sec.  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 Sec.  422.510(a)(5) and Sec.  
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 (Sec.  422.662 and Sec.  
423.651)
    Sections 1857(c) and 1860D-12 of the Act permit us to terminate 
contracts with sponsoring organizations. Current regulations at Sec.  
422.662(a) and Sec.  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 Sec.  422.662(a) 
and Sec.  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.

[[Page 54650]]

    We are also making a conforming change at Sec.  422.662(b) and 
Sec.  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 (Sec.  422.660, Sec.  423.650, Sec.  422.676 and 
Sec.  423.658)
    Under the existing regulations at Sec.  422.660(b), and Sec.  
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:
    <bullet> The date of the notice of contract determination or 
intermediate sanction.
    <bullet> The date of the most recent onsite audit.
    <bullet> 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 Sec.  422.660(b), and 
Sec.  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 Sec.  422.501 and Sec.  422.502 or Sec.  423.502 and Sec.  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 Sec.  422.641(a) and 
Sec.  423.641(a) and to intermediate sanctions identified at Sec.  
422.750 and Sec.  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 Sec.  422.660(b) and Sec.  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 Sec.  
422.501 and Sec.  422.502 that governs the processes and standards for 
applicants for the MA program, Sec.  423.502 and Sec.  423.503 for 
applicants for the Part D program, Sec.  422.506 or Sec.  422.510 for 
MA contract determinations, Sec.  423.507 or Sec.  423.509 for Part D 
contract determinations, and Sec.  422.752 or Sec.  423.752 for 
intermediate sanctions.
    Additionally, we propose to modify Sec.  422.660(c) and Sec.  
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

[[Page 54651]]

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 Sec.  422.660 and Sec.  423.650.
    <bullet> Revise the section headings for Sec.  422.660 and Sec.  
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.
    <bullet> Add paragraph headings. We believe that these additions 
would improve the structure and readability of the proposed regulatory 
text.
    <bullet> Correct the references in Sec.  422.660(a)(1) and Sec.  
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 Sec.  422.501 and Sec.  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 Sec.  422.501 and Sec.  422.502 
for Part C contracts and Sec.  423.502 and Sec.  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 Sec.  422.502 to Sec.  422.660(a)(1), and by adding the 
reference Sec.  423.502 to Sec.  423.650(a)(1).
    <bullet> Make technical changes in Sec.  422.660(a) and Sec.  
423.650(a). In paragraphs (a)(1) through (a)(4) of these sections, we 
are proposing to revise the terminology preceding the cross-reference 
(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 Sec.  422.676(d) and Sec.  423.658(d) governing the conduct of the 
hearing. We are proposing to revise the language contained in Sec.  
422.676(d) and Sec.  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 (Sec.  422.510, Sec.  
423.509, Sec.  422.664, Sec.  423.652, Sec.  422.644, and Sec.  
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 Sec.  423.509(a)(4) and (5) 
currently provide two of these bases for expedited terminations. Under 
Sec.  422.510(a)(4) and Sec.  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 Sec.  422.510(a)(5) 
and Sec.  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 Sec.  422.510(c)(2) and Sec.  
423.509(c)(2) provide that if a contract is terminated under Sec.  
422.510(a)(4) or (a)(5), and Sec.  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 Sec.  422.510(b)(2)(i) and Sec.  423.509(b)(2)(i) that, if a 
contract is terminated under Sec.  422.510(a)(4) or (a)(5) and Sec.  
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 Sec.  422.664(b)(2) and Sec.  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 Sec.  422.510(a)(4) or (a)(5), and 
Sec.  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 Sec.  
422.510(a)(4) or (a)(5) and Sec.  423.509(a)(4) or (a)(5) as contained 
in the termination (Sec.  422.510(b)(2)(i), Sec.  423.509(b)(2)(i), 
Sec.  422.510(c)(2) and Sec.  423.509(c)(2)) and in the appeal 
procedures (Sec.  422.664(b)(2) and Sec.  423.652(b)(2)). More 
specifically, we are proposing to amend the termination procedures 
language of Sec.  422.510(b)(2)(i) and Sec.  423.509(b)(2)(i) to 
clarify that for terminations based on violations prescribed in Sec.  
422.510(a) and Sec.  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 Sec.  422.510(c)(2) and Sec.  423.509(c)(2) to clarify that 
if we determine that a delay

[[Page 54652]]

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 Sec.  
422.664(b)(2) and Sec.  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 Sec.  422.510(a)(4) or (a)(5), and Sec.  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 
Sec.  422.510(b) and Sec.  423.509(b) and notice of contract 
determinations contained in Sec.  422.644(c) and Sec.  423.642(c) which 
reference the expedited termination bases. In Sec.  422.510(b) and 
Sec.  423.509(b), we are deleting the references to Sec.  422.510(a)(4) 
or (a)(5), and Sec.  423.509(a)(4) or (a)(5). In Sec.  422.644(c) and 
Sec.  423.642(c), we are deleting the references to Sec.  422.510(a)(4) 
or (a)(5), and Sec.  423.509(a)(4) or (a)(5) and replacing the language 
with the proposed language contained in Sec.  422.510(b)(2)(i) and 
Sec.  423.509(b)(2)(i).
14. Time and Place of Hearing Under Parts C and D (Sec.  422.670 and 
Sec.  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 Sec.  422.670(b) and Sec.  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 Sec.  
422.670(b) and Sec.  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 Sec.  422.670(a) and Sec.  
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 Sec.  422.670(a) 
and Sec.  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 (Sec.  422.682 and Sec.  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 Sec.  422.682 and Sec.  
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 Sec.  422.682 and Sec.  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 Sec.  
422.682 and Sec.  423.661. First, we propose to modify the existing 
regulations to change the titles of Sec.  422.682 and Sec.  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 Sec.  422.670(a)(2) and Sec.  
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 Sec.  422.682 and 
Sec.  423.661, we are proposing to make a conforming change by deleting 
Sec.  422.670(a)(2) and Sec.  423.655(a)(2).
16. Review by the Administrator Under Parts C and D (Sec.  422.692(a) 
and Sec.  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 Sec.  422.692 and Sec.  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 Sec.  422.692(a) and 
Sec.  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 Sec.  422.692(c) and Sec.  423.666(c) governing 
the notification of Administrator determination to state that the 
Administrator must notify both parties

[[Page 54653]]

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 (Sec.  422.696 
and Sec.  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 Sec.  422.696 and Sec.  423.668 govern the reopening of 
an initial contract determination or decision of a Hearing Officer or 
the Administrator. More specifically, existing regulations at Sec.  
422.696(a) and Sec.  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 Sec.  
422.696 and Sec.  423.668 and in the text of Sec.  422.696(a) and Sec.  
423.668(a).
18. Prohibition of MA and Part D Applications for 2 Years After a 
Mutual Termination (Sec.  422.503(b)(6) and Sec.  423.504(b)(5))
    The regulations in Sec.  422.503(b)(6) and Sec.  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 Sec.  
422.506(a)(4) and Sec.  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 Sec.  422.503 and Sec.  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 Sec.  423.507(a)(2)(i) and Sec.  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 Sec.  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 Sec.  
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 Sec.  423.508(e). To accomplish these changes, 
we propose to redesignate the current Sec.  423.504(b)(6) to Sec.  
423.504(b)(7).
    We propose to make the same modification to the MA regulations. 
Specifically, we are proposing to modify Sec.  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 Sec.  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 Sec.  422.508(c).

[[Page 54654]]

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--
    <bullet> Authorize us to annually establish an overall annual cap 
on member cost sharing;
    <bullet> Prohibit PPO, PFFS, and MSA plans from using compliance 
with voluntary prior notification procedures in determining cost-
sharing amounts;
    <bullet> Establish new requirements for organization 
determinations; and
    <bullet> 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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Part 422                                                  Part 423
              Provision              -------------------------------------------------------------------------------------------------------------------
                                               Subpart                  Section                   Subpart                         Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
Broker & Agent Requirements under     N/A.....................  N/A....................  N/A.....................  N/A.
 Parts C and D.
Beneficiary Communications Materials  Subpart V...............  Sec.   422.2260, Sec.    Subpart V...............  Sec.   423.2260, Sec.   423.2262.
 under Parts C and D.                                            422.2262.
Required Use of Standardized Model    Subpart V...............  Sec.   422.2262........  Subpart V...............  Sec.   423.2262.
 Materials under Parts C and D.
Extend the mandatory minimum grace-   Subpart B...............  Sec.   422.74..........  Subpart B...............  Sec.   423.44.
 period for failure to pay premiums.
Maximum allowable out-of-pocket cost  Subpart C...............  Sec.   422.100.........  N/A.....................  N/A.
 amount for Medicare Parts A and B
 services.
Maximum allowable cost sharing        Subpart C...............  Sec.   422.100.........  Subpart C...............  Sec.   423.104
 amount for Medicare Parts A and B
 services and prescription drugs.
Prohibition on prior notification by  Subpart A...............  Sec.   422.2, Sec.       N/A.....................  N/A
 PPO, PFFS, and MSA plans.                                       422.4, Sec.
                                                                 422.105(b).
Requirements for LIS eligibility:     N/A.....................  N/A....................  Subpart P...............  Sec.   422.773(c)(2).
 Expand the deeming period for LIS-
 eligible beneficiaries to cover at
 least 13 months.
Expand auto-enrollment rules to       N/A.....................  N/A....................  Subpart B...............  Sec.   423.34
 entire LIS-eligible population.
Special Enrollment Period (SEP)       N/A.....................  N/A....................  Subpart B...............  Sec.   423.38.
 Policies.
Transition Process..................  N/A.....................  N/A....................  Subpart C...............  Sec.   423.120(b)(3).
Sponsor responsibility for            N/A.....................  N/A....................  Subpart J...............  Sec.   423.464.
 retroactive claims adjustment
 reimbursements and recoveries.
Time Limits for Coordination of       N/A.....................  N/A....................  Subpart J...............  Sec.   423.466.
 Benefits.
Pharmacy use of Standard Technology   N/A.....................  N/A....................  Subpart C...............  Sec.   423.120.
 (ID cards) under Part D.
Allow members in stand-alone Part D   N/A.....................  N/A....................  Subpart B...............  Sec.   423.44.
 plans to be temporarily out of area
 for up to 12 months.
Prohibit mass SPAP reenrollments      N/A.....................  N/A....................  Subpart J...............  Sec.   423.464(e).
 during plan year.
Non-Renewal Public Notice 60-day non- Subpart K...............  Sec.   422.506.........  Subpart K...............  Sec.   423.507.
 renewal beneficiary notification
 requirement.
Notice of Alternative Medicare Plans  Subpart K...............  Sec.   422.5(a)(2)(ii).  Subpart K...............  Sec.   423.507(2)(ii).
Timeframes and Responsibility for     N/A.....................  N/A....................  Subpart M...............  Sec.   423.590.
 making Redeterminations under Part
 D.
Requirements for Requesting           Subpart M...............  Sec.   422.568.........  N/A.....................  N/A.
 Organization Determinations.
Organization Determinations under     Subpart M...............  Sec.   422.566 & Sec.    N/A.....................  N/A.
 Parts C.                                                        422.568.
Refine/clarify definitions related    Subpart M...............  Sec.   422.561, Sec.     N/A.....................  N/A.
 to authorized representatives.                                  422.574 & Sec.
                                                                 422.624.
Sponsors may be required to disclose  Subpart C...............  Sec.   422.111(g)......  Subpart C...............  Sec.   423.128(f).
 to enrollees compliance and
 performance deficiencies.
Revise definition of ``service        Subpart A...............  Sec.   422.2...........  N/A.....................  N/A.
 area'' to exclude facilities in
 which individuals are incarcerated.
--------------------------------------------------------------------------------------------------------------------------------------------------------

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

[[Page 54655]]

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 (Sec.  
422.2260, Sec.  422.2262, Sec.  423.2260, and Sec.  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:
    <bullet> General audience materials such as--
    ++ General circulation brochures;
    ++ Newspapers;
    ++ Magazines;
    ++ Television;
    ++ Radio;
    ++ Billboards;
    ++ Yellow pages; or
    ++ The Internet.
    <bullet> Marketing representative materials such as scripts or 
outlines for telemarketing or other presentations.
    <bullet> Presentation materials such as slides and charts.
    <bullet> Promotional materials such as brochures or leaflets, 
including materials for circulation by third parties (for example, 
physicians or other providers);
    <bullet> Membership communication materials such as--
    ++ Membership rules;
    ++ Subscriber agreements;
    ++ Member handbooks; and
    ++ Wallet card instructions to enrollees.
    <bullet> 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 Sec.  422.2262 
and Sec.  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--
    <bullet> Part D explanations of benefits (EOBs);
    <bullet> Notifications about claims processing changes or errors; 
and
    <bullet> Other one-time or situational, beneficiary specific 
letters to current enrollees.
    Therefore, we propose to revise Sec.  422.2260 and Sec.  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

[[Page 54656]]

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 Sec.  422.2262 and Sec.  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 
(Sec.  422.2262 and Sec.  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 Sec.  422.2264 and Sec.  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 Sec.  422.2262 and Sec.  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 (Sec.  422.74 and Sec.  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 Sec.  422.74 and Sec.  423.44, 
respectively.
    Currently, Sec.  422.74(d)(1)(i)(B) specifies that an MA 
organization must provide, at minimum, a 1-month grace period before 
disenrolling individuals for failure to pay the premium. Similarly, 
under current regulations at Sec.  423.44(b)(1)(i) and Sec.  
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 Sec.  
422.74(d)(1) and Sec.  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.

[[Page 54657]]

5. Maximum Allowable Out-of-Pocket Cost Amount for Medicare Parts A and 
B Services (Sec.  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-for-service (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 cost-sharing. We 
also established out-of-pocket 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 cost-sharing 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 Sec.  422.100(f)(3) by 
adding a new paragraph (f)(4) to specify that all local MA plans must 
establish an out-of-pocket 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 out-of-
network beneficiary cost sharing. The methodology for determining the 
out-of-pocket maximum for local MA plans will be similar to the 
methodology we used to establish the voluntary out-of-pocket maximum 
amount for MA plans for contract year 2010. The out-of-pocket 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 (Sec.  422.100, Sec.  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

[[Page 54658]]

sharing thresholds in plans' benefit designs affords greater 
predictability and protection against high out-of-pocket 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 Sec.  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 Sec.  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 (Sec.  422.2, Sec.  422.4, and Sec.  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 Sec.  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 Sec.  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

[[Page 54659]]

(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 non-network 
provider services, but still might be greater than it would be for in-
network provider services, provided an enrollee follows 
preauthorization, pre-certification, 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 Sec.  
422.2 and Sec.  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 (Sec.  423.773)
    Section 423.773(c) specifies that the individuals treated as full 
subsidy eligible individuals include the following:
    <bullet> Full-benefit dual eligible individuals;
    <bullet> Supplemental Security Income (SSI) recipients under Title 
XVI of the Act; and
    <bullet> 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 Sec.  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 Sec.  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 (Sec.  423.34)
    In the January 28, 2005 Federal Register, when we issued the 
Medicare Prescription Drug Benefit final rule (70 FR 4193), we added 
Sec.  423.34 to describe our procedures for enrollment of full-benefit 
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 LIS-eligible 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 auto-
enrollment 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.

[[Page 54660]]

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 Sec.  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 Sec.  423.34:
    <bullet> In Sec.  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 full-benefit dual eligible individuals, but 
also to all LIS-eligible individuals.
    <bullet> In Sec.  423.34(b), we would retain the definition of 
full-benefit dual eligible individual, and add a definition for ``low-
income subsidy eligible individual.''
    <bullet> We propose to amend the paragraph heading of Sec.  
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).
    <bullet> We are proposing to revise the paragraph heading of Sec.  
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.)
    <bullet> We propose to amend Sec.  423.34(e) to indicate that the 
rules regarding declining enrollment and disenrollment also apply to 
all LIS-eligible individuals.
    <bullet> In Sec.  423.34(f), we would clarify that the paragraph 
heading and contents of this paragraph are limited to the effective 
date of enrollment for full-benefit eligible individuals. We propose to 
amend Sec.  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.
    <bullet> In Sec.  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:
    <bullet> The efficacy of the existing auto-enrollment and 
facilitated enrollment procedures, and suggestion for improving these 
procedures;
    <bullet> 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 LIS-eligible 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 
auto-enrolled 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.
    <bullet> 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 (Sec.  423.380)
    Consistent with the changes in Sec.  423.34, we are proposing to 
expand the special enrollment period described in Sec.  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 (Sec.  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.''

[[Page 54661]]

    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 Sec.  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 auto-enrolled 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:
    <bullet> New enrollees into PDPs following the annual coordinated 
election period;
    <bullet> Newly eligible Medicare enrollees from other coverage;
    <bullet> Individuals who switch from one plan to another after the 
start of the contract year; and
    <bullet> 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

[[Page 54662]]

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 Sec.  
423.120(b)(3):
    <bullet> Add paragraph (3)(i) to clarify which enrollees the 
transition process should apply;
    <bullet> Add paragraph (3)(ii) to ensure access to a temporary 
supply of drugs within the first 90 days of coverage under a new plan;
    <bullet> 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;
    <bullet> Add paragraph (3)(iv) to ensure written notice is provided 
to each affected enrollee within 3 business days of the temporary fill;
    <bullet> 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 (Sec.  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 Sec.  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 Sec.  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

[[Page 54663]]

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-of-pocket (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 Sec.  423.464 and Sec.  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 Sec.  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-of-sale 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 cost-sharing 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

[[Page 54664]]

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 non-subsidized 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 post-adjudication 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 Sec.  
423.464:
    <bullet> 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
    <bullet> 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 cost-sharing and premiums for low-
income subsidy eligible individuals have been processed in accordance 
with the requirements in Sec.  423.800(c); and
    ++ Recoveries of erroneous payments for enrollees have been sought 
as specified in Sec.  423.464(f)(4).
13. Time Limits for Coordination of Benefits (Sec.  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 Sec.  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 Sec.  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 
Sec.  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.

[[Page 54665]]

    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 Sec.  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 (Sec.  423.120)
    Section 1860D-4(b)(2)(A) of the Act, as codified in Sec.  
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 Card-Health 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-of-pocket (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 Sec.  423.120(c) to 
codify our existing guidance that Part D sponsors utilize standard 
electronic transactions established by 45 CFR

[[Page 54666]]

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 Sec.  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 
(Sec.  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

[[Page 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 Sec.  422.74. The disenrollment provisions for 
PDPs are outlined in Sec.  423.44.
    Under the current MA and PDP rules at Sec.  422.74 and Sec.  
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 Sec.  
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 (Sec.  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 Sec.  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 case-by-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 front-loading 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 
(Sec.  422.506, and Sec.  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 Sec.  
422.506 of the MA regulations, and Sec.  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

[[Page 54668]]

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 CMS-approved 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 Sec.  422.506(a)(2)(ii) and (b)(2)(ii) of the MA 
regulations and Sec.  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 Sec.  422.506(a)(2)(iii) and (b)(2)(iii) of 
the MA regulations and Sec.  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 (Sec.  422.506(a)(2)(ii) and 
Sec.  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 Sec.  422.506(a)(2)(ii) of the MA regulations and 
Sec.  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 (Sec.  423.590)
    In accordance with section 1860D-4(g) of the Act, the Part D 
redetermination notice provisions in Sec.  423.590 largely mirror the 
MA reconsideration notice provisions in Sec.  422.590. There is one 
notable exception--Sec.  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 Sec.  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 Sec.  423.590(d)(2). Consistent with the requirements in Sec.  
422.590(d)(3), new Sec.  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 Sec.  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 
Sec.  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 Sec.  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 Sec.  423.572(b).
    Similarly, Sec.  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, Sec.  423.590(a)(1) mirrors the 
parallel provision at Sec.  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

[[Page 54669]]

obtaining refills of prescription drugs under Part D. Therefore, we 
propose to add Sec.  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 (Sec.  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 Sec.  
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 Sec.  
422.568 allowing oral requests for organization determinations, except 
where the request is for payment.
21. Organization Determinations Under Part C (Sec.  422.566 and Sec.  
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, Sec.  422.566 and 
Sec.  422.568 establish the requirements related to organization 
determinations and notices. Existing Sec.  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 Sec.  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 Sec.  422.566(b)(4) and Sec.  422.568(c).
22. Representatives (Sec.  422.561, Sec.  422.574, and Sec.  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 Sec.  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 Sec.  
423.560, we propose to amend Sec.  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 (Sec.  422.111(g) and 
Sec.  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, Sec.  422.111 and 
Sec.  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 Sec.  422.111(g) and Sec.  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, 
pre-enrollment 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 (Sec.  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 Sec.  
422.2 and the definition expressly requires organizations to meet 
access standards, in accordance with access standards in Sec.  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 (Sec.  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 Sec.  423.120. It is a logical 
conclusion that incarcerated beneficiaries similarly would not have 
access to MA plan services, as required under Sec.  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

[[Page 54670]]

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 Sec.  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 cost-
effective 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\
---------------------------------------------------------------------------

    \5\ Gold, Marsha. Strategies for Simplifying the Medicare 
Advantage Market. Publication prepared for the Kaiser Family 
Foundation. July, 2009.
    \6\ Rice, 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.
---------------------------------------------------------------------------

    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.

[[Page 54671]]



                                         Table 3--Provisions To Ensure Meaningful Differences in Plan Offerings
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Part 422                                                  Part 423
              Provision              -------------------------------------------------------------------------------------------------------------------
                                              Subpart                  Section                  Subpart                          Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
Bid Submissions: Ensuring             Subpart F..............  Sec.   422.254.........  Subpart F.............  Sec.   423.265.
 Significant Differences.
Bid Review Process..................  Subpart F..............  Sec.   422.256.........  Subpart F.............  Sec.   423.272.
Transition Process in Cases of        Subpart F..............  Sec.   422.256.........  Subpart F.............  Sec.   423.272.
 Acquisitions and Mergers).
Non-renewing Low-enrollment Plans...  Subpart K..............  Sec.                     Subpart K.............  Sec.   423.507(b)(1)(iii).
                                                                422.506(b)(1)(iv).
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Bid Submissions--Ensuring Significant Differences (Sec.  422.254 and 
Sec.  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 Sec.  422.254(a)(4) and Sec.  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 cost-sharing 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

[[Page 54672]]

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, cost-sharing, 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 
cost-sharing 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 Sec.  
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 Sec.  423.104(f)(1)(ii)(A).
2. Bid Review Process (Sec.  422.256 and Sec.  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 
Sec.  422.256(b)(4)(i) and Sec.  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 (Sec.  
422.256 and Sec.  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 
Sec.  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, cost-sharing, 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

[[Page 54673]]

period. We propose to codify this policy at Sec.  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 (Sec.  422.506(b)(1)(iv) and Sec.  
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 Sec.  422.514(a) and Sec.  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 low-enrollment 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
----------------------------------------------------------------------------------------------------------------
                                    Part 417/422        Part 417/422           Part 423            Part 423
           Provision            --------------------------------------------------------------------------------
                                       Subpart             Section             Subpart              Section
----------------------------------------------------------------------------------------------------------------
Risk Adjustment Data Validation  Subpart G.........  Various sections    N/A................  N/A.
 Appeals.                                             of Part 422.
Payments to Medicare Advantage   Subpart F.........  Sec.   422.254....  N/A................  N/A.
 Organizations--Actuarial
 Valuation.
Determination of Acceptable      Subpart O.........  Sec.   417.564....  N/A................  N/A.
 Administrative Costs by Cost
 Contract and Health Care
 Prepayment Plans (HCPPs).
Calculation of the Minimum       Subpart G.........  Sec.   422.306....  N/A................  N/A.
 Percentage Increase under Part
 C.
----------------------------------------------------------------------------------------------------------------

1. Risk Adjustment Data Validation Appeals (Sec.  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.

[[Page 54674]]

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 
self-reported 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 contract-level 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 
contract-level 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

[[Page 54675]]

standards by regulation at section 1856(b)(1) of the Act, proposing 
additions to part 422, subpart G at new Sec.  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:
    <bullet> At Sec.  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.
    <bullet> At Sec.  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 Sec.  422.311(a) and (b), we summarize the procedures 
that we undertake to conduct RADV audits of MA organizations. Beginning 
with Sec.  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--
    <bullet> Physician/practitioner attestation(s);
    <bullet> Documentation dispute; and
    <bullet> 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 Sec.  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 Sec.  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 Sec.  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 Sec.  422.311(c)(1)(iv) and 
(v). Only CMS-generated attestations that meet certain requirements 
described at Sec.  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 pre-populated 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 Sec.  422.311(c)(2 and 3). At Sec.  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

[[Page 54676]]

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 Sec.  
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 Sec.  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 Sec.  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 Sec.  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 Sec.  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

[[Page 54677]]

for attestation and documentation dispute to meet CMS' RADV medical 
record documentation standards, beyond those specified at proposed 
Sec.  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 Sec.  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 Sec.  
422.311(c)(1) and proposed documentation dispute process describe at 
Sec.  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--
    <bullet> Seek reconsideration;
    <bullet> Appeal the reconsideration decision to an independent CMS 
hearing officer; and
    <bullet> 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 Sec.  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 Sec.  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 
RADV-related payment error appeal.
    At Sec.  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 credential-related 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 
Sec.  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 Sec.  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 Sec.  
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 
Sec.  422.311(c)(3)(e) and (f).
    At Sec.  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

[[Page 54678]]

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 Sec.  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 Sec.  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 Sec.  
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 Sec.  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 Sec.  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 Sec.  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 Sec.  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, (Sec.  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 
(Sec.  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 Sec.  
423.265(c)(3). This proposed change in the part C regulation text will 
bring the part C regulation at Sec.  422.254(b)(5) in line with current 
requirements and Part D.

[[Page 54679]]

3. Determination of Acceptable Administrative Costs by Cost Contracts 
and Health Care Prepayment Plans (Sec.  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 
Sec.  417.564. As provided under Sec.  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 Sec.  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 Sec.  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 Sec.  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:
    <bullet> Donations.
    <bullet> Fines and penalties.
    <bullet> Political and lobbying activities.
    <bullet> Charity and courtesy allowances.
    <bullet> Spousal education.
    <bullet> Entertainment.
    <bullet> 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 (Sec.  
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 
Sec.  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.

[[Page 54680]]



                                          Table 5--Improve Data Collection for Oversight and Quality Assessment
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Part 422                                       Part 423
             Provision             ----------------------------------------------------------------------------------------------        Part 480
                                            Subpart                Section                 Subpart                Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
Requirements for Quality            Subpart D.............  Sec.   422.152,......  N/A...................  N/A..................  Sec.   480.140.
 Improvement Programs under Part C.                         Sec.   422.153.......
Require that Sponsors pay for the   Subpart D.............  Sec.   422.152(b)(5).  Subpart D.............  Sec.   423.156.......  N/A.
 Consumer Assessment Health Plan
 Survey (CAHPS).
Require validation of reporting     Subpart D.............  Sec.   422.516, Sec.   Subpart D.............  Sec.   423.514.......  N/A.
 requirements.                                                423.514.
Allow collection of all PDE data    N/A...................  N/A..................  Subpart D.............  Sec.   423.505.......  N/A.
 elements to be collected for non-
 payment purposes.
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Requirements for Quality Improvement Programs Under Part C (Sec.  
422.152, Sec.  422.153, and Sec.  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 Sec.  422.152(a). Under Sec.  
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 Sec.  422.152(c). As specified 
under Sec.  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 Sec.  422.152(d). Under our current 
regulations at Sec.  422.152(c) and Sec.  422.152(d), MA organizations 
have flexibility to develop criteria for CCIPs and initiate any quality 
improvement project that focuses on clinical and non-clinical 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 Sec.  
422.152(a)(1) and Sec.  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[reg]), 
Health Outcome Survey (HOS), and Consumer Assessment Health Providers 
Survey (CAHPS[reg]). We anticipate additional collection and reporting 
of the same types of data on health outcomes and quality measures

[[Page 54681]]

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[reg], HOS, and CAHPS[reg] 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 Sec.  422.152(b)(3) and Sec.  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 follow-up.'' 
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 Sec.  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 Sec.  480.140 to add a new paragraph (g), 
authorizing CMS's use of quality review study information solely for 
the purposes specified in Sec.  422.153.
2. CAHPS Survey Administration Under Parts C and D (Sec.  417.472, 
Sec.  422.152, and Sec.  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 Sec.  
423.156 and Sec.  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 Sec.  423.156 and Sec.  422.152, and for cost 
contractors in Sec.  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

[[Page 54682]]

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--
    <bullet> All Coordinated Care contracts, including local and 
regional preferred provider organizations (PPOs) and contracts with 
exclusively Special Needs Plans (SNPs) benefit packages;
    <bullet> Cost contracts under section 1876 of the Act;
    <bullet> Private-Fee-For Service (PFFS) and Medical Savings 
Accounts (MSA) contracts; and
    <bullet> 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 individual-level 
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 (Sec.  
422.516 and Sec.  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 Sec.  422.516 and 
Sec.  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

[[Page 54683]]

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 Sec.  
422.516 and Sec.  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 Nonpayment-
Related Purposes (Sec.  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-of-Sale 
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 e-prescribing.
    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 non-payment 
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 
non-payment 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

[[Page 54684]]

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 
Sec.  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--
    <bullet> Ensure that beneficiary, prescriber, or pharmacy 
identifiers are not released unless absolutely necessary for a project 
(for example, to link to another database);
    <bullet> 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
    <bullet> 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 Sec.  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 Sec.  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 Sec.  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--
    <bullet> 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;
    <bullet> The study is key to the mission of the sponsoring agency;
    <bullet> The study provides significant benefit to the Medicare 
program; and
    <bullet> 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:
    <bullet> 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.
    <bullet> 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.
    <bullet> Medicare program benefit, we propose to review the 
requestor's rationale for the importance of study findings to the 
Medicare program.
    <bullet> 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.

[[Page 54685]]



                                                       Table 6--Revisions to Implement New Policy
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Part 422                                                  Part 423
              Provision              -------------------------------------------------------------------------------------------------------------------
                                              Subpart                  Section                  Subpart                          Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
Clarify the MIPPA 176 ``Protected     N/A....................  N/A....................  Subpart C.............  Sec.   423.120(b)(2)(v).
 Classes'' formulary provision.
Pro-rating the Plan Deductible for    Subpart C..............  Sec.   422.103.........  N/A...................  N/A.
 Part C MSA Enrollments Occurring
 During an Initial Coverage Election
 Period.
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Protected Classes of Concern Under Part D (Sec.  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 Sec.  
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--
    <bullet> 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
    <bullet> 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:
    <bullet> An initial data-driven analysis of widely used treatment 
guidelines and Part D utilization data; and
    <bullet> 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

[[Page 54686]]

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 non-formulary 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 non-formulary 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 Sec.  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 Sec.  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 life-threatening 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 life-threatening or severely 
debilitating diseases. The definition of life-threatening 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

[[Page 54687]]

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--
    <bullet> There is a need for simultaneous use of multiple drugs 
within a drug grouping because such drugs work in combination with each 
other; or
    <bullet> 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

[[Page 54688]]

drug at Sec.  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 non-Part D drugs 
from the formulary requirements under section 176 of MIPPA.
    Therefore, we have added a new paragraph to Sec.  423.120(b)(2) to 
clarify exceptions to the inclusion of all drugs meeting the criteria 
under section 176 of MIPPA. Under Sec.  423.120(b)(2)(vi), exceptions 
would include the following:
    <bullet> Drug products that are determined to be therapeutic 
equivalents under the FDA's Orange Book;
    <bullet> Edits that limit the quantity of drugs due to safety; and
    <bullet> 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:
    <bullet> 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.
    <bullet> 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.
    <bullet> 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

[[Page 54689]]

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 (Sec.  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 high-deductible 
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 high-deductible 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 
Sec.  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 Sec.  422.103(d) to allow beneficiaries who enroll during the 
year as ICEP enrollments to pay only a pro-rated 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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Part 422                                                  Part 423
              Provision              -------------------------------------------------------------------------------------------------------------------
                                              Subpart                  Section                  Subpart                          Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
Clarify what we mean by uniform       Subpart C..............  Sec.   422.100(d)......  Subpart C.............  Sec.   423.104.
 benefits.
Ensure security of personal health    Subpart K..............  Sec.   422.504.........  Subpart K.............  Sec.   423.505.
 information and other personally
 identifiable information.
Require plans to report other payer   Subpart C..............  Sec.   422.108.........  Subpart C.............  Sec.   423.464.
 information to support coordination
 of benefits (COB).
Visitor/Traveler Benefit under Part   Subpart B..............  Sec.   422.74..........  N/A...................  N/A.
 C for the Purpose of Extending
 Enrollment up to 12 Months.
Codify authority to establish (MTM)   N/A....................  N/A....................  Subpart D.............  Sec.   423.153(d).
 Program requirements.
Clarify Pharmacy & Therapeutics       N/A....................  N/A....................  Subpart C.............  Sec.   423.120.
 (P&T) Committee requirements.
Generic equivalent disclosure.......  N/A....................  N/A....................  Subpart C.............  Sec.   423.132.
Application of access standards at    N/A....................  N/A....................  Subpart C.............  Sec.   423.120.
 application level.
Standard Timeframe for coverage       N/A....................  N/A....................  Subpart M.............  Sec.   423.568.
 requirements.
Clarify Novation requirements.......  N/A....................  N/A....................  Subpart L.............  Sec.   423.551.

[[Page 54690]]

 
Cost Contract Program revisions:      Subpart O..............  Sec.   417.428.........  N/A...................  N/A.
 Appeals and Marketing Requirements.                           Sec.   417.492.........
                                                               Sec.   417.494.........
                                                               Sec.   417.500.........
                                                               Sec.   417.640.........
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Uniform Benefits Under Parts C and D (Sec.  422.100(d) and Sec.  
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 Sec.  422.100(d) and Sec.  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 
Sec.  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 Sec.  423.104(b).
    However, we believe that Sec.  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 Sec.  423.104(b) to mirror the language 
at Sec.  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 (Sec.  422.504 and Sec.  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 Sec.  422.504 and Sec.  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 Sec.  422.504(e)(1)(ii) and Sec.  423.505(e)(1)(ii). We are 
also proposing conforming changes to the contract requirements related 
to downstream entities at Sec.  422.504(i)(2)(i) and Sec.  
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 (Sec.  422.108 and Sec.  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 Sec.  
422.108 and for Medicare PDPs in Sec.  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--
    <bullet> Recover from liable third parties;
    <bullet> Avoid Part C costs by directing providers to bill liable 
third parties directly; or
    <bullet> Account for Part C costs that could have been recovered or 
avoided, but that were actually not recovered or avoided,

[[Page 54691]]

by not including them in Part C base period costs.
    MA organizations and PDPs are required to follow the same rules 
regarding--
    <bullet> Their responsibilities under the MSP statutory and 
regulatory provisions;
    <bullet> Collection of payment from insurers, group health plans 
and large group health plans, the enrollee, or other entities for 
covered Part D drugs; and
    <bullet> 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 Sec.  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 Sec.  422.108 for MA organizations and Sec.  
423.462 and Sec.  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, non-Medicare) 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 (Sec.  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, Sec.  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 Sec.  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 in-
network cost-sharing levels consistent with Medicare access and 
availability requirements at Sec.  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

[[Page 54692]]

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 (Sec.  
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 Sec.  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 Sec.  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 Sec.  
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:
    <bullet> Part D sponsors shall use only an opt-out method for MTMP 
enrollment;
    <bullet> Part D sponsors shall target beneficiaries for MTMP 
enrollment at least quarterly during each plan year; and
    <bullet> 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 Sec.  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 Sec.  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 Sec.  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,

[[Page 54693]]

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 face-to-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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 Sec.  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 (Sec.  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 
peer-reviewed 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 
Sec.  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

[[Page 54694]]

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 Sec.  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 Sec.  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 (Sec.  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 Sec.  423.132(c).
    In Sec.  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 Sec.  
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 Sec.  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 (Sec.  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 Sec.  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

[[Page 54695]]

Sec.  422.2 (for MA) and Sec.  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 Sec.  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 Sec.  423.120(a) 
(defining access requirements for Part D drugs) references a definition 
provided in Sec.  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 Sec.  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 (Sec.  423.568)
    Section 1860D-4(g) of the Act requires Part D plan sponsors to 
establish procedures for processing requests for coverage 
determinations and redeterminations. Those procedures must apply to 
Part D plan sponsors in the same manner as such requirements apply to 
MA organizations with respect to organization determinations and 
reconsiderations. In accordance with section 1860D-4(g) of the Act, 
Sec.  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 Sec.  423.568 because Sec.  422.568 does not 
dictate the method for filing requests for standard organization 
determinations. However, elsewhere in this rule, we are proposing to 
revise Sec.  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 Sec.  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 Sec.  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 Sec.  
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 
Sec.  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 Sec.  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 Sec.  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, Sec.  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 Sec.  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

[[Page 54696]]

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 Sec.  423.636 for effectuating redeterminations or 
reconsiderations involving requests for payment. It also generally 
parallels the prompt payment provisions that apply under Sec.  422.520 
and Sec.  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 Sec.  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 Sec.  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 Sec.  423.568(c) of the regulations.
    Our last proposed change to Sec.  423.568 involves adding new 
paragraphs (d) and (e), which will explain the form and content of 
favorable coverage determination decisions. In Sec.  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 Sec.  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 (Sec.  423.570)
    Consistent with the proposed revisions to Sec.  423.568, we propose 
to make a technical change to Sec.  423.570 by revising the cross 
reference to Sec.  423.568(a) to Sec.  423.568(b).
11. Timeframes and Notice Requirements for Expedited Coverage 
Determinations (Sec.  423.572)
    In accordance with section 1860D-4(g) of the Act, Sec.  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, 
Sec.  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

[[Page 54697]]

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 Sec.  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 Sec.  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 Sec.  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 (Sec.  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 Sec.  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 Sec.  423.551 and add new 
paragraph Sec.  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 
(Sec.  417.428, Sec.  417.494, Sec.  417.500, and Sec.  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

[[Page 54698]]

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:
    <bullet> 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
    <bullet> 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 Sec.  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 (Sec.  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 Sec.  417.492(b)(2), concerning notice 
of appeal rights, and Sec.  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 (Sec.  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 Sec.  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 (Sec.  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 
Sec.  422.750 through Sec.  422.764 of the MA program regulations 
(subpart O).
    These sections concern--
    <bullet> Types of intermediate sanctions and CMPs (Sec.  422.750);
    <bullet> Bases for intermediate sanctions and CMPs (Sec.  422.752);
    <bullet> Procedures for imposing intermediate sanctions and CMPs 
(Sec.  422.656);
    <bullet> Collection of CMPs (Sec.  422.758);
    <bullet> Settlement of penalties (Sec.  422.762); and
    <bullet> Other applicable provisions (Sec.  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 (Sec.  
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

[[Page 54699]]

FR 54208 through 54223), we discussed exclusively the marketing and 
established marketing standards including prohibiting soliciting door-
to-door 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 Sec.  
417.428, which governs 1876 cost contract program marketing 
requirements, to require cost contract plans to follow the MA marketing 
requirements in Sec.  422.2260 et.seq. (Subpart V). We discuss the 
proposed marketing changes in the sections below.
a. Definitions Concerning Marketing Materials (Sec.  422.2260)
    We are proposing that cost contracts authorized under section 1876 
of the Act follow the same standards as MAOs under Sec.  422.2260. 
Thus, cost contract plan marketing materials would include any 
materials which--
    <bullet> Promote the cost contract, or any cost contract plan 
offered by the cost contract;
    <bullet> Inform Medicare beneficiaries that they may enroll, or 
remain enrolled in, a cost contract plan offered by the cost contract;
    <bullet> Explain the benefits of enrollment in a cost contract 
plan, or rules that apply to enrollees; and
    <bullet> 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 (Sec.  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 Sec.  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 (Sec.  422.2264)
    In our proposal to apply the same standards to cost contract plans 
as currently applied to MAOs at Sec.  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 non-English speaking 
population, cost contract plans be required to provide materials in the 
language of these individuals.
d. Deemed Approval (Sec.  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 Sec.  
422.2266.
e. Standards for MA Organization Marketing (Sec.  422.2268)
    MA marketing standards we propose to extend to cost contract plans 
include the following provisions at Sec.  422.2268:
    <bullet> 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.
    <bullet> 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.
    <bullet> 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.
    <bullet> 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 (Sec.  422.2272)
    As is the case currently for MAOs, we propose that cost contract 
plans authorized under section 1876 of the Act, consistent with Sec.  
422.2272:
    <bullet> Demonstrate to CMS' satisfaction that marketing resources 
are allocated to marketing to the disabled Medicare population as well 
as beneficiaries age 65 and over.
    <bullet> 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.
    <bullet> 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 (Sec.  422.2274)
    Under section 1876(i)(3)(D) of the Act, we propose applying the MA 
limits on independent agent and broker compensation at Sec.  422.2274 
to 1876 cost

[[Page 54700]]

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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                          Part 422                                                  Part 423
              Provision              -------------------------------------------------------------------------------------------------------------------
                                              Subpart                  Section                  Subpart                          Section
--------------------------------------------------------------------------------------------------------------------------------------------------------
Applications of Subpart M to Health   Subpart M..............  Sec.   417.840.........  N/A...................  N/A.
 Care Prepayment Plans.
Generic Notice Requirements.........  Subpart M..............  Sec.   422.622, Sec.     N/A...................  N/A.
                                                                422.626.
Revision to Definition of Gross       N/A....................  N/A....................  Subpart G.............  Sec.   423.308.
 Covered Prescription Drug Costs.
Application Evaluation Procedures...  Subpart K..............  Sec.   422.502(c)        Subpart K.............  Sec.   423.503(c) through (d)).
                                                                through (d).
Intermediate Sanctions..............  Subpart O..............  Sec.   422.750(a)......  Subpart O.............  Sec.   423.750(a).
Basis for Imposing Intermediate       Subpart O..............  Sec.   422.752.........  Subpart O.............  Sec.   423.752.
 Sanctions and Civil Money Penalties.
--------------------------------------------------------------------------------------------------------------------------------------------------------

1. Application of Subpart M to Health Care Prepayment Plans (Sec.  
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 (Sec.  422.622 and Sec.  
422.626)
    We propose making two technical revisions in Sec.  422.622 and 
Sec.  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 Sec.  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 Sec.  422.622, and ``provider'' in 
Sec.  422.626.
3. Revision to Definition of Gross Covered Prescription Drug Costs 
(Sec.  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 Sec.  423.308. In amending 
Sec.  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-of-
network 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 Sec.  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,

[[Page 54701]]

we are proposing to replace the term ``negotiated price'' with the term 
``actual cost,'' which is defined at Sec.  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 Sec.  
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 Sec.  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 (Sec.  422.502(c) and (d) and 
Sec.  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 Sec.  422.502(c) and (d), and Sec.  423.503(c) and 
(d).
    Currently, Sec.  422.502(c)(3)(iii) and Sec.  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 Sec.  422.502(c)(3)(iii) and Sec.  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 Sec.  422.502(c)(3)(iii) and Sec.  
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 Sec.  422.510 and Sec.  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 Sec.  
422.502(d) and Sec.  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 Sec.  422.504 and Sec.  423.505 or our ability to terminate a 
contract when a sponsoring organization no longer meets requirements as 
outlined in Sec.  422.510(a) and Sec.  423.509(a).
5. Intermediate Sanctions (Sec.  422.750(a) and Sec.  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 Sec.  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 Sec.  422.750(a)(1) and Sec.  
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 Sec.  422.750(a)(1) and Sec.  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 Sec.  422.750(a)(2) 
and Sec.  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 
Sec.  422.750(a)(2) and Sec.  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 Sec.  422.750(a)(3) and Sec.  
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 Sec.  422.750(a)(3) and Sec.  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 
(Sec.  422.752 and Sec.  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 Sec.  422.752(a) and Sec.  423.752(a) provide a similar 
list of bases for intermediate sanctions and civil money penalties. 
However, the language provided in Sec.  422.752(a)(1), (3), and (4) and 
Sec.  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 Sec.  
422.752(a)(1), (3), and (4) and Sec.  423.752(a)(1), (3), and (4) to 
more accurately reflect the statutory language.
    First, Sec.  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

[[Page 54702]]

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 Sec.  422.752(a)(1) and Sec.  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, Sec.  422.752(a)(3) and Sec.  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 Sec.  
422.752(a)(3) and Sec.  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, Sec.  422.752(a)(4) and Sec.  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 Sec.  422.752(a)(4) and Sec.  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 Sec.  
422.752(c) and Sec.  423.752(c). Currently Sec.  422.752(c)(1) and 
Sec.  423.752(c)(1) state that we may impose civil money penalties for 
any of the determinations at Sec.  422.510(a) and Sec.  423.509(a), 
except Sec.  422.510(a)(4) and Sec.  423.509(a)(4). Also, Sec.  
422.752(c)(2)(ii) and Sec.  423.752(c)(2)(ii) state that OIG may impose 
civil money penalties for a determination made pursuant to Sec.  
422.510(a)(4) and Sec.  423.509(a)(4). Since we are proposing elsewhere 
in these proposed regulations to redesignate Sec.  422.510(a)(4) and 
Sec.  423.509(a)(4) to Sec.  422.510(a)(2)(iii) and Sec.  
423.509(a)(2)(iii), we need to conform Sec.  422.752 and Sec.  423.752 
to these changes. Therefore, for regulations Sec.  422.752(c)(1), Sec.  
422.752(c)(2)(ii), Sec.  423.752(c)(1), and Sec.  423.752(c)(2)(ii) we 
are proposing to delete the reference to Sec.  422.510(a)(4) and Sec.  
422.509(a)(4) and replace them with a reference to Sec.  
422.510(a)(2)(iii) and Sec.  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:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    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 (Sec.  417.472)

    Proposed Sec.  417.472(i) states that HMO or CMP must comply with 
the requirements at Sec.  422.152(b)(5). Proposed Sec.  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 Sec.  417.472(i) and (j) is detailed in our 
discussion of Sec.  422.152(b)(5).

B. ICRs Regarding Apportionment and Allocation of Administrative and 
General Costs (Sec.  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 (Sec.  
422.108 and Sec.  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, 
Sec.  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 (Sec.  422.111)

    Proposed Sec.  422.111 states that we 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. The burden associated with this

[[Page 54703]]

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 (Sec.  422.152)

    Proposed Sec.  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 Sec.  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 Sec.  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 Sec.  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 (Sec.  
422.311)

    Proposed Sec.  422.311(c)(1) discusses the attestation process with 
regard to the RADV audit dispute and appeal processes. Specifically, 
proposed Sec.  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 Sec.  
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 Sec.  
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 CMS-
generated 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 Sec.  422.311(c)(2) states that an MA organization may 
choose to dispute CMS' operational processing of RADV medical records 
using a CMS-administered documentation dispute process.
    Proposed Sec.  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 Sec.  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 Sec.  422.311(c)(3) describes the RADV payment error 
appeal process. Specifically, proposed Sec.  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 Sec.  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 Sec.  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

[[Page 54704]]

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 Sec.  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 (Sec.  422.501 and Sec.  
423.502)

    Proposed Sec.  422.501(b) and proposed Sec.  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 Sec.  422.501(b) 
and proposed Sec.  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 Sec.  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 Sec.  
422.501(c) and Sec.  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 Sec.  422.501(c) and proposed Sec.  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 (Sec.  422.503 and Sec.  423.504)

    Section 422.503(b)(4)(vi) and Sec.  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 Sec.  422.503(b)(4)(vi) and Sec.  
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 (Sec.  422.504 and 423.505)

    Proposed Sec.  422.504 and Sec.  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 Sec.  422.504(e)(2) and Sec.  
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 Sec.  
422.504(e)(2) and Sec.  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 (Sec.  422.506 and Sec.  
423.507)

    Proposed Sec.  422.506 and Sec.  423.507 contain notification 
requirements for MA organizations and Part D plan sponsors. Section 
422.506(a)(2) and Sec.  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 Sec.  
422.506(a)(2)(ii) or Sec.  423.507(a)(2)(ii). In addition, proposed 
Sec.  422.506(b)(2) and Sec.  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 (Sec.  422.662 and Sec.  423.651)

    With respect to Medicare contract determinations and appeals, Sec.  
422.662 and Sec.  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 (Sec.  422.670 and Sec.  
423.655)

    Proposed Sec.  422.670 and Sec.  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

[[Page 54705]]

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 (Sec.  422.692 and Sec.  
423.666)

    Proposed Sec.  422.692 and Sec.  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 (Sec.  422.756 and Sec.  423.756)

    Proposed Sec.  422.756 and Sec.  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 (Sec.  423.128)

    Proposed Sec.  423.128 states that we may require a Part D plan 
sponsor to self-disclose 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 (Sec.  423.156)

    Proposed Sec.  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 (Sec.  422.516 and Sec.  423.514)

    We propose to amend Sec.  422.516 and Sec.  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) x 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 x 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) (Sec.  423.153)

    The proposed revisions to Sec.  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 requirement is 937,500 hours.

[[Page 54706]]

S. ICRs Regarding Timeframes and Notice Requirements for Standard 
Coverage Determinations (Sec.  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 
Sec.  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 (Sec.  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 Sec.  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 Sec.  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 (Sec.  423.120)

    Proposed Sec.  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 Sec.  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 Sec.  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 (Sec.  423.590)

    Proposed Sec.  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

[[Page 54707]]

[GRAPHIC] [TIFF OMITTED] TP22OC09.000

BILLING CODE 4120-01-C

[[Page 54708]]

    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 <a href="/cdn-cgi/l/email-protection#c3acaab1a29cb0b6a1aeaab0b0aaacad83acaea1eda6acb3eda4acb5"><span class="__cf_email__" data-cfemail="0a6563786b55797f68676379796365644a656768246f657a246d657c">[email protected]</span></a> 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 non-urban 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 (Sec.  422.152), Medicare Secondary 
Payer Procedures (Sec.  422.108), Validation of Reporting Requirements 
(Sec.  422.516 and Sec.  423.514), the Quality Improvement Program and 
Consumer Satisfaction Surveys (Sec.  422.152 and Sec.  423.156), 
Providing Written Notifications (Sec.  422.568(e)), Organization 
Determinations, Transition Process Notice (Sec.  423.120), Standard 
Timeframe and Notice Requirements for Coverage Determinations (Sec.  
423.568), Drug Utilization Management, Quality Assurance, and 
Medication Therapy Management Programs (Sec.  423.153), and Pharmacy 
Use of Standard Technology under Part D (Sec.  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

[[Page 54709]]

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]
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                                                                   Calendar year
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                                      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                 45.6       45.6       45.6       45.6       45.6       45.6        273.6
 Requirements....................
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                 5.8        0.0        0.0        0.0        0.0        0.0          5.8
 Technology......................
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 credential-
related 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 organizations that undergo RADV audit

[[Page 54710]]

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 Sec.  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 documentation-dispute-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 credential-related 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                   $3.74      $3.74      $3.74      $3.74      $3.74      $3.74     $22.44
 Organizations.....................
Estimated Impact on All Other             0.28       0.28       0.28       0.28       0.28       0.28       1.68
 Providers.........................
                                    ----------------------------------------------------------------------------
    Total..........................       3.98       3.98       3.98       3.98       3.98       3.98      23.88
----------------------------------------------------------------------------------------------------------------


[[Page 54711]]

    We are also proposing to require in Sec.  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 x $59.20 
= $59,200. Since the number of contracts is estimated to be 624, the 
overall estimated cost across all contracts is: 624 x $59,200 = 
$36,940,800.
    Regarding the Medicare Secondary Payer (MSP) Procedures (Sec.  
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 non-Medicare 
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 (Sec.  422.516 and 
Sec.  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 x $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 x $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 x $5,023 = 
$3,134,352.
    Regarding written notices of a favorable standard coverage 
determination (Sec.  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 (Sec.  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

[[Page 54712]]

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 Sec.  
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 Sec.  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 (Sec.  422.568 and Sec.  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 (Sec.  423.120), proposed Sec.  
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 Sec.  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 (Sec.  
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.

[[Page 54713]]

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 non-renewal 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

[[Page 54714]]

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]
----------------------------------------------------------------------------------------------------------------
                                                                      Transfers
                                    ----------------------------------------------------------------------------
              Category                                     Units discount rate
                                       Year dollar  --------------------------------        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            2009         $319.51         $319.46  CYs 2010-2015
 Sponsors.
----------------------------------------------------------------------------------------------------------------

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.

[[Page 54715]]

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:


Sec.  417.428  Marketing activities.

    (a) With the exception of Sec.  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:


Sec.  417.472  Basic contract requirements.

* * * * *
    (i) The HMO or CMP must comply with the requirements at Sec.  
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:


Sec.  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 Sec.  417.494(b).
    5. Section 417.494 is amended by revising paragraph (b)(2) to read 
as follows:


Sec.  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:


Sec.  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:


Sec.  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 Sec.  417.640 is revised to read as follows:


Sec.  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.


Sec.  417.642 through Sec.  417.694  [Removed]

    9. Remove Sec.  417.642 through Sec.  417.694.

Subpart U--Health Care Prepayment Plans

    10. Section 417.840 is revised to read as follows:

[[Page 54716]]

Sec.  417.840  Administrative review procedures.

    The HCPP must apply Sec.  422.568 through Sec.  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:


Sec.  422.2  Definitions.

    Attestation process means a CMS-developed RADV audit-related 
dispute process that enables MA organizations undergoing RADV audit to 
submit CMS-generated 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 CMS-
administered 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 Sec.  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:


Sec.  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 Sec.  
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 cost-sharing 
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 Sec.  422.101, 
after the enrollee has incurred countable expenses (as specified in the 
plan) equal in amount to the annual deductible specified in Sec.  
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

[[Page 54717]]

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:


Sec.  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 Sec.  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 Sec.  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:


Sec.  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:


Sec.  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 Sec.  422.62(a)(1) of 
this part.
* * * * *
    17. Section 422.105 is amended by revising paragraphs (b), (c), and 
(f) to read as follows:


Sec.  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 Sec.  422.102(a); or
    (3) Under an HMO plan as an optional supplemental benefit as 
described in Sec.  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 (in-network) 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:


Sec.  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:


Sec.  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:


Sec.  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.

[[Page 54718]]

    (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:


Sec.  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:


Sec.  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 Sec.  480.101(b) and subject to the requirements in Sec.  
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:


Sec.  422.156  Compliance deemed on the basis of accreditation.

* * * * *
    (b) * * *
    (7) The requirements listed in Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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

[[Page 54719]]

annual capitation rate for the area for the preceding year increased by 
the national per capita MA growth percentage (defined at Sec.  
422.308(a)) for the year, but not taking into account any adjustment 
under Sec.  422.308(b) for a year before 2004.
* * * * *
    27. A new Sec.  422.311 is added to read as follows.


Sec.  422.311  RADV audit dispute and appeal processes.

    (a) Risk Adjustment Data Validation (RADV) audits. In accordance 
with Sec.  422.2 and Sec.  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 
RADV-physician/practitioner whose medical record accompanies the 
attestation.
    (D) Attestations must be based upon medical records that document 
face-to-face 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 
CMS-administered 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.

[[Page 54720]]

    (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 Sec.  
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:


Sec.  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

[[Page 54721]]

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:


Sec.  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:


Sec.  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 non-intimidation and non-retaliation for 
good faith participation in the compliance program, including but not 
limited to reporting potential issues, investigating issues, conducting 
self-evaluations, 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

[[Page 54722]]

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 Sec.  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:


Sec.  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:


Sec.  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 non-renew 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:


Sec.  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:


Sec.  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

[[Page 54723]]

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:


Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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 Sec.  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:


Sec.  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--

[[Page 54724]]

    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:


Sec.  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 Sec.  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:


Sec.  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 Sec.  422.660 is revised to read as follows:


Sec.  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 Sec.  422.501 and Sec.  422.502.
    (2) An MA organization whose contract has been terminated under 
Sec.  422.510 of this part.
    (3) An MA organization whose contract has not been renewed under 
Sec.  422.506 of this part.
    (4) An MA organization who has had an intermediate sanction imposed 
in accordance with Sec.  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 Sec.  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 Sec.  422.501 
and Sec.  422.502 of this part.
    (2) During a hearing to review a contract determination as 
described at Sec.  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 Sec.  422.506 
of this part.
    (3) During a hearing to review a contract determination as 
described at Sec.  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 Sec.  422.510 
of this part.
    (4) During a hearing to review the imposition of an intermediate 
sanction as described at Sec.  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 Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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 Sec.  422.690(b). Both the MA organization 
and CMS may provide

[[Page 54725]]

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:


Sec.  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:


Sec.  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 ``Sec.  
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 Sec.  422.510(a)(2)(iii) 
of this part'' in its place.
    The revisions read as follows:


Sec.  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 
Sec.  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:


Sec.  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 Sec.  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 Sec.  422.660 through Sec.  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 
Sec.  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:


Sec.  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:

[[Page 54726]]

Sec.  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 
Sec.  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 Sec.  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:


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

    (a) General rule. CMS must ensure the enrollment into Part D plans 
of low-income 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 full-benefit 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 Sec.  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 Sec.  
423.772 of this part.
    (c) Reassigning low-income subsidy-eligible individuals. 
Notwithstanding Sec.  423.32(e) of this subpart, during the annual 
coordinated election period, CMS may reassign certain low-income 
subsidy-eligible individuals in another PDP if CMS determines that the 
further enrollment is warranted.
    (d) Enrollment rules.
    (1) General rule. Except for low-income subsidy eligible 
individuals who are qualifying covered retirees with a group health 
plan sponsor as specified in paragraph (d)(3) of this section, CMS 
enrolls those individuals who fail to enroll in a Part D plan into a 
PDP offering basic prescription drug coverage in the area where the 
beneficiary resides that has a monthly beneficiary premium amount that 
does not exceed the low-income subsidy amount (as defined in Sec.  
423.780(b) of this part). In the event that there is more than one PDP 
in an area with a monthly beneficiary premium at or below the low-
income premium subsidy amount, individuals are enrolled in such PDPs on 
a random basis.
    (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 Sec.  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 auto-
enrolled 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 Sec.  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 Sec.  423.30(a)(1) for individuals who are Medicaid eligible 
and subsequently become newly eligible for Part D under Sec.  
423.30(a)(1) on or after January 1, 2006.
    (3) For individuals who are eligible for Part D under Sec.  
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

[[Page 54727]]

effective date for non-full-benefit dual-eligible 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:


Sec.  423.38  Enrollment periods.

* * * * *
    (c) * * *
    (4) The individual is a full-subsidy eligible individual or other 
subsidy-eligible individual as defined in Sec.  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:


Sec.  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:


Sec.  423.100  Definitions.

* * * * *
    Drug category or class means, for the purpose of Sec.  
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 Sec.  
423.120(b)(2)(v)(A) of this subpart, an enrollee who but for Sec.  
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:


Sec.  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 cost-
sharing 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:


Sec.  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:


Sec.  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 Sec.  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 Sec.  423.112(a) of this 
part), each State in a regional MA-organization's service area (as 
defined in Sec.  422.2 of this part), the entire service area of a 
local MA organization (as defined in Sec.  422.2 of this chapter) or 
the entire geographic area of a cost contract (as defined in Sec.  
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

[[Page 54728]]

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 non-retail 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 home-infused 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 Sec.  422.112 of this chapter for an MA organization; or
    (B) At Sec.  417.416(e) of this chapter for a cost contract.
    (ii) An MA organization offering a private fee-for-service plan 
described in Sec.  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 Sec.  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 Sec.  
423.104(d)(2) and (d)(5) and Sec.  423.104(e) are met. Any cost-sharing 
reduction under this section must not increase CMS payments to the Part 
D plan under Sec.  423.329.
    (10) Level playing field between mail-order 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 mail-order 
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.

[[Page 54729]]

    (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 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) 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:


Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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:


Sec.  423.165  Compliance deemed on the basis of accreditation.

* * * * *
    (f) Authority. Nothing in this limits CMS' authority under subparts 
K and O

[[Page 54730]]

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:


Sec.  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:


Sec.  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 
Sec.  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


Sec.  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:


Sec.  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:


Sec.  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 Sec.  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 cost-sharing and premiums for low-
income subsidy eligible individuals have been processed in accordance 
with the requirements in Sec.  423.800(c).
    (3) Recoveries of erroneous payments for enrollees as specified in 
Sec.  423.464(f)(4) have been sought.
    75. A new Sec.  423.466 is added to subpart J to read as follows:


Sec.  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:


Sec.  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.

[[Page 54731]]

    (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:


Sec.  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:


Sec.  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 non-intimidation and non-retaliation for 
good faith participation in the compliance program, including but not 
limited to reporting potential issues, investigating issues, conducting 
self-evaluations, 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.

[[Page 54732]]

    (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 Sec.  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:


Sec.  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:


Sec.  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 non-renew 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:


Sec.  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.

[[Page 54733]]

    82. Amend Sec.  423.509 by revising paragraphs (a), introductory 
text of paragraph (b), (b)(2), and (c) to read as follows:


Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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.

[[Page 54734]]

    (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:


Sec.  423.570  Expediting certain coverage determinations.

* * * * *
    (d) * * *
    (1) Make the determination within the 72 hour timeframe established 
in Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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 Sec.  423.502 and Sec.  423.503 of this part.
    (2) A Part D sponsor whose contract has been terminated under Sec.  
423.509 of this part.
    (3) A Part D sponsor whose contract has not been renewed in 
accordance with Sec.  423.507 of this part.
    (4) A Part D sponsor who has had an intermediate sanction imposed 
in accordance with Sec.  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 Sec.  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 Sec.  423.502 
and Sec.  423.503 of this part.
    (2) During a hearing to review a contract determination as 
described at Sec.  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 Sec.  423.507 
of this part.
    (3) During a hearing to review a contract determination as 
described at Sec.  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 Sec.  423.509 
of this part.
    (4) During a hearing to review the imposition of an intermediate 
sanction as described at Sec.  423.750 of this part, the Part D sponsor 
has the burden of proving by a preponderance of the

[[Page 54735]]

evidence that CMS' determination was inconsistent with the requirements 
of Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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 one-time 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:


Sec.  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:


Sec.  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:


Sec.  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 Sec.  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:


Sec.  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:


Sec.  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 ``Sec.  
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 Sec.  422.509(a)(2)(iii) 
of this part'' in its place.


Sec.  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 
Sec.  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.

[[Page 54736]]

    (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:


Sec.  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 Sec.  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 Sec.  423.650 through Sec.  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 Sec.  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:


Sec.  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:


Sec.  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:


Sec.  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 
Sec.  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.


Sec.  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 
Sec.  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)


[[Page 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


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